Category Archives: Credit markets

IMF, Rogers vs. Goldman on Financial Stability

By happenstance, Bloomberg has an interesting trio of prognostications for the financial markets. Admittedly, they have differing degrees of authority. Most would give the IMF considerably more credence than either Jim Rogers or Goldman. However, all three have a following with investors. Not surprisingly, Goldman’s report is upbeat, the IMF’s is cautious tending towards the […]

Market Predictions: More Interest Rate Cuts, Sustained Housing Price Declines

Some quick updates on what market prices reveal about investor expectations. First, Bloomberg tells us that Treasury note prices are trading sufficiently far below Fed funds as to predict another rate cut before year end ; Since the Fed last week lopped half a percentage point off the central bank’s target for overnight lending between […]

Martin Wolf: Banks Hold Central Bankers Hostage

In an intriguing article today, “The Bank loses a game of chicken,” Martin Wolf, the Financial Times’ chief economics writer, followed the lead of the Bank of England’s Governor Mervyn King in backing down from their shared view that central bankers should be willing to let all but those banks “too big to fail” go […]

Rate Cut Gives Little Relief to Commercial Paper Market

Despite the lift the Fed’s rate cut gave to the stock and corporate bond markets, the commercial paper market remains in distress. While CP outstandings are still falling, which is not good, particularly given this month’s maturing CP is much greater than last month’s, the level of decline is not as severe as during the […]

Standard & Poor’s: Corporate Defaults Set to Rise

The Financial Times tells us that Standard & Poor’s forecasts that corporate defaults are due to rise thanks to tightening credit conditions. While S&P focused on 75 at-risk issuers with a total of $35 billion of debt outstanding, hardly an earth-shaking number, the report said more could be in store. Defaults on junk bonds could […]

Bernanke’s Bind

A great deal of ink has been spilled on yesterday’s 50 basis point cut in the Fed funds rate and parallel reduction in the discount rate. I am very time stressed, so this quick reaction will (hopefully) be followed by a more thoughtful piece in the next day or so. First, even though I think […]

Consumer Debt Likely to Become a Negative for Economy

Economists Barry Cynamon and Steven Fazzari argue that much of the growth in the US over the past 25 years has been fueled by consumer debt. Their research indicates that the consumers will cut spending as a result of the housing recession, which they believe will trigger the worst contraction since the 1980s, and possibly […]

Northern Rock: How a Non-Systemic Risk Led to a "Systemically Important Event"

At least in the US, the Fed rate cut yesterday crowded out most other financial news. As the Wall Street Journal’s MarketBeat blog put it (hat tip Paul Kedrosky): Lehman Brothers probably could have reported that it was shutting down operations and moving to Kazakhstan and the Fed move would have still inspired a rally. […]

Paulson Opposed to "Hasty" New Regulations

It’s generally not a good sign when a regulator exhibits distaste for his job. Recall that Federal banking supervision takes place through a variety of channels, but the main actors are the Fed and the Treasury, through the Office of the Comptroller of the Currency and the Office of Thrift Supervision. So Treasury Secretary Hank […]

Hedgies Hoist on the New Bankruptcy Law Petard?

In an amazing instance of collateral damage, the new bankruptcy law that took effect in October 2005, designed to enable banks to wrestle more money from overextending credit card users, hascaught hedge funds in its net. The old law exempted many types of bank securities lending, such as repo agreements, to be included in a […]

UK Overnight Rates Spike Up on Northern Rock Worries

Yet another indicator of the seriousness of the Northern Rock crisis: UK overnight rates increased 60 basis points on liquidity concerns. As Bloomberg reports: The cost of overnight borrowing in pounds rose the most since June as the bailout of U.K. lender Northern Rock Plc stoked concern other home-loan providers will be forced to seek […]

The Journal Tells Us Now A Rate Cut Will Have Little Impact?

If one didn’t know better, it might be possible to think that a page one story today, “Too Much Hope May Be Pinned On Rate Cut.,” was a decent piece of journalism. But to reach that conclusion, you need to overlook a few things. First, the story is late. Those who were early to recognize […]

Northern Rock: Assessing the Damage to the Bank of England’s Credibility

In today’s Financial Times, Willem Buiter, professor of political economy at the London School of Economics, and and Anne Sibert, professor of economics at Birkbeck College, University of London, take stock of the impact of the Northern Rock bailout on the Bank of England’s reputation. The article points out various dimensions on which the Bank’s […]

Northern Rock: Endgame and Collateral Damage

More customers lined up today to withdraw cash from troubled UK building society Northern Rock after the Bank of England provided emergency funding. Bloomberg reported that there were expressions of interest in the bank, and given the continuing run, Northern Rock’s best course of action would be to make some kind of deal ASAP. The […]

Is Capital Adequacy A Problem?

Sorry to be brief, but a good article by Charles Goodhart, emeritus professor at the London School of Economics, acknowledges that lack of transparency and dubious ratings have played a major role in the current credit crisis. Unlike most other writers, however, he points to a looming third culprit: insufficient bank capital. Observers may find […]