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 […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
Read more...As most readers probably know, subprime mortgage broker/lender Countrywide Financial’s CEO Angelo Mozilo, which posted a massive loss for its third quarter, predicted a return to profit this quarter. Not only did the stock rise 32% that day, but CFC’s announcement was perceived to be such good news that it gave the stock market a […]
Read more...Monoline insurers, such as MBIA, Ambac, and FGIC, are in the business of providing financial guarantees. And one of the products they got involved in guaranteeing was mortgage-related structured credits, much to their peril, as we noted back in August. As subprime losses have mounted, so too have worries about the ability of these guarantors […]
Read more...Nouriel Roubini is a bit self-congratulatory in his latest post, and one can’t begrudge him. He took a lot of heat for his early prediction that the housing market would deteriorate badly and pull down the broader economy. So far, since growth has slowed only somewhat, some economists still hold out hope that the impact […]
Read more...At this juncture, the question of “Whither Merrill?” is largely rhetorical. We won’t know for certain until the fourth quarter results come in, and for all firms, those are likely to be telling. However, consider the following: Some securities analysts already estimate that based on further deterioration in the mortgage markets since September 30, Merrill […]
Read more...Even though I have said some unkind things about the Economist, once you get outside the world of politics, it is a very good guide to leading edge conventional wisdom. What do I mean by “leading edge conventional wisdom?” It is the sort of thinking dispensed by well regarded think tanks and private sector experts […]
Read more...The New York Times got a hold of a hum-dinger: that Merrill Lynch’s CEO Stanley O’Neal had called G. Kennedy Thompson, the CEO of America’s fourth largest bank, Wachovia, last week to feel out a possible merger. Thompson’s reaction was cool, and his stated reason was that the Charlotte, NC bank was still digesting earlier […]
Read more...So this is how oligopolies are maintained, via extortion and threats. From the Wall Street Journal: Connecticut’s attorney general said Friday that he has subpoenaed the nation’s three largest debt-rating agencies as part of an investigation into possible anticompetitive practices. Attorney General Richard Blumenthal confirmed that his office issued subpoenas Oct. 10 to Standard & […]
Read more...I am beginning to feel like announcer at a prizefight where it’s obvious that one boxer is hopelessly outmatched, but the contest will still go a full twelve rounds due to the stubbornness of the underdog and the failure to land a knock-out punch. The SIV plan continues to take body blows, the supporters appear […]
Read more...The inner and even not-so-inner workings of the Beltway frequently escape me. Nevertheless, a complaint made by Charles Schumer, chairman of the Joint Economic Committee, in an interview with the Financial Times, seems truly bizarre. Schumer moans that Paulson isn’t doing enough to help with the subprime crisis because his hands have been tied by […]
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