Posted on 10/13/2007 8:11:14 PM PDT by Travis McGee
Several of the world’s biggest banks are in talks to put up about $75 billion in a backup fund that could be used to buy risky mortgage securities and other assets, a move designed to ease pressure on a crucial part of the credit markets that threatens the broader economy.
Citigroup, Bank of America and JPMorgan Chase, along with several other financial institutions, have been meeting to come up with a plan to create a fund that could prevent a sharp sell-off in securities owned by bank-affiliated investment vehicles. The meetings, which began three weeks ago, have been orchestrated by senior officials at the Treasury Department, and the discussions have intensified in the last few days.
A broad framework for an agreement could be reached as early as tomorrow, according to people with knowledge of the discussions, but many important details still need to be hammered out. Another round of discussions is taking place this weekend, and it is still possible that the parties will not reach an agreement.
“Treasury is very serious about getting some solution in place to take away the fear hanging over the markets,” said Alex Roever, a credit analyst at JPMorgan Chase who has been following the discussions but is not involved in them. “It is a very challenging thing to do. There are so many parties involved and they all don’t agree. The proposal echoes the 1998 bailout of the hedge fund Long Term Capital Management, when a group of big banks came together to prevent the fund from collapsing after it made a series of bad bets. And the current round of crisis-driven collaboration illustrates the heightened level of concern among both government and financial players.
(Excerpt) Read more at nytimes.com ...
Treasury Department, eh? Shhh, don’t call it a bailout.
Interesting times.
The banks are a branch of govt now, aren’t they?
Paulson was CFO of Goldman Sachs before he went to Treasury.
It’s all really cozy, this revolving door of banksters.
Mortgage/Credit/Housing Issues Ping List
If you want on or off his list let me know.
The odd thing was that the tassle-shoed crowd on Wall Street was still pushing the SIV’s to loan short term money to players who were buying long term mortgage notes even after the Fed had raised interest rates 17 straight times to clearly pop the housing bubble.
So much for MBA’s being clever. The next time an ascot-wearing MBA preaches his superiority to you, remind him of the SIV’s prior to 2007.
...it will be interesting to see if Paulsen has identified a way to reduce the otherwise inevitable losses, but really, what are they going to do that will stop the SIV players from dumping a bunch of mortgage paper back onto the secondary market?
Of course, there is a way to stop the losses without pouring federal money into the mix: change the home repossession laws to favor banks instead of individual tax-payers. Of course, that wouldn’t be very popular.
But it would bring in the vultures who would want to buy those SIV-held notes in order to cheaply foreclose and own U.S. property for pennies on the Dollar.
That would be a pretty nasty way to avoid the SIV losses. Presuming that they don’t find another way, they’ll probably not go that route, either.
My own feeling is that Citi et al will gather all these CDOs and MBSs and whatever else, dump them all into a satellite, and convince NASA to blast them off into space on a secret mission at taxpayer expense where they’ll never be heard from again (yeah, right) Meanwhile, the rest of stock market reminds me of a planeload of passengers who’ve just been informed that the wings fell off. “Whew!” they all sigh in unison, now comfortable that they know what’s going on.
The bond market is *not* at all time highs.
Commercial paper is not at peak demand.
It should remind you of no such thing.
The bond markets are in the doldrums. In contrast, the stock markets are reasonably certain that the Fed is going to inflate assets at the expense of bonds (the perpetual title bout of boxing champions).
For the bond markets, foreign buyers have fled, domestic owners are selling, and the threat of inflation looms large if the Fed keeps cutting interest rates.
For the stock markets, foreign buyers have flocked to it, domestic owners are buying even more, asset prices on industrials are increasing, the Dollar is falling making U.S. exports cheaper while making imports into the U.S. more expensive, productivity is at an all time high, wages are at an all time high, taxes are low, and unemployment is near record low levels.
The article for this thread is about a potential bond bailout.
Bonds and stocks are often thought of as moving against each other (i.e. what's bad for one is good for the other).
Well, if things are bad for bonds, what do you suppose stock investors are thinking?!
“Isn’t it absolutely the oddest thing that all these behind-the-scenes moves are being done with the market at all-time highs? “
The credit markets are a different market than the equities market. The former is not at an all time high. Not even close.
for later
The banks are putting up their own money. The role of the Treasury is they initiated contact with the banks to encourage them to come up with a plan.
.....and where exactly are the bond ratings firms?
Oh Goody! Buy up the bad SIVs, CDOs, and other pieces of bad paper, repackage it and sell it to the retail investor for their 401ks.
These crooks have got to be kidding.
They have just enormous contempt for the public.
Mish Bump.
Here's another gem:
"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market and so check the movement."
---Harvard Economic Society, October 19, 1929
That is burst-out-laughing funny, in a system of fractional reserve banking and "thin air money" creation!!!!
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