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  • Mon, Oct 27 2008
  • 9:37 AM » "Currency crisis is gathering storm"
    Published Mon, Oct 27 2008 9:37 AM by Google News
    Ed Harrison sent us a link to his latest post, and it's a doozy. Most of us in the US who are financially-minded have been sufficiently caught up with the three ring circus of market turmoil, seemingly-a-new-trick-every-day Fed and Treasury interventions, and continuing financial firm implosions that we haven't looked up much to see what is happening in the wider world. Yes, the Baltic Dry Index is tanking, a bunch of Eurobanks nearly failed, but hey, that was two weeks ago, old news, Iceland collapsed, Argentina is on the ropes again (but that seems to happen every five years), South Korea is wobbly, and plunging commodity prices are giving exporting countries big shocks. But in the generally-provincial US, that amounts to background noise. Your humble blogger has taken note of further worrisome developments, such as the dramatic fall in the Australian and New Zealand dollars (7% on Friday, ouch, on top of steep falls before that), the pound and the euro without being sure what to make of that. It appears to go beyond flight to quality; some of its is high demand for dollars to unwind dollar-related trades, and the Friday action in particular, with big moves in the dollar and an even bigger rise in the yen, versus huge bid-asked spreads in some other currencies, seemed to be a flight to liquidity. And then we have other countries looking shaky: the Baltics, Russia, a lot of Eastern Europe. and Latin America. Harrison has focused on this constellation, and : In the last few weeks, the currency market is where the action has been....all of this is a prelude to some sort of currency crisis.... But, it is in commodity and emerging market currencies where the trouble is brewing. First, we saw a nightmarish plunge of the Australian and Kiwi Dollar as commodities plummeted. This all out assault on commodity and emerging market currencies then widened to include the Icelandic Krona, the South African Rand, the Polish Zloty, the South Korean Won, the Hungarian Forint...
  • 9:36 AM » The Federal Reserve's balance sheet
    Published Mon, Oct 27 2008 9:36 AM by
    On Thursday, the Federal Reserve issued its weekly , which provides details of the Fed's balance sheet. Once upon a time, this was one of the least interesting of the government's many releases of data. These days, it's become one of the most exciting. The essence of the Fed's balance sheet used to be quite simple. The Fed's primary operations would consist of either buying outstanding Treasury securities or issuing loans to banks through its discount window. It paid for these transactions by creating credits in accounts that banks hold with the Federal Reserve, known as reserve deposits. Banks can turn those reserves into green cash any time they desire, so the process is sometimes loosely summarized as saying that the Fed pays for the Treasury bills it buys or loans it extends by "printing money". Before the excitement began, the Fed's assets consisted primarily of the Treasury securities it had acquired over time (about $800 billion as of August 2007) plus its discount loans (an insignificant number at that time). Its liabilities consisted primarily of cash held by the public (about $800 billion a year ago) plus the reserve deposits held by banks (which again used to be a very small number). Bernanke's overriding goal since then has been to extend a huge volume of short-term loans to financial institutions. If he'd done that in the usual way, just creating new reserve deposits with each new loan, the supply of cash would have ballooned, bringing worries of inflation. The Fed didn't want to do that, and in fact there was no shortage of funds available for overnight interbank lending. The fed funds rate, an average overnight lending rate between banks, is already quite low, and further reductions seem unlikely to accomplish much. But remain quite high relative to the overnight rate. Bernanke's first approach to this challenge was to "sterilize" the new loans from the Fed, basically selling off the Fed's...
    Click Here to Read the Full Article

  • 9:36 AM » CRA and Fannie and Freddie as betes noire
    Published Mon, Oct 27 2008 9:36 AM by
    There is so much chaff floating around about the roles of Fannie and Freddie and of the in the current crisis, despite the best efforts of economists like Jim Hamilton , and , that it seems worthwhile to once again go through some of the arguments that have been forwarded. From : Federal Reserve Board data show that: More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics. From . The article continues: What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans. These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans. In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems. "Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households." In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he...
    Click Here to Read the Full Article

  • Fri, Oct 24 2008
  • 7:51 PM » Banks to Announce Equity Injections
    Published Fri, Oct 24 2008 7:51 PM by WSJ
    The Treasury is allowing banks to individually announce government investments, scrapping an earlier plan to release the names of multiple banks receiving federal money.
  • 9:44 AM » PNC to Acquire National City
    Published Fri, Oct 24 2008 9:44 AM by Calculated Risk Blog
    Press Release: PNC to Acquire National City The PNC Financial Services Group, Inc. and National City Corporation today announced that they have signed a definitive agreement for PNC to acquire National City for $2.23 per share, or an aggregate fixed amount of approximately $5.2 billion in PNC stock. Additionally $384 million of cash is payable to certain warrant holders. ... PNC plans to issue
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 9:44 AM » Fed Marks Down Bear Stearns Assets by $2.7 Billion
    Published Fri, Oct 24 2008 9:44 AM by Calculated Risk Blog
    The Fed has marked down the Bear Stearns assets from $29,526 million to $26,802 million this week. This is a mark down of $2.7 billion or 9.2%. The Fed is now underwater by a little over $2 billion plus lost interest. Today: 2. Information on Principal Accounts of Maiden Lane LLC Millions of dollars Oct 22, 2008 Net portfolio holdings of Maiden Lane LLC (1)26,802Outstanding principal amount of
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • Thu, Oct 23 2008
  • 8:30 PM » Greenspan finds a flaw
    Published Thu, Oct 23 2008 8:30 PM by
    Tomorrow's headlines will all look similar to what is now on the internet: - Bloomberg - New York Times - WSJ - Wash. Post - MarketWatch But, beyond the of partisan wrangling, the most striking aspect of today's gathering of the to discuss the role of federal regulators in the ongoing financial crisis was the tone of it all. My how things have changed. And if you didn't know it by looking at home values, stock prices, or the quickly souring economy, you'd sure know it by how former Fed chairman Alan Greenspan was addressed by elected officials and how he responded. Having aged noticeably in the two-and-a-half years since he retired (I guess that sort of thing happens when you're in your early eighties), the one-time "second most powerful man in the world" looked feeble and a bit unsure of himself as, time and again, he would attempt circuitous "non-answers" to direct questions only to be interrupted and pressed for a more succinct reply. Elected officials no longer just sit and listen with mouths agape. Like when Toto pulled back the curtain on the Wizard of Oz, all the magic is gone. The key replies from the former Fed chairman were that he "found a flaw" in his ideology regarding how markets work, that he was "partially wrong" about derivatives, and that he “made a mistake” in trusting industries and individuals to self-regulate. But, without a doubt, the big news was the fall from grace. To wit, this opening exchange: Henry Waxman: You were perhaps the leading proponent of deregulation of our financial markets, certainly you were the most influential voice for dergulation. You have been a staunch advocate for letting markets regulate themselves. Let me give you a few of your past statements: In 1994, you testified at a Congressional hearing on regulation of financial derivatives. You said there was nothing involved with federal regulations that make it superior to market regulations. In 1997, you said there...
    Click Here to Read the Full Article

  • 8:29 PM » Conference Calls Show Regional Banks Squeezing Homebuilders
    Published Thu, Oct 23 2008 8:29 PM by Seeking Alpha
    Construction loans are increasingly the source of non-performing assets for regional banks, and so they are taking steps to shrink their builder loan portfolios or restrict builder access to credit lines. The possibility of a highly-leveraged, large public homebuilder failing is still a possibility.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:28 PM » Roubiini Foresees Possible Market Shutdown
    Published Thu, Oct 23 2008 8:28 PM by Google News
    After the Fed, ECB,, Bank of England, and other central banks took unprecedented measures over the last month to restore liquidity and recapitazlie banks, Nouriel Roubini sounded slightly less gloomy. He had deemed that the authorities has avoided a systemic financial meltdown, but a nasty, protracted recession was in the offing. It appears that Roubini has reversed himself with his latest remarks He now says systemic risks are increasing due to hedege fund margin calls, redemptions, and liquidations, and the authorities may be forced to close financial markets. Note that this is not a new line of thought. During the turmoil of the last month, particularly the week of October 6, some professional investors were quietly discussing the possibility of short-term market closures. From (hat tip readers Dwight, Saboor): Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said. ``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. ``There will be massive dumping of assets'' and ``hundreds of hedge funds are going to go bust,'' he said.... ``Systemic risk has become bigger and bigger,'' Roubini said at the Hedge 2008 conference. ``We're seeing the beginning of a run on a big chunk of the hedge funds,'' and ``don't be surprised if policy makers need to close down markets for a week or two in coming days,'' he said..... Italian Prime Minister Silvio Berlusconi roiled international markets on Oct. 10, first saying world leaders were discussing shutting down global financial exchanges, and then saying he didn't mean it. ``In a fairly Darwinian manner, many hedge funds will simply disappear,'' Roman said, speaking at the same event as Roubini... ``Things are getting...
  • 8:27 PM » Fannie, Freddie Have `Explicit Guarantee,' FHFA Says
    Published Thu, Oct 23 2008 8:27 PM by
    "The government seizure of Fannie Mae and Freddie Mac and the U.S. Treasury's pledge of $200 billion in funding represents explicit federal support of the companies' debt and mortgage-backed securities, Federal Housing Finance Agency Director James Lockhart said."
    Click Here to Read the Full Article

  • 8:26 PM » Brief questions and answers on the fiscal stimulus
    Published Thu, Oct 23 2008 8:26 PM by
    No time to post much today, so I'll just pass along an interesting question and brief answer from the Econbrowser mail room. A reader writes: My wife and I were thinking of getting some work done on the house. I thought to myself that this would also be our civic duty since it would keep economic activity going elsewhere. Then I thought to myself that Paul Krugman plans to spend my money anyway-- via government stimulus spending that would come out of higher taxes (at some stage). I can't afford both new walls on the basement and landscaping for Princeton's new Krugman Park. Three questions: a) Am I right that such Keynesian spending is essentially to force the hand of oversaving consumers sitting on their cash? (No doubt in our collective interest.) b) If enough people think this through would they increase savings still further and cancel out the anticipated stimulus package? (If I understand correctly this is analogous to the rational expectations critique of the 60s unemployment-inflation tradeoff.) Or at least force much higher levels of government spending? c) Would it therefore be better to ban all economics blogs, except for Econbrowser, so as not to confuse the semi-literate (such as myself)? Here's a quick stab at answering: If you buy materials to redo your basement you'll help my economy at least, since we just bought some Home Depot stock last week. The premise of the Keynesian stimulus is that we're at an inefficiently low level of total spending. According to traditional Keynesian doctrine, that could be changed either by increasing government spending (hire people to care for that park) or by lowering taxes (supposedly encouraging you to buy stuff from, say, Home Depot). And if the level of output is indeed inefficiently low, it's conceivable we could have both better basements and a nicer park if the government acts wisely. My own view is that there are more fundamental problems beyond the low level of total spending, namely...
    Click Here to Read the Full Article

  • 8:26 PM » Roubini: Panic may lead to market shutdown
    Published Thu, Oct 23 2008 8:26 PM by Calculated Risk Blog
    Click image for video. Roubini Sees Crisis Worsening, Hurting Emerging Markets (Source: Bloomberg) This is a 47 minute talk (for those with the time). Note: if clicking on the photo doesn't work, check out the Bloomberg site. From Bloomberg: Roubini Says `Panic' May Force Market Shutdown Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:26 PM » ALT-A: The Coming Risk Abatement Disaster
    Published Thu, Oct 23 2008 8:26 PM by Seeking Alpha
    submits: Once again have unleashed the bullish cries of bottom by the guestimating industry cheerleaders like , the , and similarly minded government ilk who believe we can all collectively wish our way out of this mess. But the proverbial writing has long been on the wall, and we have yet to measure the depth of the losses from this financial fiasco.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 10:51 AM » Goldman Sachs said to be about to cut around 10% of its staff
    Published Thu, Oct 23 2008 10:51 AM by
    More pink slips are on the way at Goldman Sachs according to the Wall Street Journal; they say that the ax will fall on around 10% of its 32,500 employees. Goldman to Cut 10% of Jobs as Downsizing Wave Grows...
    Click Here to Read the Full Article

  • 10:50 AM » Understanding Credit Default Swaps: A Case for Regulation
    Published Thu, Oct 23 2008 10:50 AM by Seeking Alpha
    submits: Imagine a market where you can trade your perception of someone else's credit worthiness. Imagine a market where you can encash an insurance policy on an asset gone bad without owning the underlying asset itself. Imagine a market which is larger than the capitalization of New York Stock Exchange and is yet not regulated. Welcome to the world of Credit Default Swaps (CDS). The Instrument: The Credit Default Swap market is massive, estimated to be in excess of $50 trillion. CDSs are derivatives, i.e. financial contracts without the underpinnings of any actual assets. They are used to bet on the credit worthiness of a loan or debt instrument. The price of the swap moves in line with perception of the borrower's credit worthiness. A swap seller believes that the borrower's ability to repay the underlying loan will improve while a swap buyer seeks protection against the possibility of a loan or bond failing.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 10:49 AM » CDS Too Risky for CME Trading, Key Members Say
    Published Thu, Oct 23 2008 10:49 AM by Google News
    In theory, moving credit default swaps from over the counter trading to exchange trading should reduce systemic risk. Exchanges fail far less often than individual institutions, and when they do, the damage has less propensity to propagate into a systemic event. As keen as the authorities are to get the big, opaque CDS market on a safer platform, obstacles remain. For a host of reasons, outstanding CDS cannot be migrated onto an exchange, but newly written CDS designed to fit certain parameters could be (in theory, old contracts could be "novated" in favor of new ones). CDS suitable for exchange trading would have to be far more standardized. How to simplify the offerings has yet to be sorted out. The most valuable element of moving CDS to an exchange, as far as lowering systemic risk is concerned, is centralized clearing, since if anyone defaults, the counterparty is the exchange, not an individual firm. Thus regulators have been moving forward as quickly as possible to set up a central clearinghouse. In particular, the CME Group proposed acting as a clearlinghouse, which means that its members would absorb the losses if any counterparty failed. Some rival proposals suggested setting up a new clearinghouse, which is a much sounder design, but would take longer to implement. However, some savvy and influential and savvy CME members are now objecting to the idea, arguing that the additional risk of CDS clearing on top of their existing CME obligations is more than the members can realistically support. Moreover, they contend that putting together CDS and futures under the same umbrella is too much risk in one venue, and will increase, not reduce systemic risk. Note that CME Group (along with Citadel) is one of four groups vying to handle the CDS clearing function. However, CME appeared to be the frontrunner. Note that this wrinkle does not imperil the idea, but means there may be more speedbumps down the road. This development suggests that the rush to get a...
  • 10:48 AM » Hidden threat in “under water” mortgages
    Published Thu, Oct 23 2008 10:48 AM by
    A guest post from , veteran business journalist and author of the blog , a humorous look at marketing, business and his dog. Under water is the industry term for homes with negative equity – where more is owed on them than they are worth. You know the cliché about the iceberg and only seeing the tip of it because the rest is … well you know where. Well, the cliché is sadly still true when it comes to the mortgage crisis. The US economy is likely to be further swamped by a wave of “under water” mortgages (how’s that for a mixed metaphor?). This condition currently effects nearly one sixth of U.S. homeowners and is very probably going to result in more foreclosures and bankruptcies. Reuters reports “” Because so many people bought homes with little or nothing down when housing prices spiked, a huge number of people are now facing this situation. Nearly one in three homes purchased since 2003 have negative equity. The number is even more terrifying for those who bought after that, nearing 50% for people who purchased homes in 2006. The argument used to be that buying was better than renting because you are building equity. A lot of people may do the math on their homes and realize that bankruptcy makes more financial sense than paying into something they will never see a return on. No one likes to declare bankruptcy and admit this kind of defeat, so it will not be an easy or happy decision for any of these folks. However, it may be the only choice they have.
    Click Here to Read the Full Article

  • 10:48 AM » Malls Go for Broke, May Still Go Broke
    Published Thu, Oct 23 2008 10:48 AM by
    As retailers batten down the hatches for what most finally agree will be a nasty economic slowdown their landlords are scrambling to keep the lights on. The Wall Street Journal reports mall and shopping-center owners are turning to unconventional advertising methods to keep cash coming in the door. Ads are popping up on food-court meal trays parking-lot stalls and even vacant storefronts. InWindow and WindowGain 2 new companies in the alternative ad space have landed big names on their clients’ previously vacuous retail space: Comcast (CMCSA) SAB Miller and Verizon (VZ) are all signed up. Although cash flow from ...
    Click Here to Read the Full Article

  • 10:48 AM » Troubling Details in NYT Account of Official Response to Financial Crisis
    Published Thu, Oct 23 2008 10:48 AM by Google News
    The New York Times is publishing a series on the financial crisis, "The Reckoning," and today's installment is "." While this is a useful recap, there are some tidbits that merit commentary, such as: “Ben said, ‘Will you go to Congress with me?’ ” said Mr. Paulson, referring to the Federal Reserve chairman, Ben S. Bernanke. “I said: ‘Fine, I’m your partner. I’ll go to Congress.’ ” Although it's no news to anyone who has watched the Fed-Treasury pas de deux as the credit crisis has rolled along, the Fed has completely, utterly lost its independence (see for an apple pie and motherhood statement of why central bank independence is a Good Thing). What is surprising is how little notice this development has attracted. As we , based on an article draft provided by former Fed economist Richard Alford: Few have any memory of America's central bank having a openly contentious relationship with the Treasury and Congress. Even though Paul Volcker had to withstand considerable pressure, some of his predecessors fought open turf wars. Yet from the end of World War II to the (sadly) supine Arthur Burns era, there were not infrequent pitched battles with the Fed with incidents that would seem unthinkable now. For example, Truman summoned the FOMC to pressure them into a more accommodative policy during the Korean War, then issued a White House press release claiming the Fed had made a commitment that it had not agreed to. The Fed played hardball, leaking its version of the meeting, which contradicted the press release. That led Congress to join the fray, trying to bring the Fed to heel via sharply critical hearings. While Volcker did endure widespread criticism and harangues from Congress, even for those who lived through that er.. the memories of the ritual roughings up are dim. In addition, there was at least initial support for his harsh measures. Moreover, (unbeknownst to me) Volcker was masterful at defanging Congress long enough for his remedies...
  • Wed, Oct 22 2008
  • 10:50 AM » Low marks for Paulson, bailout
    Published Wed, Oct 22 2008 10:50 AM by CNN
    A majority of Americans aren't happy with the way Treasury Secretary Henry Paulson is handling his job or with the financial rescue package he and Congress created, according to a poll released Wednesday.
  • 10:50 AM » Oil falls below $70 on recession fears
    Published Wed, Oct 22 2008 10:50 AM by CNN
    Read full story for latest details.
  • 10:50 AM » Bank of Canada Cuts Rates Again - This Time, Not As Heavily
    Published Wed, Oct 22 2008 10:50 AM by Seeking Alpha
    submits: The Bank of Canada rate target was cut yesterday for the second time this month, but this time, by 25 basis points. Some analysts were anticipating a bolder 50-bp cut to match the action taken on October 8th. The new overnight target of 2.25% has a 75-bp premium relative to the Federal funds rate, and that will widen to at least a full percentage point after the FOMC meets on October 28-29th. A statement released by central bank officials revised projected inflation “significantly” lower. The new forecast claims that total inflation has already peaked, will fall to less than 1.0% by mid-2009 and later only return to target (2%) by end-2010. Core inflation will run below 2% all of next year and also all of 2010. Deflated by the new price forecast, the 2.25% nominal rate target implies a real central bank rate of around 1.25%. The Fed funds target of 1.5%, in contrast, translates to an inflation-adjusted negative cost of around 1.0% and will be sliced to even lower by the end of this month.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 10:11 AM » IMF: No U.S. growth til mid-2009
    Published Wed, Oct 22 2008 10:11 AM by CNN
    The International Monetary Fund on Wednesday issued a gloomy economic outlook for the United States and the Western Hemisphere, saying U.S. economic growth will be close to zero or even slightly negative for the rest of 2008 and the following few months.
  • 10:10 AM » Bond Report: Treasurys up as troubles spread overseas
    Published Wed, Oct 22 2008 10:10 AM by Market Watch
    Treasurys advance, pushing10-year note yields to the lowest in two weeks, as signs that a U.S. economic slowdown will infect other countries led investors to the safety of government debt.
  • 10:09 AM » McDonald's profit jumps 11%, as company remains 'optimistic'
    Published Wed, Oct 22 2008 10:09 AM by Market Watch
    NEW YORK (MarketWatch) -- McDonald's Corp. posted an 11% rise in third-quarter profit, helped by strong sales worldwide, the fast-food giant said Wednesday.
  • 10:08 AM » National City's Earnings: The Loss Was Expected
    Published Wed, Oct 22 2008 10:08 AM by Seeking Alpha
    submits: Yes it is a loss, yes it was expected. What do we care about? Deposits are growing, Tier 1 remains high and operating income is up. () The Headlines: • Net Loss of $729 Million Driven by Continued Actions to Build Reserves; Loan Loss Provision Declines 25% from Second Quarter
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 10:07 AM » Mortgage applications fall 16.6 pct
    Published Wed, Oct 22 2008 10:07 AM by Reuters
    NEW YORK (Reuters) - Demand for applications to buy homes and refinance mortgages sank 16.6 percent last week, a trade group said on Wednesday, in the heart of a financial crisis that has sapped consumer confidence.
  • 10:06 AM » Wachovia Reports $23.9 Billion Loss for Third Quarter
    Published Wed, Oct 22 2008 10:06 AM by
    The loss, the highest yet announced in the crisis, underscored the challenges Wells Fargo faced after acquiring the bank.
    Click Here to Read the Full Article

  • 10:05 AM » Yahoo profit slumps, job cuts on tap
    Published Wed, Oct 22 2008 10:05 AM by Market Watch
    NEW YORK (MarketWatch) -- Yahoo Inc. posted a sharply-reduced third-quarter profit and said it will trim its workforce by at least 10% as the Internet company struggles to mount a turnaround despite the troubled economy.
  • 10:04 AM » Suffering Regional Banks Expected to Consolidate
    Published Wed, Oct 22 2008 10:04 AM by
    Industry observers were predicting Tuesday a fresh round round of M&A to sweep the regional banking industry, as five such institutions, including National City and U.S. Bancorp, reported another round of painful results and analysts said their business will worsen as the economy deteriorates. Several of these banks said they hoped to sell stock to [...]
    Click Here to Read the Full Article

  • 10:03 AM » Was Lehman Loss All That Bad?
    Published Wed, Oct 22 2008 10:03 AM by
    Conventional wisdom across the globe is that American authorities made a ghastly error in not saving Lehman Brothers. But, Breakingviews wonders, as it really such a tragedy? Treasury Secretary Henry M. Paulson Jr. and the Federal Reserve chairman, Ben S. Bernanke, almost certainly didn’t anticipate the global panic that swept over the financial system after Lehman [...]
    Click Here to Read the Full Article

  • 10:02 AM » Swap Spread Tightening
    Published Wed, Oct 22 2008 10:02 AM by
    Here is an excerpt from a research note on the sharp contraction in swap spreads. The note relates that the contraction in spreads to increased Treasury issuance and the beneficial effect of the improved funding levels which have resulted from the liquidity injections by central banks around the globe. The author adds a third factor which is the convexity needs of mortgage players. I cannot reproduce the chart to which the author refers. Swap spreads have been gapping lower over the last few days with 10-year spreads 20 bp narrower than Thursday’s close. To date, the 2 key drivers of this move have been the effect of rapidly growing budget deficits on Treasury yields and the impact of Central bank and government liquidity injections on Libor funding pressures. However, a third catalyst for further narrowing in swap spreads is now emerging as spread narrowing is amplifying the decline in mortgage rates causing a sharp contraction in mortgage durations. We estimate the duration of the mortgage index has shortened almost 1-year since Thursday. The chart below shows how correlated Libor spreads have become with mortgage rates with the implication that spreads have recently been almost as important as Treasury yields in determining mortgage durations.
    Click Here to Read the Full Article

  • 10:01 AM » FTSE falls as UK braces for slowdown
    Published Wed, Oct 22 2008 10:01 AM by
    Equity markets were hit by gloom over the global economy, with London investors braced for recession after a speech by Bank of England governor Mervyn King
  • 10:00 AM » Wells-Wachovia Deal Warranted Urgent Action, Fed Says
    Published Wed, Oct 22 2008 10:00 AM by
    The Federal Reserve Board on Tuesday said emergency conditions warranted its expedited action to approve Wells Fargo bid to acquire weakened banking rival Wachovia Corp.. The Fed issued its approval of the $12.2 billion deal in an unusual Sunday announcement on October 12, three days after Citigroup abandoned a brief but acrimonious battle over the third-largest [...]
    Click Here to Read the Full Article

  • 9:59 AM » Prosecutors Said to Probe Whether Lehman Misled Analysts
    Published Wed, Oct 22 2008 9:59 AM by
    U.S. federal prosecutors probing the collapse of Lehman Brothers Holdings have subpoenaed other securities firms, asking whether their analysts were misled by Lehman about its financial health, The Wall Street Journal reported, citing people familiar with the matter. The subpoenas are broad in nature, requesting information about statements Lehman made earlier this year as its stock [...]
    Click Here to Read the Full Article

  • 9:58 AM » AIG Posts More Than $1 Billion in Collateral to Shore Up ETC Funds
    Published Wed, Oct 22 2008 9:58 AM by Seeking Alpha
    submits: After trading in more than 100 exchange-traded commodity funds tied to American International Group (AIG) was halted last month on the London Stock Exchange, a new agreement was announced on Tuesday. London-based ETF Securities, which issued the ETCs, said that AIG had agreed to post some $1.5 billion in collateral to cover contracts. ETF Securities has about $6.5 billion in ETC assets, according to published reports.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:58 AM » Bank of England panel unanimously backed coordinated rate cut
    Published Wed, Oct 22 2008 9:58 AM by Market Watch
    Fears of a potentially sharp “monetary contraction" led the Bank of England’s rate-setting Monetary Policy Committee to put aside worries about inflation pressures to unanimously back a coordinated set of rate cuts earlier this month by the world’s top central banks.
  • 9:58 AM » Pallotta to Relaunch Raptor Fund as Spinoff
    Published Wed, Oct 22 2008 9:58 AM by WSJ
    Hedge-fund manager James Pallotta plans to relaunch his Raptor Global Fund as a spinoff from Tudor Investment, the firm run by his longtime hedge-fund partner Paul Tudor Jones.
  • Tue, Oct 21 2008
  • 11:58 AM » US Bank, Subprime & Alt-A Lender?
    Published Tue, Oct 21 2008 11:58 AM by
    US Bank is an interesting, misunderstood story. US Bank was a leader in alternative mortgage products focusing upon their ‘portfolio’ product line, which in retrospect is as ‘Subprime’ as it gets. While they always had great alternative products, their big push came from 2006-2008. What is the quality of the $73 billion in residential first and second mortgage loans and MBS they hold? Below is an actual wholesale rate sheet from May 2008. There are several things to note when reading a) in May there was nobody to sell these to meaning they are likely still on balance sheet b) the guidelines below from May 2008, while incredibly loose, are even tighter than they were doing in months/years prior as they adjusted for the market environment as they went along like other lenders c) values have fallen in regions these product were most popular by 15-25% since May 2008 making sure that even newly originated loans are underwater let alone product originated in prior years d) they have discontinued most of these products and banks do not discontinue profitable loan programs. I will admit that arguably US Bank had better underwriting and quality controls than most other lenders. But, how do you underwrite for a disaster so great that 750 credit score borrowers who put 20% down and got a 30-year fixed rate loan two years ago are walking away because their value is down 50% and its cheaper to rent? Notes: ‘1×60′ = one 60-day mortgage late. Rates shown here as of May 2008 are high compared to what was being charged previously, as US Bank raised rates as the crisis worsened. Yet, they were still one of the very last players offering Subprime loans. The higher rate structure below is not likely representative of the bulk of their mortgage portfolio. US Bank allowed 50% debt-to-income ratios on most full-doc loans. Below is what US Bank considers ‘Prime’. Much of it is of course, but this ‘Prime’ program line can be structured in many ways, as you can see by the adjusters below. It...
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  • 11:57 AM » Key to the Crisis: It’s the Housing Market, Stupid
    Published Tue, Oct 21 2008 11:57 AM by
    “It’s the housing market, stupid.” That’s what an increasing number of policymakers and economists are saying as they push for widespread mortgage modifications as a way to address a root cause of the financial crisis. With more than 1.5 million houses in foreclosure (three times the normal rate), and about 3.5 million other homeowners behind [...]
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More From MND

Mortgage Rates:
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  • 15 Yr FRM 3.95%
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MBS Prices:
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  • 30YR FNMA 5.0 106-03 (-0-06)
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  • 30YR FNMA 5.5 108-00 (-0-11)
Recent Housing Data:
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  • Refinance Index -2.64%
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  • Purchase Index 5.06%