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.
Fed to Lend $200 Billion, Take on Mortgage SecuritiesAgain, from Bloomberg:
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.
Moody's, S&P Defer Cuts on AAA Subprime, Hide LossFrom Reuters:
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."
Fed governor: Bank chiefs asleep at subprime switchFrom the Washington Post:
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.
Fuel Prices Siphoning Money From U.S. EconomyFrom USAToday:
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.
401(k)s tapped to save homesIs anyone else getting dizzy these days just from reading the news?
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.
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.