Thursday, August 23, 2007

ANGST Backed Securities / Economist

Here we go...... I don´t know how the the Economist got to this number( see new link Asia Times further down). But if this is true it is clearly a form of a bailout......And this would explain in some part why the window is tapped from Citi, JPM & Co.... If this is true I think we will see much more during the next days especially from weaker players......At least they are now channeling the liquidity where it is needed....

Es geht los......Ich habe keine Ahnung wie der the Economist zu dieser Annahme kommt ( siehe neuer Link von der Asia Times weiter unten). Sollte sich das als wahr herausstellen erfüllt das für mich den Tatbestand eines "Bailouts". . Das würde auch zum Teil erklären warum Citi, JPM & Co.... dieses Fenster so intensiv genutzt haben. Sollte das den Tatsachen entsprechen gehe ich jede Wette ein das wir hier in den nächsten Tagen besonders von den schwächeren Marktteilnehmern haufenweise Transaktionen sehen werden..... Immerhin sollte so die Liquidität zielgerichtet erhöht werden....

The Fed has been offering 85% of face value for AAA-rated paper presented at its discount window, even collateralised-debt obligations stuffed with subprime mortgages (as long as they are not—yet—impaired).
Thanks to Solvent Celt !
Hat tip to Professor Bear for provinding this link
‘Chairman Bernanke has now summoned his own clean-up team into action. The Fed hopes that by assuring banks that they can now access cash on less punitive terms from the Fed discount window, collateralized by the full “marked to model” face value of mortgage-backed securities, rather than the true
distressed value as “marked to market”, for which they could find no buyers at any price in recent weeks as the market for such securities has seized up,
it can jumpstart market seizure for mortgage-backed commercial paper and securities.’
Here is a another view from iTulip
Central banks struggle to restore calm without breeding complacency
....Some commercial paper is easy to understand: a big company sells an IOU, which it repays in, say, 90 days. This stuff got the American financial system into trouble in 1970, when Penn Central Railroad defaulted on $82m-worth. The recent problems stem from a different brand of paper, backed not by the good name of a big company, but by assets, such as mortgages or credit-card receivables. Mostly held off-balance-sheet by bank-sponsored “conduits”, this market has boomed in recent years. It now accounts for roughly half of the more than $2 trillion of commercial paper outstanding. But issuers have been caught out by a cashflow mismatch, says Louise Purtle of CreditSights, a research firm. Funding is short term but the proceeds are invested in longer-term assets, leaving issuers vulnerable when investors start to doubt the quality of those assets and want out.

That is what happened at the start of this week as money-market funds sold these IOUs, causing rates to spike as never before (see chart). This paper suffered from two main layers of mistrust. First investors are worried that the banks won't always be able to support the conduits.
The second worry, about the mortgage collateral, is particularly stark. Rating agencies badly misjudged default rates in subprime mortgages and are now having to downgrade reams of securities linked to them. With the credibility of ratings in tatters (there have even been calls for Warren Buffett to take over Moody's), investors have been left without a compass. For the time being, many would rather pull back than trust in their own analysis of credit risk. They are staying on the sidelines because they can't work out what securities are worth, not because they don't have the money to buy them.

Ratings may be in doubt, but they remain powerful. The Fed has been offering 85% of face value for AAA-rated paper presented at its discount window, even collateralised-debt obligations stuffed with subprime mortgages (as long as they are not—yet—impaired). Josh Rosner, a critic of the rating agencies, thinks it extraordinary that, despite their obvious flaws, they “continue essentially to regulate the behaviour of even the central bank”.

Home truths
Even if stability returns to markets, the repricing of risk is likely to continue. How far it goes will depend largely on the state of the mortgages that serve as collateral for many of the newfangled instruments that were, until recently, hawked with glee on Wall Street. The outlook is not good. Not only do subprime delinquencies continue to rise, but defaults on prime and Alt-A loans (those to good- or middling-quality borrowers) have started to climb too. Figures released this week showed foreclosures in July up by 9% compared with June, and by 93% over the year before. ....

A jam in the flow of credit to homebuyers threatens an already vulnerable economy. If consumers seek to pay down debt in response to falling house prices, spending will suffer, especially with unemployment creeping up. ...
got gold..... ?
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9 Comments:

Blogger Edgar said...

Apologies if you have seen / blogged about this already:

...In Germany, the state bank SachsenLB admitted that it had received a €17.3bn bail-out after its investment arm Ormond Quai racked up huge losses on US sub-prime debt. It had previously denied holding direct exposure to sub-prime... [link]

10:45 AM  
Blogger jmf said...

Moin Edgar,

thanks. Compare this to a balace sheet of 64 billion €......


Here is my take

10:48 AM  
Blogger Edgar said...

This comment has been removed by the author.

12:37 PM  
Blogger Edgar said...

Hi jmf, Yes, and if you'll remember I asked then why the ECB didn't just bail out the German banks with their dollar reserves. I guess I got my answer, eh?

2:43 PM  
Anonymous Anonymous said...

Ratings view inside SIVs . Other gd stuff here....

http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/3,1,1,0,1148446885148.html

2:54 PM  
Blogger jmf said...

Moin Edgar,

yes :-)

Moin Anon,

thanks for the link. Excellent!

9:53 PM  
Blogger jmf said...

Here is a different view from iTulip


Bernanke: Talks the Dove, Acts the Hawk / iTulip

1:49 AM  
Blogger jmf said...


Central Banks Play `Whac-A-Mole' in Credit Freeze: Mark Gilbert


It started by reducing the cost of emergency funds at its discount window. That borrowing source, though, has provided a weekly average of just $52 million this year when seasonal credit to small institutions in agriculture or tourism is excluded. The most it has been tapped for in the past five years is just $785 million, though almost $12 billion was drawn down following the Sept. 11 terrorist attacks.

So on Aug. 22, the four largest U.S. banks stepped up, with Citigroup Inc., Bank of America, JPMorgan Chase & Co. and Wachovia Corp. each taking $500 million of funds at 5.75 percent, well above the 4 percent rate that the overnight Fed funds rate closed at that day.

Twisting Arms

The implied message to the smaller finance houses is that there shouldn't be any stigma attached to borrowing at the penalty rate if you need to.

You can imagine the telephone conversation with the Fed that inspired such munificence; not dissimilar from the 1998 chat that brought about the rescue of Long-Term Capital Management LP. A cynic might also wonder whether Bank of America's $2 billion vote of confidence in the U.S. mortgage market by buying preferred stock in Countrywide was similarly Fed-inspired.

All of this is evidence that the Fed will keep pulling new tricks to avoid cutting its key overnight target rate of 5.25 percent, either before or at its Sept. 18 gathering -- and will rally U.S. financial institutions to its cause, marshaling the forces of capital by reminding them that their interests in maintaining market order are 100 percent aligned.

3:15 AM  
Blogger jmf said...


BNP Paribas to re-open suspended funds

French bank BNP Paribas said it will re-open three suspended funds that invest in pools of mortgage debt after developing a new way to price their assets.

BNP Paribas Investment Partners has developed a pricing mechanism which would allow subscriptions and redemptions to resume, as it promised since the outset," the group said in a statement.
The bank said it would combine several valuation methods, such as using pertinent market indexes when available and taking into account "illiquidity factors by issuer category."

Mark to BNP-model......

3:51 AM  

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