That headline is a bit of an exaggeration.
So what is the quality of the collateral willing to be accepted by the new Term Securities Lending Facility (TSLF)? As we noted earlier, much of this paper is junk.
Consider this recent survey of triple A (AAA) paper, at risk of losing their AAA rating in the ABX Indexes, via Bloomberg:
Click thru for interactive chart
Source: Bloomberg
“Junk” is such a negative word.
We should call it “value challenged” paper.
So what are the odds than any of these get downgraded before the Fed Pawn Shop for “AAA” MBS opens on March 27th?
Actually what are the odds than any of it ever gets downgraded?
I guess if it does get downgraded then we will see the “Enhanced TSLF” facility: taking anything C or above at par value for a period of 10 years.
So what are the odds than any of these get downgraded before the Fed Pawn Shop for “AAA” MBS opens on March 27th?
Actually what are the odds than any of it ever gets downgraded?
I guess if it does get downgraded then we will see the “Enhanced TSLF” facility: taking anything C or above at par value for a period of 10 years.
How to piss off a gloomster … Nay … how to make a gloomster sputtering mad: Try to fix the economy using tools that don’t plant the seeds for a brand new asset bubble for form. Gloomsters don’t want good times if the betterments put into place don’t bring along the seeds of destruction.
‘But you’re not fixing all problems at once’ sputter the gloomsters, ‘thus you shouldn’t do Anything’. ‘Harummph …Innocent people need to Suffer …. more!’ hiss the gloomsters. ‘Necessary, lovely, delicious Pain begets us all. Why won’t the Fed let us Hurt as we Must?’.
CNBC (Gasparino) reporting that traders saying today’s move by the Fed was fallout from Bear Stearns. Give me a freakin’ break…. Fed and central banks representing over 75% of world GDP is going to collude to bail out Bear Stearns. Sitting here staring at my cat wondering if it’s smarter than market commentators…..
Check out the beneficiaries of this exercise, which include BAC, BSC, CFC, etc. http://www.newyorkfed.org/markets/pridealers_current.html
Stuart … Re your cat: Mostly, yes.
We have had so much discovery since August of last year that the discussion of whether AAA actually represents true AAA quality is now mute. Conclusion: it does NOT and has not for many years. To re-kindle such discussions are a futile attempt to perpetuate fraudulent misrepresentation. One only needs to look at the AMBAC, MBIA…etc. etc. debacles… There’s a snowball’s chance in hell that the AAA paper the Fed will be accepting is true 100% guaranteed AAA.
What about Ambac, MBIA, et al? Doesn’t this mess have to be addressed? Do you thin Paulson dreams about not having taken this thankless job of being the admins fall guy/spokesman?
Yes they do, and, this blows my mind, the Fed is relying on those very same rating agencies in the epicenter of that complete world class debacle to decide what AAA paper it accepts as collateral. Good lord.
You can bet the PPT is out in force this afternoon! I’ve never seen such a minipulated market in my life. When will they realize that nothing works except the markets – which means some lose big, while others win. Oh, but that can’t happen unless its a Wall Street Bank who gets to win big!
Barry, what do we really expect them to do? Tell the truth at this point? They are doing what they do in order to survive although right now it sure doesn’t look like it.
The yield curve has steepened dramatically which helps the banks that lent long while borrowing short, very bad when it reverses on you i.e. August 2007. The steepening curve allows them to try and stabilize their portfolios and balance sheets.
There is no quick fix for this, and indeed there may be no fix at all, but this does buy more time for the banks to extrecate themselves from some of their wrong way bets. All that being said, they must lend which they currently aren’t doing for fear of losing the money to a defaulting Hedgie or to companies that want/need capital in a slowing economy.
Ben has studied an ocassion such as this his whole life, so this is his defining momment in history, but to have this weight on his shoulders, I wouldn’t wish it on anyone. Today at least I wish him God’s speed for the sake of the kids and grandkids. What the hey, it’s what father guido sarducci would want us to do. :>)!
There’s an element missing here.
Collateral at risk is the percentage past due.
Credit support is the percentage that can be lost before it stops making payments.
In order to estimate credit support, don’t I need to figure in the recovery rate on past due collateral? If collateral at risk reflected likely realized losses, this would be really scary. If these were all second lien loans, total loss of collateral might be on the table, but AFAIK they’re a mix of loan types. These are also the senior credits, the juniors take the first hits.
There are real problems, but calling these “junk” is a bit over the top. They’re probably not comparable to a vanilla corporate AAA, but not junk either.
Liquidity and credit are returning to the market. The end of the quarter is approaching, bringing along the probable and usual end of quarter window dressing.
My bet is that the market is going to start to rally today and not look back appreciably until April.
Time to jump in and make some money. Cha Ching! Last one in is a pissing mad gloomster.
Barry, why doesn’t CNBC have any bears on to give their opinion on what the FED action today is about? No one has defined it the way that you have.
Cinfoz, let’s just throw good fundamentals out the window. Has anything really changed since yesterday, besides the FED’s actions confirming how dire the situation really is? It’s the consumer, they’ve gone fishing, there are none!
My thoughts on all things subprime, radical derivitatives, etc. Barry & all, comments appreciated.
Reforms often do more harm than good. This is currently the case with the “mark-to-market” rule, which is imploding the US financial system by requiring financial institutions to value subprime mortgages at their current market values.This makes a big problem for balance sheets. These financial instruments became troubled prior to a market being established for them, as they were marketed direct from issuers to investors. Now that they are troubled and with their true values unknown, no one wants them. Their lack of liquidity assigns them a low value. The result is tremendous pressure on balance sheets. The plummeting value of subprime derivatives is pushing institutions that own them into insolvency, destroying their own stock values and forcing the financial institutions to sell untroubled liquid assets, thus resulting in an overall decline in the stock market. The solution is to suspend the mark-to-market rule. Instead, allow financial institutions to keep the troubled instruments at book value, or 85-90% of book value, until a market forms that can sort out values, and allow financial institutions to write down the subprime mortgages and other troubled instruments over time. Suspending the mark-to-market rule would take pressure off the stock market and make it unnecessary for the Fed to lower interest rates in an effort to force liquidity into the economy through an impaired banking system. The problem is not a general lack of liquidity, but liquidity for poorly conceived new financial instruments. Low US interest rates could worsen the crisis by accelerating the dollar’s decline. Now that inflation has raised its head, more liquidity from the Fed adds to the economic distress. It is mindless to allow a “reform” to cause a financial crisis, but that is what is happening. Unfortunately, there are people who argue that anything less than financial armageddon would create a “moral hazard.” It is certainly true that securitized subprime mortgage instruments were a bad idea, that a lot of people who should have known better opened floodgates to greed and fraud, and that “somebody should pay.” But it shouldn’t be the general public and the economy that pays. It is also true that without the Federal Reserve’s irresponsible low interest rate monetary policy, which produced a housing boom, the subprime instruments would not have been created, or at least not in such amounts. Rapidly rising real estate prices were expected to make the risky loans good. What were issuers and the Federal Reserve thinking? No doubt but that greed, fraud, and bad policy all played their roles. But at the heart of the problem is a 1999 “reform” that repealed an earlier reform known as the Glass-Steagall Act. In 1933 the Glass-Steagall Act separated commercial banking from the securities business. It prevented securities speculation from destroying bank capital and shrinking bank deposits from bank failures and runs on banks by depositors. Congress and President Bill Clinton foolishly repealed the Glass-Steagall Act in 1999. The repeal of the 1933 law was driven by profit lust in the banking industry and by “free market” ideology, which claims the unfettered marketplace is always superior to regulation. In pushing the repeal forward, Congress and Clinton ignored warnings from the General Accounting Office that the banks needed to build up their capital levels before being permitted to enter a broad range of securities businesses. The GAO also noted that there were no regulatory structures in place to monitor the new financial networks that would result from removing the wall between commercial and investment banking. However, greed and ideology won over sound advice. The result is a crisis that, if mishandled, will be c
JustinThe(PissingMad)Skeptic,
M up + V up = Stock Market up = Wealth effect = consumer spends. Loop.
Oooops! Here’s the rest of the sentence:
The result is a crisis that, if mishandled, will be calamitous. No one ever brings up Glass-Steagall. Any reason for this?
Thomas…sorry…I’m not reading that…you need to use paragraphs..
cinefoz: ever heard of reality? “Wealth effect”? WTF are you talking about? Hey, the markets up 2%…I feel rich….oh, wait, you mean I’m 6 figures underwater on my house? And 4 on my car? And the bank pulled my HELOC? And it cost $75 to fill the gas tank? And my food bill has jumped 35%?
cinefoz, you are trully a wonder. Let me guess..you bought at the close yesterday, right? And you don’t eat or use oil in any manner, so increasing prices on basic materials have no effect on you….damn…I forgot that your ARM just readjusted saving you .12 this year…
Paul Craig Roberts agrees with Thomas Schmidt.
O.K. My apologies for not paragraphing earlier. Here it is with paragraphs!
Reforms often do more harm than good. This is currently the case with the “mark-to-market” rule, which is imploding the US financial system by requiring financial institutions to value subprime mortgages at their current market values.This makes a big problem for balance sheets. These financial instruments became troubled prior to a market being established for them, as they were marketed direct from issuers to investors. Now that they are troubled and with their true values unknown, no one wants them. Their lack of liquidity assigns them a low value.
The result is tremendous pressure on balance sheets. The plummeting value of subprime derivatives is pushing institutions that own them into insolvency, destroying their own stock values and forcing the financial institutions to sell untroubled liquid assets, thus resulting in an overall decline in the stock market. The solution is to suspend the mark-to-market rule. Instead, allow financial institutions to keep the troubled instruments at book value, or 85-90% of book value, until a market forms that can sort out values, and allow financial institutions to write down the subprime mortgages and other troubled instruments over time.
Suspending the mark-to-market rule would take pressure off the stock market and make it unnecessary for the Fed to lower interest rates in an effort to force liquidity into the economy through an impaired banking system. The problem is not a general lack of liquidity, but liquidity for poorly conceived new financial instruments. Low US interest rates could worsen the crisis by accelerating the dollar’s decline.
Now that inflation has raised its head, more liquidity from the Fed adds to the economic distress. It is mindless to allow a “reform” to cause a financial crisis, but that is what is happening. Unfortunately, there are people who argue that anything less than financial armageddon would create a “moral hazard.” It is certainly true that securitized subprime mortgage instruments were a bad idea, that a lot of people who should have known better opened floodgates to greed and fraud, and that “somebody should pay.” But it shouldn’t be the general public and the economy that pays.
It is also true that without the Federal Reserve’s irresponsible low interest rate monetary policy, which produced a housing boom, the subprime instruments would not have been created, or at least not in such amounts. Rapidly rising real estate prices were expected to make the risky loans good. What were issuers and the Federal Reserve thinking? No doubt but that greed, fraud, and bad policy all played their roles. But at the heart of the problem is a 1999 “reform” that repealed an earlier reform known as the Glass-Steagall Act.
In 1933 the Glass-Steagall Act separated commercial banking from the securities business. It prevented securities speculation from destroying bank capital and shrinking bank deposits from bank failures and runs on banks by depositors. Congress and President Bill Clinton foolishly repealed the Glass-Steagall Act in 1999.
The repeal of the 1933 law was driven by profit lust in the banking industry and by “free market” ideology, which claims the unfettered marketplace is always superior to regulation. In pushing the repeal forward, Congress and Clinton ignored warnings from the General Accounting Office that the banks needed to build up their capital levels before being permitted to enter a broad range of securities businesses. The GAO also noted that there were no regulatory structures in place to monitor the new financial networks that would result from removing the wall between commercial and investment banking. However, greed and ideology won over sound advice. The result is a crisis that, if mishandled, will be calamitous.
Ah Cinefoz. To be so happy that the government bails out the bad. Have you no sense of justice? Does it not bother you to play on a rigged table? At least it is more and more patently rigged. Who would dare take the short side when everyone knows the government doesn’t allow declines? After all, everyone knows it is bad when bad businesses fold. The best possible thing for an economy is for all bad companies to limp along on government life support, and all reckless bettors and debtors to be assured they can leverage without risk. Do you really feel the way, Cinefoz?
ceo,
Yes … word for word.
Here
It’s a good piece. Although the other side is Japan and balance sheets that were not even a little like reality. If repackaged loans are nothing but available for sale or trading investments, that mark-to-market is appropriate. Banks shouldn’t be able to hide junk by invoking special circumstances. The banks would be technically insolvent, but phony financial statements would say the opposite.
The problem would still be building if the bubble didn’t burst as it did.
Professional incompetence shouldn’t be able to hide behind custom rules.
The repeal of Glass-Steagal has been discussed here, Mish also did a post on it a couple of days ago. The repeal of such legislation without backstops for the issues you addressed lead me to believe that the debaucle we currently face, when coupled with other sources such as;
Spitzers Washington Post Article which he is now paying for in spades,
“Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers. ”
And “The Tape Worm Economy” detailing profit by way of the destruction of the popsicle index, or the siphoning of wealth from entire neighborhoods and its impact on the likelyhood of your child returning home safely from the corner variety store.
Catherine Austin Fitts HUD Director under Bush1
These allegations lead one to question deeply, the accidental status of the comming carnage, and if not accidental to what end was the event engineered.
Bailout after bailout,
and it Looks like a buy program is going to make sure this thing goes higher the rest of the day.
Welcome to “FREE” america…….
BTW, mark to market rules generally allow investments to be written up as market values improve. This differs from impairments, which may not be revalued upwards. Will some be marked up in a future quarter?
The cinefoz contrary indicator is blinking red. Time to go massively short.
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
Spitzer article scathing attack on the Bush Administration, not a good career move.
Anyone expecting the FED to fall on the sword is sadly mistaken. They will do what they must in order to maintain order in the economy and in the markets. That really is their ultimate mandate. They will chip at this as long as needed and will do anything short of monitizing the debt. I’m not saying they won’t, but they haven’t yet, and I don’t expect them to because we would implode. No Weimar Germany folks.
I betting Spitzer had scathing remarks coming from the wife last night. Oh to be a fly on the wall. LOL!
Bear market rallies are often the sharpest.
(Time to short)
1) Denial
2) Anger
3) Bargaining
4) Depression
5) Acceptance
Until today, I thought the markets were actually making progress. I’d assumed they were somewhere between steps 3 and 4, and maybe even approaching step 5.
After today’s rally, I see they have never really gotten past step 1.
We haven’t even begun to see the pain yet…
nice rally but are gains sustainable? likely not because the valuation of the SPX right now is pretty expensive when you realize the SPX is getting a well above long term average LTM PE multiple on peak profit margins (margins currently 9% vs long term closer to 6%).
Profit margins are very mean reverting and given a slow in consumer spend and higher input costs it’s very reasonable to assume corporate profit margins revert somewhat lower in the next few years. That will likely mean materially slower growth or negative earnings growth for 08 and maybe 09
The SPX has grown LTM earnings peak-to-peak at 6% annually for 70+ years. A reasonable estimate for the next peak earnings point 3-5 yrs from now is 6% higher than the previous LTM peak of $91 (summer of ’07). let’s take the mid-point of the 3-5 yrs…4 yrs out. That would imply 2011 SPX EPS of about $110.
Give a long-term average LTM PE of 14x and you have SPX at 1550 at Dec 2011. From today’s level of 1300 that is a annual return of about 4.5%. Not very compelling to buy the SPX here at 1300 for an expected 4.5% annual return for next 4 years. SPX needs to get close to 1150 to reasonably expect to get an 8% annual return for next 4 yrs.
So that implies we could see SPX down 10-15% from this level, who knows when it could hit 1150 though. mid-late 08?
very back of the envelope but it’s my 2 cents worth.
SPECTRE,
No Weimar yet? You’re right but I wouldn’t hold my breath. The FED will monitize. We are a few years away from Whip Inflation Now buttons.
I was a deflationist in the early 70’s til I realized that in a fiat financial system, one is only allowed to inflate.
Actually I hope you are right. Deflation is kinder and more gentle in the long run.
the fed is trying to kill us.by next tuesday(fed meeting)oil will be $115 a barrel.has anybody been in a grocery store lately? milk is $5+ a gallon,bread is $3+ a loaf,gasoline is $3.19 a gallon.try raising a family on 25-30k a year. no wonder people don’t want to work. 401k’s, they’re on a fast train to shitsville. who was talking about the wealth effect? smoke you another one, roll me one while you’re at it. its like treating cancer,the medicine works if it does’nt kill you first.
Bears,
You got compelling valuation and the Fed stimulation – Screaming Buy!
The Biggest One-Day Gain since April of 2003!
Do you have any comments (not the same comments that you gave us in 2003 please)?
We’re eating our seed corn, and some people are celebrating the feast, meager as it is.
usual mirthful Barry is unusually solemn..
another few days like this and it will be july 2006 again..
i bet barry remember those torturous days
If FED takes MBS, than market will have no fear..It was a masterstroke, if you ask me.
Oops! Barry has done it again. He has missed the perfect bottom (retest of January lows and the bounce on high volume).
Uh, not to spoil the bear party, but the ABX is all subprime loans, which are a tiny fraction of the mortgage universe. There are AAA whole loans worthy of the name — some jumbos, and some Alt-A, as long as you did significant underwriting (none of the stated income jive).
There are other problems with the TSLF, but there will be no lack of acceptable collateral available. It just won’t be subprime, unless it is a pre-2005 origination.
What’s that I hear in the distance?
Is it the plaintive howl of the common gloomster. They have massed and seem to be making a combined moan / howl using almost Shakespearian elocution …
“Why won’t the Fed let us Hurt as we Must? We Need Pain! Curse their light and goodness and damn those who conspire against our Misery. Wretched is their way for removing us from the mud in which we wallow. Feed me, I will not eat. Breath I will not, yay I turn Blue. Hate you forever I will.”
Going to be a nice selloff, possibly a 750 pointer? So many new lows.
Just because the fed allows AAA securities to be used as collateral doesn’t mean they are giving 100 cents on the dollar. They could give 50 cents on the dollar and still provide liquidity to the market. Yes?
No one really knows what the Fed’s new collateral is worth. However, would you loan money against it knowing that:
1. the value of the collateral (U.S. real estate) is sliding rapidly;
2. energy and food prices are impairing the debtors’ ability to pay the mortgage;
3. the debtor’s job may soon be in jeopardy?
I believe the Fed would settle for a Japan style “lost decade” rather than suffer the slings and arrows (and possible death) of a rapid meltdown.
EOM
David Merkel,
The reason there is “no lack of acceptable collateral” is that the fed has agreed that virtually all collateral is now “acceptable.”
Hey Ben, I have some IOU’s from my brother-in-law; I know he’s good for it, because my friend Woody has rated them AAA. Will you lend me some FRN’s for these “Woody’s AAA-rated securities”?
I guess fundamentals and risk don’t matter anymore.
So, today was the biggest one-day rally in the Dow since March 17 2003. Where did the Dow close the following day? That’s right 369 points lower.
Today’s “rally” didn’t even get us back to where the Dow was last Thursday; big deal.
The correction in the housing market is just getting started. Nearly half of the foreclosures to date are either on fixed-rate mortgages or ARM’s that haven’t even reset yet. Nobody can even begin to place a value on any of these ABX bonds because nobody knows what the default rates will be. But if history is any guide; we won’t see a bottom in the housing market until 2013.
This is all far from over…
Pool Shark,
“since March 17 2003. Where did the Dow close the following day? That’s right 369 points lower.”
Huh? I understand your point, but are you sure you have the right dates? Per Yahoo Finance:
^DJI
Mar. 14 – 7,859.71
Mar. 17 – 8,141.92
Mar. 18 – 8,194.23
In fact, wasn’t March 2003 the start of the bull run 2003 – 2007? Again, point understood, the example, not so much.
David Merkel & Pool Shark,
David’s point is key. There isn’t, and never was, much risk in what the fed’s taking here.
Bimbo,
1. The value of the collateral is not sliding rapidly. The values of homes have increased in 39 states vs. decreased in 12 states in 2007. I think you are confusing cause and effect (common fallacy) — declining home prices and credit market hysteria regularly occur together, therefore declining home prices is the cause of credit market hysteria. This fallacy is committed when a person assumes that one event must cause another just because the events occur together. This is not necessarily true.
2. Energy and food are less than 20% of the “debtors” expenses, the “debtors” still have 80% of their income to pay the debt
3. 95% of “debtors” are working (unemployment is only 5%)
4. Get your facts straight before you lose the shirt listening to bearish doom and gloom
5. Take with the grain of salt what the bears tell you. The bears like Barry have many material motivations to distort the data and it is not getting clicks on Prozac adds. Have you ever seen him posting here anything positive? There is so much excessive pessimism here. Every time I read this blog, I get a feeling as if I am visiting a bunch of off-Prozac severely clinically depressed individuals.
——————————————–
Barry,
You will get a much higher targeted click rates with high conversion rates by displaying Prozac (instead of E*Trade) adds here. There are excessively too many chronic depressive individuals posting on this blog (Prozac works, you can help them).
——————————————–
Disclaimer: I have no positions in PFE, maker of Prozac.
Bastiat,
Sorry, scrambled the charts.
Today was the single-day highest point rally since 7/24/02 (492.83).
In either case, the Dow was over 900 points lower just three months later in October, 2002.
My only point being that bear market rallies are usually the sharpest. With today’s rally, the Dow has not even recovered to where it was just last Thursday.
Furthermore, the Dow is priced in US dollars, which have lost around third of their value since 2002.
It’s still whack-a-mole.
Apologies for the newbie question, but does it really matter that the collateral is effectively junk? Since it’s a repo arrangement, don’t the banks have to take it back at the end of the term regardless?
Sam, I agree it was a masterstroke. Didn’t add one damn dime to the system, but rather changed the composition of it’s balance sheet. Hell of an idea.
Dumfrog, you are correct.
Waaaaaaaaaaaaaay cool chart.
`Not a Panacea’
The Fed’s measures are “not a panacea, more like an aspirin for the dollar,” analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note today. “There is a reasonable risk that this Fed move reflects the depth of their concern with U.S. asset markets, not a Fed formula to resolve U.S. asset- market difficulties.”
Goldman Sachs analysts said in a report that “we are not convinced that yesterday’s move will solve all the multiple challenges facing credit markets and the financial system.” Citigroup said “credit concerns are likely to persist and averting a drawn out recession is becoming increasingly challenging.”
The dollar will extend declines against most major currencies in the
The market is reacting to concerted central bank action taken during European hours
yesterday. In overnight trading Fed Bernanke and the ECB announced a joint new
auction facility of over $215 billion that would allow member banks to exchange AAA
mortgage debt for Treasuries for a 28 day period in a newly named Term Securities
Lending Facility (TSLF). This is a step toward a mortgage bailout but appears to only
apply to banks and only to AAA paper. Markets rallied with incredible sharpness in
response to the announcement with a 90% up-day in terms of breadth and volume today.
We suspect this therefore marks an intermediate-term low at least and will watch volume
and breadth action as the rally continues ahead to measure whether a bottom for this
recession has been made though our initial suspicion is that it hasn’t. 11 global markets
had made new lows yesterday, Asia was lower, and the Yen was starting to attack the 100
level, so the bailout announcement was very timely in preventing a crash for now in US
and global equity markets.
Stocks around the world have reacted quite positively to the action. If it is the tip of an
iceberg that includes the Fed ultimately acting as lender of last resort for mortgage paper
and sub-prime debt, then this could be the beginning of a more positive market
environment. However our suspicion is that the Fed is once again giving the market
enough to stop it from declining for a spell, but not enough to actually end the credit
crisis. Global bond markets in Asian trading are re-thinking the likelihood of ultimate
success as well already it appears too. The Fed is still expected to cut rates by 50 bp’s or
more at the FOMC meeting on the 18th. The combination of this TSLF move and the cuts
next week may allow markets to rally more sharply than they have since November.
However unless the bailout expands, it will do little to stop further write-downs and the
credit contraction. Sub-prime debts are not included in the Fed’s buying plans, and this is
where the real problems lie. Moreover in today’s world banks are hardly the only lenders
in the mortgage arena. Except for the 20 or so premium banks that deal directly with the
Fed, this TSLF does little to help other lenders. Ultimately we suspect an RTC type
bailout will have to be devised whereby some entity buys sub-prime paper and restores
liquidity to this sector of the market. So far the credit crunch has expanded as hedge
fund leverage is being sharply reduced, leveraged loan entities (like closed end funds and
virtual banks) are being deleveraged no matter how strong their loan portfolios, and even
Agencies are not able to auction upcoming debts. These problems and others are not
addressed, and this leads us to suspect that this plan will only provide a temporary boost
to markets.
We’re witnessing one of the reasons bear markets can be so treacherous.
MIDAS RESOURCE GROUP