Credit Derivatives Market Shrinks 12%, First Decline Sept. 25 (Bloomberg) -- Credit-default swap dealers reduced outstanding contracts for the first time amid efforts to cut risk by cleaning up the derivatives market. The volume of trades in the worldwide market fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since New York-based ISDA started surveying traders seven years ago. Credit-default swaps grew 100-fold since 2001 as insurance companies, hedge funds and investors used the derivatives to protect against bond losses and speculate on companies' abilities to pay their debt. Traders are unwinding trades and protecting against losses after credit markets froze amid the worst U.S. housing crisis since the Great Depression. Regulators are starting to call for more oversight of the unregulated market following the bankruptcy last week of Lehman Brothers Holdings Inc.
Sept. 25 (Bloomberg) -- Credit-default swap dealers reduced outstanding contracts for the first time amid efforts to cut risk by cleaning up the derivatives market.
The volume of trades in the worldwide market fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since New York-based ISDA started surveying traders seven years ago.
Credit-default swaps grew 100-fold since 2001 as insurance companies, hedge funds and investors used the derivatives to protect against bond losses and speculate on companies' abilities to pay their debt. Traders are unwinding trades and protecting against losses after credit markets froze amid the worst U.S. housing crisis since the Great Depression. Regulators are starting to call for more oversight of the unregulated market following the bankruptcy last week of Lehman Brothers Holdings Inc.
U.S. Economy: Home Sales, Durable Goods Orders Drop Sept. 25 (Bloomberg) -- Sales of new homes in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, evidence of the mounting risks to the economy that Federal Reserve Chairman Ben S. Bernanke warned of yesterday. Home sales decreased 11.5 percent, more than forecast, to the lowest annual rate since the 1991 recession and the median price sank to a four-year low, figures from the Commerce Department showed today in Washington. Bookings for goods meant to last several years declined 4.5 percent and orders excluding transportation equipment were down 3 percent. The credit crisis that brought down Lehman Brothers Holdings Inc. and American International Group Inc. this month is making it harder for companies to invest in new equipment and for home buyers to get financing. Bernanke yesterday told Congress the economy has ``decelerated broadly,'' feeding speculation that the Fed will lower interest rates by year-end.
Sept. 25 (Bloomberg) -- Sales of new homes in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, evidence of the mounting risks to the economy that Federal Reserve Chairman Ben S. Bernanke warned of yesterday.
Home sales decreased 11.5 percent, more than forecast, to the lowest annual rate since the 1991 recession and the median price sank to a four-year low, figures from the Commerce Department showed today in Washington. Bookings for goods meant to last several years declined 4.5 percent and orders excluding transportation equipment were down 3 percent.
The credit crisis that brought down Lehman Brothers Holdings Inc. and American International Group Inc. this month is making it harder for companies to invest in new equipment and for home buyers to get financing. Bernanke yesterday told Congress the economy has ``decelerated broadly,'' feeding speculation that the Fed will lower interest rates by year-end.
And all these "20-year lows" neglect the growth in US population in the meantime... In the long run, we're all dead. John Maynard Keynes
LONDON (Reuters) - Paulson and Bernanke's 'Hold-to-Maturity' plan is really just the new 'Mark-to-Myth', and even its heroic proportions are not likely to paper over solvency problems in the banking system. The Federal Reserve Chairman told lawmakers the plan to spend $700 billion to buy up bad assets would allow banks to avoid unloading loans at fire sale prices. "Auctions and other mechanisms could be devised that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets," Ben Bernanke said, trying to persuade a skeptical Congress that the plan he has been pushing along with Treasury Secretary Henry Paulson will give value for taxpayers' money. Banks are forced to mark their assets to market, a process that has become increasingly painful and likely to lead to bank failures as a shortage of investors and the swiftly declining performance of the underlying collateral have driven prices lower. As many securities are so complex that they seldom trade, and given that few want to buy them now anyway, banks sometimes must mark the assets according to modeled prices, a process sometimes referred to as 'marking-to-myth' by doubters. ... If it is a subsidy, what not call it one? And though $700 billion is a lot of money, it is not enough to wipe the slate clean and leave banks with workable balance sheets; the plan only works if that $700 billion, which equates to far less in terms of capital relief, is leveraged by attracting new money from outsiders now sitting on the sidelines. But I find it hard to credit that the sovereign wealth funds of the world, having already been burned though their disastrous investments in banking last year and this, will feel that a price arrived at through what promises to be an opaque process gives them the confidence to buy in now. "It is hubris to say they are going to set the prices and everyone will just mark to market their assets accordingly," said Tim Brunne, a credit strategist at Unicredit in Munich. ... Alternatively, the government, which has bottomless pockets and no liquidity risk, may simply arrive at a price based on what it, or its advisors -- and one wonders who they could be and if they saw this whole disaster coming -- think is a fair bet on what repayment flows will be. There is also the issue of protecting the taxpayers, who may justifiably argue that they should share in the benefit of any subsidy offered to the industry in return for footing the bill. But taking equity stakes in banks in exchange for below market funding or asset sales probably would, as it did with Fannie Mae and Freddie Mac, choke off any hope of new equity infusions from actual investors seeking profits. It's easy to understand why the United States is placing a low value on moral hazard and is considering an apparently indiscriminate reward for those who took too much risk. The stakes are very high, and a disorderly deleveraging will be worse than an orderly one, even if the orderly one isn't perfect. The debate about what whether or not the U.S. will need a massive intervention of public capital into its banking system and wider economy is over. The crisis requires a huge outlay of public funds, both to clean up after the many banks that will fail and to soften the blow to homeowners and consumers.
The Federal Reserve Chairman told lawmakers the plan to spend $700 billion to buy up bad assets would allow banks to avoid unloading loans at fire sale prices.
"Auctions and other mechanisms could be devised that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets," Ben Bernanke said, trying to persuade a skeptical Congress that the plan he has been pushing along with Treasury Secretary Henry Paulson will give value for taxpayers' money.
Banks are forced to mark their assets to market, a process that has become increasingly painful and likely to lead to bank failures as a shortage of investors and the swiftly declining performance of the underlying collateral have driven prices lower.
As many securities are so complex that they seldom trade, and given that few want to buy them now anyway, banks sometimes must mark the assets according to modeled prices, a process sometimes referred to as 'marking-to-myth' by doubters.
...
If it is a subsidy, what not call it one?
And though $700 billion is a lot of money, it is not enough to wipe the slate clean and leave banks with workable balance sheets; the plan only works if that $700 billion, which equates to far less in terms of capital relief, is leveraged by attracting new money from outsiders now sitting on the sidelines.
But I find it hard to credit that the sovereign wealth funds of the world, having already been burned though their disastrous investments in banking last year and this, will feel that a price arrived at through what promises to be an opaque process gives them the confidence to buy in now.
"It is hubris to say they are going to set the prices and everyone will just mark to market their assets accordingly," said Tim Brunne, a credit strategist at Unicredit in Munich.
Alternatively, the government, which has bottomless pockets and no liquidity risk, may simply arrive at a price based on what it, or its advisors -- and one wonders who they could be and if they saw this whole disaster coming -- think is a fair bet on what repayment flows will be.
There is also the issue of protecting the taxpayers, who may justifiably argue that they should share in the benefit of any subsidy offered to the industry in return for footing the bill.
But taking equity stakes in banks in exchange for below market funding or asset sales probably would, as it did with Fannie Mae and Freddie Mac, choke off any hope of new equity infusions from actual investors seeking profits.
It's easy to understand why the United States is placing a low value on moral hazard and is considering an apparently indiscriminate reward for those who took too much risk.
The stakes are very high, and a disorderly deleveraging will be worse than an orderly one, even if the orderly one isn't perfect.
The debate about what whether or not the U.S. will need a massive intervention of public capital into its banking system and wider economy is over. The crisis requires a huge outlay of public funds, both to clean up after the many banks that will fail and to soften the blow to homeowners and consumers.
mark to myth, indeed... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
