Gillian Tett, in “Credit compass fails to work,” in the Financial Times, uses the woes suffered by monoline insurers such as MBIA and Ambac to illustrate that in our current subprime/housing credit crisis, nobody is sure where the dead bodies lie, which makes everyone suspect. Monoline insurers provide credit guarantees for securities. They have come […]
Read more...Even though the Fed cut the discount rate to 5.75%, and more important, said it was concerned about risks to growth, asset backed commercial paper, which is the epicenter of the credit shock, is being placed at newly high yields: 5.99%, which is now above the discount rate. And remember, not only has the Fed […]
Read more...I was planning to go on long form about what the Fed should do, and now they have gone ahead and done it. That means I now have to write something very substantive. More on that later, but here is a roundup of some good posts: Cassandra depicts the credit crunch as a horror movie, […]
Read more...Given how extraordinary the Fed’s half point (not mere quarter point) discount rate cut of this morning was, and how the markets had been clamoring for it, you’d think we’d see more of a bounce in the Dow than the mere 160 ish points it is up as of this writing (that has come to […]
Read more...Paul Krugman, in this morning’s New York Times, tells us (subscription required) that mortgage borrowers in the US are feeling a world of hurt. The pain is moving up the food chain beyond stressed subprime borrowers into the Alt-A pool (which truth be told, never was much better than subprime, so this development was widely […]
Read more...I am late to this good comment in the Financial Times, “Hold tight: a bumpy credit ride is only just beginning,” by Avinash Persaud. Between the bumpy markets of the day and arcane workings of Conde Nast’s blog entry system, I’ve been a bit distracted. Admittedly, one of the reasons I view Persaud’s piece favorably […]
Read more...This has been an all-round bad news sort of day. And of the bad news, the most troubling is that the carry trade is unwinding. For those of you not familiar with this phenomenon, it consists of borrowing in currencies that have low interest rates and then investing the proceeds in countries and assets that […]
Read more...Fragility seems to be the word on everyone’s lips today. As reported in the Financial Times, UBS market strategist William O’Donnell said that the commercial paper markets had dried up and, “Now the buyers are only interested in Treasury bills.” Overnight, Rams, an Australian home lender that, while not exposed to US subprime, had been […]
Read more...According to Bloomberg, Moody’s has altered investors to the possibility of a repeat of the 1998 Long Term Capital Management hedge fund crisis. We should be so lucky. As we have said before, the LTCM crisis has been widely, and in our opinion, mistakenly seen as a vindication of the workings of the financial system. […]
Read more...It seems to be a symptom of how stressed the markets are that no matter what the Fed does, it doesn’t seem to work. Jim Cramer and others have been clamoring for the Fed to cut rates to give a sop to the credit markets. Bloomberg tells us (and Felix Salmon was on to this […]
Read more...I am more than a bit late to this item, namely, an op-ed piece, “Our Risky New Financial Markets,” by Henry Kaufman in the Wall Street Journal on Wednesday. I’m puzzled at the lack of commentary on this article in the blogsphere. Kaufman, as chief economist of Salomon Brothers during its heyday in the 1980s […]
Read more...Nouriel Roubini, on his RGE Monitor, discusses the distinction between risk (variability in outcomes that can be estimated) and uncertainty (unknown or unmeasurable outcomes). Risk can be priced; uncertainty can’t (or at least can’t be priced by rational agents). Roubini argues that part of the panic in the markets stems from the fact that investors […]
Read more...Although it hasn’t gotten much press coverage, Fitch for some time (see here and here) has been warning of lax lending practices in commercial real estate that sound disconcertingly similar to what we’ve seen in subprime. From a July story in the Wall Street Journal: In a report yesterday, Fitch Ratings said the fervid lending […]
Read more...This is priceless. The Wall Street Journal, in a page one story, “How Rating Firms’ Calls Fueled Subprime Mess,” tells us that rating agencies might have had more than a little bit to do with the problems in subprime. This is a new item? A page one news item? It would be a bigger news […]
Read more...Martin Wolf, the Financial Times’ economics editor, tells us in “In a world of overconfidence, fear makes a welcome return,” that it’s high time that people in the financial markets lost some money, particularly Jim Cramer. Actually, Wolf is characteristically statesmanlike, but the crux of his argument is very much in keeping with Andy Xie’s: […]
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