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Sep. 14th, 2008 11:11 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
which_chickI haven't done a finance-news post in a while. The mortgage and liquidity thing has been featured here a couple of times, along with the notion that lots of mortgage-backed securities are not worth half of what people say they are. Well. There was a lot of finance news this weekend and I'm sure you're all terribly interested in reading about it.
First off, Lehman Brothers (an investment bank) is very likelybankrupt dead and thus will be slaughtered and sold off in bits and pieces to all who'd like a piece of the offal. The search for buyers came up empty over the weekend and now it doesn't look like there's much else to be done. The Fed said it wouldn't save Lehman Bros. so bankruptcy is what it looks like is going to happen.
Don't worry though... "Lehman's bankruptcy wouldn't have as big an impact as the bankruptcy of Fannie Mae or Freddie Mac, Bear Stearns Cos. or Countrywide Financial Corp., Egan Jones's Egan said." (source) Whatever Egan is smoking, I'd like to have some of it please.
Just in case you WERE worried, don't worry. The Fed is on the job. Over the weekend, the Federal Reserve (which clearly has our best interests at heart) happily introduced new and improved Liquidity Initiatives. These are to upgrade and improve the already upgraded and improved liquidity measures that the Fed has been throwing our way for what seems like ages. Here's a brief rundown of recent liquidity efforts on the part of the Fed... (stolen in large part from here)
August 17, 2007: The Fed lengthened the maximum loan term to 30 days from overnight, and it reduced the interest rate it charged to half a percentage point above the FFR. The 30-day limit could be renewed at the borrower's request.
March 16, 2008: Term for the preceding measure was extended to 90 days and the interest rate was cut to a quarter-point over the Fed funds rate.
December 12, 2007: Start of the Term Auction Facility (TAF), to loan money to the depository institutions for up to 28 days in return for a broad range of collateral (eg. crappy MBS's, toxic paper) These loans were initially limited to $20 billion but are now running at $75 billion.
March 7, 2008: Fed says it will keep the TAF operating for at least another six months.
March 7, 2008: Fed also says it will lend up to $100 billion to primary dealers, accepting a range of securities as collateral, including those backed by mortgages.
March 11, 2008: Fed set up the Term Securities Lending Facility which allows primary dealers to borrow safe, easily traded U.S. Treasuries, using risky, illiquid assets like mortgage-backed securities as collateral. (We will take your crappy toxic paper in exchange for reasonably stable US Treasuries.)
May 2, 2008: The list of acceptable collateral was expanded to include securities backed by student loans, car loans, home equity loans and highly rated credit card debt. (Also now they'll take IOUs and markers from your crap games.)
March 16, 2008: The Fed established the Primary Dealer Credit Facility to loan money overnight to primary dealers. Again, the chief innovation was to let those institutions use a broader range of collateral than they can in ordinary dealings with the Fed.
From September 2007 to the end of April 2008: Reduced the Fed funds rate from 5.25% to 2%.
Despite all of these steps to ensure that liquidity is available for folks (and investment banks, those cuddly creatures of Wall Street) who need it, the Fed apparently decided that yet another additional measure was needed this weekend. But don't worry. Remain calm. All Is Well. Nothing to worry about, ya'll. Bernanke's got it well in hand.
In other, entirely unrelated and NOT WORRISOME news, AIG (another investment bank) wants a "bridge loan" from the Fed because it is going to be downgraded by credit ratings agencies if it doesn't get some money somewhere. Just like with regular people... where if you miss a utility bill or skip a credit card payment, all your credit card rates go up because you are "no longer credit-worthy"... investment banks have to appear to be credit worthy or investors pick up their money and go home, which leaves investment banks with obligations that they cannot possibly meet. AIG would like forty billion dollars, please, so that its investors don't take their money and go home. But that's nothing to worry about, is it? Surely not.
Finally, Merrill Lynch (the people with the bull, IIRC) sold itself to Bank of America for what appears to be $29 a share. Bank of America got the money, it appears, by taking Merrill's stock to the Fed and offering it up as collateral for the loan. (If that strikes you as an unwise and imprudent loan for the Fed to be making with what is, after all, YOUR money and MINE, welcome to the club.) The fact that this came out of the blue on a weekend when normally banks of all sorts don't do very much, well, that's nothing to worry about either. Srsly. Get some sleep. It'll all look better in the morning*.
(*Until the market opens.)
First off, Lehman Brothers (an investment bank) is very likely
Don't worry though... "Lehman's bankruptcy wouldn't have as big an impact as the bankruptcy of Fannie Mae or Freddie Mac, Bear Stearns Cos. or Countrywide Financial Corp., Egan Jones's Egan said." (source) Whatever Egan is smoking, I'd like to have some of it please.
Just in case you WERE worried, don't worry. The Fed is on the job. Over the weekend, the Federal Reserve (which clearly has our best interests at heart) happily introduced new and improved Liquidity Initiatives. These are to upgrade and improve the already upgraded and improved liquidity measures that the Fed has been throwing our way for what seems like ages. Here's a brief rundown of recent liquidity efforts on the part of the Fed... (stolen in large part from here)
August 17, 2007: The Fed lengthened the maximum loan term to 30 days from overnight, and it reduced the interest rate it charged to half a percentage point above the FFR. The 30-day limit could be renewed at the borrower's request.
March 16, 2008: Term for the preceding measure was extended to 90 days and the interest rate was cut to a quarter-point over the Fed funds rate.
December 12, 2007: Start of the Term Auction Facility (TAF), to loan money to the depository institutions for up to 28 days in return for a broad range of collateral (eg. crappy MBS's, toxic paper) These loans were initially limited to $20 billion but are now running at $75 billion.
March 7, 2008: Fed says it will keep the TAF operating for at least another six months.
March 7, 2008: Fed also says it will lend up to $100 billion to primary dealers, accepting a range of securities as collateral, including those backed by mortgages.
March 11, 2008: Fed set up the Term Securities Lending Facility which allows primary dealers to borrow safe, easily traded U.S. Treasuries, using risky, illiquid assets like mortgage-backed securities as collateral. (We will take your crappy toxic paper in exchange for reasonably stable US Treasuries.)
May 2, 2008: The list of acceptable collateral was expanded to include securities backed by student loans, car loans, home equity loans and highly rated credit card debt. (Also now they'll take IOUs and markers from your crap games.)
March 16, 2008: The Fed established the Primary Dealer Credit Facility to loan money overnight to primary dealers. Again, the chief innovation was to let those institutions use a broader range of collateral than they can in ordinary dealings with the Fed.
From September 2007 to the end of April 2008: Reduced the Fed funds rate from 5.25% to 2%.
Despite all of these steps to ensure that liquidity is available for folks (and investment banks, those cuddly creatures of Wall Street) who need it, the Fed apparently decided that yet another additional measure was needed this weekend. But don't worry. Remain calm. All Is Well. Nothing to worry about, ya'll. Bernanke's got it well in hand.
In other, entirely unrelated and NOT WORRISOME news, AIG (another investment bank) wants a "bridge loan" from the Fed because it is going to be downgraded by credit ratings agencies if it doesn't get some money somewhere. Just like with regular people... where if you miss a utility bill or skip a credit card payment, all your credit card rates go up because you are "no longer credit-worthy"... investment banks have to appear to be credit worthy or investors pick up their money and go home, which leaves investment banks with obligations that they cannot possibly meet. AIG would like forty billion dollars, please, so that its investors don't take their money and go home. But that's nothing to worry about, is it? Surely not.
Finally, Merrill Lynch (the people with the bull, IIRC) sold itself to Bank of America for what appears to be $29 a share. Bank of America got the money, it appears, by taking Merrill's stock to the Fed and offering it up as collateral for the loan. (If that strikes you as an unwise and imprudent loan for the Fed to be making with what is, after all, YOUR money and MINE, welcome to the club.) The fact that this came out of the blue on a weekend when normally banks of all sorts don't do very much, well, that's nothing to worry about either. Srsly. Get some sleep. It'll all look better in the morning*.
(*Until the market opens.)
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Date: 2008-09-15 03:29 am (UTC)no subject
Date: 2008-09-15 03:30 am (UTC)positionspossessions1 that won't fit in a carpetbag.But hey! Free money for Patrick Bateman!
1yep yep