Wikinvest Wire

The financial world is rapidly spinning out of control

Tuesday, March 11, 2008

It's just darn near impossible to keep up with current events in a financial world where things seem to be rapidly spinning out of control. When one story pops up that is worthy of note, another one comes along right behind it.

Perhaps the best way to approach this problem is to just list 'em all.

From Bloomberg:

Fed to Lend $200 Billion, Take on Mortgage Securities

The Federal Reserve, struggling to contain a crisis of confidence in credit markets, plans to lend up to $200 billion in exchange for mortgage-backed securities.

The Fed coordinated the effort with central banks in Europe and Canada, which plan to inject up to $45 billion into their banking systems. The Fed said in a statement it will hold auctions of Treasuries in exchange for debt including AAA rated mortgage securities sold by Fannie Mae, Freddie Mac and by banks.
Today's steps indicate the Fed is increasingly concerned about the investor exodus from mortgage debt, which threatens to deepen the housing contraction and the economic slowdown. While they fall short of the calls by some analysts for the Fed to make outright purchases of mortgage debt, the central bank left the door open to expanding the effort.
Again, from Bloomberg:
Moody's, S&P Defer Cuts on AAA Subprime, Hide Loss

Even after downgrading almost 10,000 subprime-mortgage bonds, Standard & Poor's and Moody's Investors Service haven't cut the ones that matter most: AAA securities that are the mainstays of bank and insurance company investments.

None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.

Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that's triggered $188 billion in writedowns for the world's largest financial firms. AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.

"The fact that they've kept those ratings where they are is laughable," said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. "Downgrades of AAA and AA bonds are imminent, and they're going to be significant."
From Reuters:
Fed governor: Bank chiefs asleep at subprime switch

In scathing criticism of their failure to understand the risks of the subprime market, a senior Federal Reserve policymaker Tuesday lambasted top bankers and called for more prudence in lending.

"In particular cases, senior management was not fully aware of the firm's latent concentrations to U.S. subprime mortgages," Fed Board Governor Randall Kroszner said in remarks to the American Bankers Association.

"They did not realize that in addition to the subprime mortgages on their books, they had exposure to off-balance sheet vehicles holding mortgages, through claims on counterparties exposed to subprime," he said.
From the Washington Post:
Fuel Prices Siphoning Money From U.S. Economy

Crude oil prices continued a record-breaking climb today that pushed it past $109 a barrel, while the price of regular unleaded gasoline at the pump came within half a cent of its all-time high.

A White House announcement that Vice President Cheney would probably ask Saudi Arabia to boost oil output during a trip to the Middle East next week did nothing to blunt a run-up in prices that yesterday added $3 to the cost of a barrel.

As the rising cost of crude oil trickles down to the gasoline pump, fuel prices are siphoning cash away from other consumer spending, making it harder to revive the flagging U.S. economy and putting pressure on the Bush administration. It also siphoned more money out of the country: The Commerce Department reported today that the U.S. trade deficit jumped in January to $58.2 billion, compared to $57.9 billion in December, as a record, $27.1 billion monthly bill for imported crude helped offset an increase in U.S. exports.
From USAToday:
401(k)s tapped to save homes

Struggling to save their homes from foreclosure, more Americans are raiding their 401(k) retirement accounts to pay their bills — and getting slammed with taxes and penalties in the process, according to retirement plan administrators.

Rather than borrow money from their 401(k) accounts, which would have to be paid back, a growing number of beleaguered families have been cashing out, plan administrators say.

This is happening even as borrowing from 401(k) accounts remains fairly flat. Fewer still are borrowing from 401(k) plans to buy homes. By contrast, new figures from plan administrators show the number of 401(k) "hardship withdrawals" is up in early 2008 compared with the same period last year.

The main reason? The need to stave off foreclosure or eviction.
Is anyone else getting dizzy these days just from reading the news?

Just a couple of years ago, few could have possibly imagined that mortgage backed securities would cause such problems, that banks would get into so much trouble, and that commodity prices would rise so high that they would threaten life as we know it in the U.S.

Unfortunately, the few who did imagine such things were writing blogs and nobody paid much attention to them.

The final slap in the face comes when, instead of real estate bailing out consumers' retirement savings, it starts to work the other way around.

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Anonymous said...

What's really amazing is the breathless abandonment of any semblance of caution or prudence from the monetary authorities in trying to keep the music playing just a little while longer.

I wonder if "election day" has anything to do with it? Nah.

- Pete

Anonymous said...

Is anyone else embarrassed by the Pres and Cheney asking the Saudis to boost output? Come on?! Please, please Saudi oil barons please take are smaller dollars. Pitiful and embarrassing.

Nick said...

Random thought:

I wonder if anyone would have any basis to sue the Fed for something in response to their buying AAA rated mortgaged-backed securities at face value from banks, when those securities are trading at 61 cents on the dollar and are obviously lower quality than what AAA should be? I mean, isn't that basically unfair to all the other financial institutions, investors, and individuals to whom the offer to buy out bad debt for full face value in cash is not offered? Why should the Fed be allowed to print US currency and essentially give it to themselves... am I missing something here?

shtove said...

You missed out the news that europe is getting seriously pissed that its currency is shouldering the burden while everyone else plays beggar thy neighbour.

little larry sellers said...

Can't wait to listen to Schiff's show tomorrow evening. He's going to have a lot of ammo!

Peter said...

If this whole Mortgage Mess/Federal Reserve/Wall Street travesty isn't a true definition of a " Ponzi Scheme",then I will eat my hat! "Last man standing holds the short straw.... Unbelievable!

staghounds said...

It now appears that it is the official, overt, intentional policy of the United States to debase its own currency.

Time to dust off the gold window speech again.

You fools who saved, how do you like this little joke? Teach you to be prudent-

We'll buy the worthless loans FOR you!

tj & the bear said...

The storm's almost upon us, as evidenced by the lightning striking all around. Be safe! said...

"It's just darn near impossible to keep up with current events in a financial world where things seem to be rapidly spinning out of control. When one story pops up that is worthy of note, another one comes along right behind it."

Amen. I've been up since 4 AM trying to play catch up on my own blog...

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