Thursday, February 14, 2008

The Credit Crisis intensifies!

Looks like Bernanke and Paulson both had an abscess on their ass, as Congress didn't play patsy and ripped into both of them. Bloomberg had this commentary on Paulson:

While bank funding costs have declined, ``there are a number of the credit markets that aren't functioning as normal,'' Paulson said. He cited high-risk, high-yield bonds, ``structured'' credit, which includes debt such as CDOs, and mortgages greater than $417,000, which haven't been eligible for purchase by Fannie Mae and Freddie Mac, the largest sources of U.S. home-loan financing.

He didn't mention the municipal market? Has he tried getting a bid on anything? Getting bids was like a Valentine Massacre! The mess in municipal land, could leech into something much bigger, and much quicker, because you're not supposed to have problems here. I know it is a "liquidity" issue, and not a "credit" issue, but go tell that to the Maher family, who are suing Lehman Brothers for $857 million. Here's the story, and a few snippets afterwards.

"Auction-rate securities usually are long-term bonds with interest rates that are reset periodically (usually once a month) at an auction. Because the auctions happen so often, the bonds traditionally were much easier to buy and sell than other forms of long-term debt. Auction-rate securities worked well for over 20 years and were regarded by Wall Street as cashlike investments, since they were highly liquid and highly rated.

But if buyers stop showing up for auctions, they become tough to sell, or even to value...

Mr. Kim says Lehman may have sold the Mahers a portion of securities from the firm's own balance sheet, thus shifting Lehman's potential losses to the Mahers.

Lehman says it couldn't have foreseen the auction failures in mid-August."

So you can't value a cash equivalent, or get a bid on it, and the brokerage firm, sold it from their balance sheet?

You want a bid? How about 20-80? So sell it from their balance sheet. No wonder Lehman didn't miss numbers, and increased their dividend a few cents, and announced a huge buyback a few weeks back.

They gave their problems to their clients!

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