Category Archives: Credit markets

Another Revealing Housing Chart

In case you were wondering why mortgage borrowers were having solvency problems…

How Messed Up is Citi?

Breaking news over a weekend is rare indeed, so the financial press is having great fun with the demise of now former Citigroup CEO Charles Prince, speculating over his likely replacement and possible futures for the financial giant. Some are calling for a break-up, and news stories suggest that interim chairman Robert Rubin has long […]

When Do We Hit Bottom?

The question posed in the headline isn’t exactly the one Gillian Tett and Paul Davies address in a long and worthwhile analysis at the Financial Times, “What’s the damage? Why banks are only starting to uncover their subprime losses.” But that’s because, as the piece make clear, we are only at the end of the […]

Perverse Outcomes: Housing Slump Contributes to Fall in 10-Year Treasuries

Ah, the odd working of the markets. It’s often difficult to decouple the factors at work. For example, in the wake of the Fed’s unexpected 50 basis point Fed funds rate cut in September, long-dated Treasuries fell due to heightened inflation concerns. But last week, despite another rate cut and near $100 a barrel oil, […]

"There is no quick fix this time"

An excellent post at Vox EU, “Subprime crisis: the policy response and filling the information gap,” by Alberto Giovannini, Chief Executive Officer, Unifortune SGR SpA, and Luigi Spaventa, Professor of Economics at the University of Rome. The article gives a nice recap of the credit crisis and focuses on regulatory failure. It zeros in on […]

Maybe Your Humble Blogger Needs a Break (Updates du Jour)

Maybe I am getting a bit burned out. I almost took a night off because I couldn’t get worked up as I normally do about the stories du jour. Yes, Chuck Prince is expected to resign on Sunday. I’m surprised he lasted this long. He was over when he made his now-infamous remark: When the […]

Day After the Rate Cut, Lobbying Begins for the Next One

I will confess to being cynical about the reporting in the Wall Street Journal. As we have noted repeatedly in the past, it generally goes overboard to stress the positive its market-related reporting. That says the reporters too often lack the time or savvy to go beyond their sources’ spin. Now Thursday was undeniably a […]

Paul De Grauwe: "Central banks should prick asset bubbles"

Paul De Grauwe, professor of economics at the University of Leuven, makes a persuasive and succinct case as to why central banks need to combat asset bubbles. Reading his argument, one might even wonder why the topic is controversial. Yet it is. Beyond insuring the safety of the banking system, central bankers’ mandates extend only […]

New Credit Crunch Tactic: Barter in Lieu of Price Discovery

If this factoid about barter being used to effect distressed subprime trades (and she admits it is, at least so far, an isolated example) had come from anyone other than Gillian Tett, the captial markets editor for the Financial Times, I’d be inclined to discount it. But the fact that it is happening at all […]

The Continuing Deterioration of the Collateralized Debt Obligation Market

If you really want to worry about the credit markets, it might behoove you to turn your attention from subprimes to the vastly more arcane, opaque, and larger problem of collateralized debt obligations. A structured credit product, they are so heterogeneous in terms of structure and composition that it is difficult to make meaningful generalization […]

Asset Backed Commercial Paper Outstandings Still Falling

The market for asset backed commercial paper continues to shrink, which does not bode well for the proposed SIV rescue plan. Commercial paper is short-term funding, less than 270 days, used by corporations and even more so by financial firms. Note that this story on MarketWatch focuses on ABCP outstadings. The dramatic Fed rate cut […]

Maybe the Real Reason for the SIV Rescue Plan?

The negative reactions on the proposed SIV rescue plan (officially known as the Master Liquidity Enhancement Conduit) have become so widespread that I haven’t been reporting as closely on this topic as I did earlier. However, some of the recent coverage has finally surfaced at least one reason for the plan that at least makes […]

A Revealing Subprime Chart

If you want a vivid illustration of why subprimes have turned out to be the mess they are, the graphic below, courtesy Russ Winter who also supplied this explanation: The term used here, “DTI proforma” , measures what debt payments to income on 2005 and 2006 vintage subprime teaser loans would have required if the […]

Federal Home Loan Banks Standing in for Commercial Paper Buyers

I had wondered why, given the swift and brutal contraction of the commercial paper market in August and September, that there weren’t more apparent signs of distress. Outstandings fell an eyepopping $368 billion. Commercial paper is short-term borrowings, maximum 270 days, but typically much shorter. If a borrower can’t roll his commercial paper but still […]

Arguing Against a Rate Cut

Despite the widely-held view that the Fed will lower the Federal funds rate another 25 basis points this Halloween, some continue to argue against further reductions. We’ve taken that position here before, and will recap some of the reasons. The 50 basis point cut in September was a pre-emptive strike, based not on evidence of […]