Imminent and severe market correction

[Julia]

Regulators were sure that in this modern day and age of computerised system, such a non-sense should not have happened.


The blame should actually fall on the rating agencies. They didnot rate these companies down when they were dealing with subprime related securities, but when they see the public sentiment and sh*t hit the fan they are rating them down. They should be answerable to someone right?? In free market they were the regluators, they are the culprit to start with.

Yes, I've been surprised there's not been more focus on this.
And remember when we first heard about the 'subprime crisis'? Oh, it won't come to much, everyone said, certainly won't affect us here in Oz!

 

[dhukka]

Feds to buy an 80% stake in AIG.

Socialism is the new capitalism.

http://www.nytimes.com/2008/09/17/business/17insure.html?_r=2&hp&oref=slogin&oref=slogin

Did anyone really think the United Soviets of America government were going to let this fail? They can jawbone as much as they like about a 'free market' solution but when it came to the crunch they were never going to let a trillion dollar balance sheet go under with all the related counter party risks. AIG makes Lehman look like a walk in the park. The good ole US gummit should be about ready for a ratings downgrade itself soon.

 

[CanOz]

The good ole US gummit should be about ready for a ratings downgrade itself soon.

I cannot fathom why this has not occured yet? They are insolvent, and now burdened with more debt than ever they continue to take on more high risk bad debt.....when will this stop? Roll on Election.

 

[pepperoni]

I called the aig intervention last night.

I dont think a bankrupt aig is an option for the us ... without intervention it could mean instant default/unraveling of all the bs deals they gteed.

I think the only thing saving the US Gov is its ability to print money. With the critical mass of the US, the amount of money for all these bailouts might be only a extra 1% inflation. Hopefully anyway!

Which might explain why they are holding rates when it seems they need to drop the most.

 

[Whiskers]

I cannot fathom why this has not occured yet? They are insolvent, and now burdened with more debt than ever they continue to take on more high risk bad debt.....when will this stop? Roll on Election.

A good buy... while debt is an asset ... float it off back to the public down the track when everyone has forgotten about now and they make a motza for the treasurey.

 

[Bushman]

Barclays is picking over the carcass of Lehman Bros.

'Barclays has announced in a statement that it has reached an agreement to acquire Lehman Brothers' North American investment banking and capital markets businesses.

"The board of Barclays announces that Barclays has agreed, subject to US Court and relevant regulatory approvals, to acquire Lehman Brothers North American investment banking and capital markets operations and supporting infrastructure," the British bank said.'

 

[jono_oz]

I think Rupert must want some more MQG shares Now he has reporters at the Australian trying to drive them to the wall. But it appears that MQG has decided not to let 1/2 truths rule the day! Problem for them will be who will print the real information??

Media 1 Vs MQG ?? Will wait and see.

 

[Uncle Festivus]

It has started. The collateral damage spreads out like a nuclear bomb mushroom cloud. Time for a super jumbo cash hiding mattress

NEW YORK (MarketWatch) -- One of the original and largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, in a rare instance in the fund industry of what is called "breaking the buck."

Primary Fund, managed by New York-based money market fund inventor The Reserve, said late Tuesday that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero.

http://www.marketwatch.com/news/story/money-market-fund-breaks-buck/story.aspx?guid={56A2CEE5-5A53-4A27-A4BA-585CFBE173A4}

Interesting?

The London interbank offered rate, or Libor, that financial institutions charge each other for loans soared 3.33 percentage points to 6.44 percent yesterday. The increase was the biggest in its history.

 

[Bushman]

It has started. The collateral damage spreads out like a nuclear bomb mushroom cloud. Time for a super jumbo cash hiding mattress



http://www.marketwatch.com/news/story/money-market-fund-breaks-buck/story.aspx?guid={56A2CEE5-5A53-4A27-A4BA-585CFBE173A4}

Interesting?

Yep sure is. I was reading about this money-market fund before. The chronology of events seemed to be:
1. Fund has US$785m exposure to Lehman Bros debt;
2. Lehman's demise meant it had to mark-it-to-market at $0;
3. The fundie did not step in and buy the Lehman crud, thus 'breaking the buck' for the second time in the history of these Funds;
4. This led to US$40 billion in redemption requests as one of the last save havens is breached; and
5. The fund is toast even though only 3% of its debt holding was with Lehman Bros.

That is the very defintion of the word 'contagion'. Also all the other funds that had exposure to Lehman's (and Freddie and Fannie before them) had to take a hair cut by buying the cruddy debt. How long can they keep doing so before a few more 'break the buck'?

The one thing that keeps puzzling me is why does everyone keep trusting US Treasuries? I would have thought the concept of 'risk free' is now, for the first time, being seriously tested by this 'credit calamity'.

 

[Glen48]

From Patrick.net

In AIG's case they were writing credit default swaps like candy over the last few years. As I have repeatedly pointed out these instruments are nuclear devices and all of them tick at inception, but the timer's window has duct tape over it. There has been zero margin supervision on these as they're all "over the counter"; that is, no centralized reporting, no central clearing, no central control and no supervision - by anyone. Now AIG is in the uncharitable position of having nearly $500 billion of exposure to corporate loans and CDOs, with nearly all of it written to banks - the very institutions that are now in trouble
f course none of these banks or other institutions are taking their marks - including WaMu - but the market is quickly figuring out that home prices are not going to reverse and head higher - they are instead continuing lower, as they must, as until affordability returns there is no other possible path forward.

In markets like California where the median family income is $64,000 (as of 2006); this means the median home price must be about $192,000.

As of August it was $350,000, or still a bit over 40% overvalued!

Every bank with retained exposure to California of any material extent is in serious trouble and most of them with fail outright.

This is simple mathematics.

The regulators had to know this was going to happen years ago as the median price reached nearly nine times median income in 2005 and 2006.

Next boom will be an explosion.
At least we get new news each week as we watch History unfold and we can see how a depression starts and some will not see the end maybewe should be buying shares in White Lady ???

 

[pepperoni]

From Patrick.net

In AIG's case they were writing credit default swaps like candy over the last few years. As I have repeatedly pointed out these instruments are nuclear devices and all of them tick at inception, but the timer's window has duct tape over it. There has been zero margin supervision on these as they're all "over the counter"; that is, no centralized reporting, no central clearing, no central control and no supervision - by anyone.

From my experience there is no proper due diligence on these things and they are based on a helicopter view and "she will be right mate" approach like alot of ratings.

And I think these like rating "dictate" risk and returns on deals.

But I think if bond insurers or rating agencies go under all their deals are sort of at large at best if not in default.

So I think we can expect complete protection for these types. And they probably knew it all along which hardly inspires prudent or responsible behaviour .... the probably rode the bull into the ground for maximum bonuses until now.

We might find the banks were the lesser culprits that just lent money taking the insurers and raters guidances (eg Ill lend $x at %y because of this rating ... and that default swap hedging me in any event.)

 

[Kauri]

was that Morgan stains looking a tad strained??? stains or skid marks... looking around for a merger/partner???

Cash markets remain under pressure this morning as banks hoard cash and keep the purse strings tightly drawn. As such O/N dollars is still quoted as high as 7 to 8pct with Euros relatively orderly at 4.75% and Sterling something of a half way house at 6.5%. Banking stocks briefly opened higher but is under pressure again with Irish banks leading the way lower in the EUROFIRST 300 although HBOS is the stand out dog currently down as much as 35%. Queues forming at branches? Talk of bankruptcy.

The AIG relief rally was the shortest yet... oh what fun..

Slainte
............Kauri

 

[Kauri]

amid the HBOS calamity shares in the UK are now down over 50% with various names touted in the frame to step in should such measures be required. Both HBOS officials and the FSA have made statements assuring the "stability" of the bank, however, confidence is a very fragile thing at present.
The rumour mill has been churning with ever increasing speed this morning with bank mergers dominating. All the major UK players have come under the speculative spotlight .
and Morgan stains has definite skid marks...

cheers
.........Kauri

 

[deadset]

What's Blue Planet's opinion now ?

What about housing here ?

 

[Kauri]

Trading has been suspended indefinitely on both the RTS and MICEX at the order of the Federal Financial Markets Service. The regulator has moved in response to yet another dramatic fall today with the RTS Index down 6.4%.
The head of equities at one Russian house agreed it was the right thing to do. "The problem is on the repo and derivative side and not with cash equities.

Cheers
.........Kauri

 

[wayneL]

Lloyds TSB in takeover talks with HBOS.

Developing...

 

[dhukka]

Anyone catch those US housing numbers?

Single-family building permits fall to 26-year low

WASHINGTON (MarketWatch) - Home building tumbled again in August, with the number of new building permits for single-family homes dropping to a 26-year low, the Commerce Department estimated Wednesday.

Starts of new homes fell 6.2% to a seasonally adjusted annual rate of 895,000, the lowest in 17 years, and much weaker than the 955,000 rate expected by economists surveyed by MarketWatch.

Starts of single-family homes fell 1.9% to a 17-year low of 630,000 annualized units.

Building permits for single- and multiple-family dwellings fell 8.9% to a 26-year low of 854,000 annualized units, with permits for single-family homes dropping 5.1% to 554,000, also a 26-year low. Permits for single-family homes fell to the lowest levels in at least 20 years in the Midwest and West.

The housing bottom-callers will probably be notably absent today.

 

[wayneL]

Check out IVs and skews on financials.

Eg below is Morgan Stanley with underlying @~$24

Amazing!

 

[Kauri]

On the very day that CPI fell for the first time in two years and oil prices were tumbling toward $90 from the mid $147s in July, the FOMC yesterday decided that it was time to begin focusing on inflation and not lower rates in the midst of blatantly bearish economic data leading into the meeting and every indication credit will contract for the foreseeable future. The question is why? Some think it is because the Fed has finally decided to wall off so-called monetary policy from liquidity policy, if such a distinction can really exist. Massive liquidity injections by the Fed and other central bankers are being used, along with the workout for AIG, as the primary tool to combat the credit crisis.
Other factors may have been at play in the Fed"s decision to not cut its benchmark rates Tuesday, namely that with the massive amounts of debt the Fed, the Treasury and the US in general will have to sell in the coming days, weeks, months and years, now is not the time to let the USD hit the skids because foreign demand for thier debt must be maintained. The secondary reason for not cutting rates is that Reserve Primary Fund could be joined by others in breaking the buck, which would trigger massive problems in the short-term funding markets. Some kind of spread between the Fed funds rate and the costs of running money market funds must be maintained to help avert more buck breaking; buck breaking that could also break the USD.
In short, the FOMC are extremely worried about the value of the dollar, with inflation only the window-dressing for that worry. With monetary policy having been too easy for too many years, there is almost no cushion left from traditional monetary policy and nonexistent US savings rates means funding has to come from abroad.
Bend me over roger...

Chhers
............Kauri

 

[Kauri]

The Bank of E will be extending its drawdown period for special liquidity assistance to the end of January 2009. The BoE says it made the decision in light of current disorderly market conditions. I guess that s one way of describing it...

Cheers
...........kauri