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I first posted on open thread before I saw this diary

From my reading of the press (I work for BNP Paribas but I don't work where these funds are managed - here  I talk only for myself not my employer), those three funds were not marketed for "retail" clients so my guess these were only bought for other banks, hedge funds and "private banking" (ie rich people).

I also read there was no downgrade or negative view of the papers bought by the funds (AAA and AA) by rating agencies (for what they're worth...), just no liquidity so the usual technique of valuation by looking at the transactions don't work hence the one month valuation freeze (and not closure of the funds).

You can put lots of thing in your assurance vie portfolio, but funds labelled "100% capital guaranti" will not go under 100% so no problem for you (only risk if the seller of the fund cheats and the management company blows out but that's really really low).

From Felix Salmon:

http://www.portfolio.com/views/blogs/market-movers/2007/08/09/bnp-paribas-funds-a-non-story-with-big -consequences


BNP Paribas Funds: A Non-Story With Big Consequences

Why all the fuss about these BNP Paribas funds? They're long-only funds which own some very illiquid paper, and as a result they're impossible to value accurately. If someone wants to withdraw money from a fund, you first have to know how much the fund is worth. Since the fund managers don't know how much the funds are worth, they're not letting people withdraw money until they do know how much the funds are worth. There is no chance of the funds being wiped out, like the Bear Stearns hedge funds were, since they're long only.

And yet stock markets around the world are falling in response to this non-news, there's a flight to quality, and BNP Paribas stock has dropped over 5% - despite the fact that it's other investors' money we're talking about, here, not BNP Paribas's own. All I can conclude from this is that the market is very, very nervous, and will sell on just about anything.

BusinessWeek on the ECB action:

http://www.businessweek.com/globalbiz/content/aug2007/gb2007089_266456.htm


[...]
Another, bigger, shoe dropped later Thursday. The European Central Bank, in a move to calm market nerves and enhance liquidity in the European money markets, said it planned "a liquidity-providing tender of one-day securities" totaling 94.8 billion ($130.5 billion)--basically, an injection of available funds into euro zone money markets to soothe frayed market nerves.
[...]

Note that this is more in absolute term than what was done afte WTC attack (70 billion euros) but a tad less by some relative measure.

So it's huge, I guess the ECB want the banks to buy some of the junk papers themselves and put them in some closet until the mess is sorted out and "normal" valuations are happening again (there will be losses of course, but not 100%).

by Laurent GUERBY on Thu Aug 9th, 2007 at 02:27:22 PM EST

If someone wants to withdraw money from a fund, you first have to know how much the fund is worth. Since the fund managers don't know how much the funds are worth, they're not letting people withdraw money until they do know how much the funds are worth.

That's what they are admitting to, right now, anyway. But according to their logic that things are worth what the markets can bear, they are actually, in a very real sense, worthless.

If you insist that they are not worthless, you have to drop the pretence that markets can measure everything all the time. This is a fundamental point to make.

That banks and companies can be in long term commercial relationships and not just mercenaries focused on immediate profit. That trust has value, i.e. that relationships, social links, and, gasp, community have value.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Aug 9th, 2007 at 02:38:59 PM EST
[ Parent ]
The irony is that these bank sponsored papers are indeed worthless at market value (since there is no buyer) and that is the case because everyone is too leveraged by the very same banks and so no one has money left to be a buyer...

All of course caused by ECB total lack of willingness to act as a real bank regulator (since ECB now has a monopoly on this).

Politically the ECB actions are nothing short of incredible:

  • ECB criticize strongly workers union for asking for raises and going to strike, totally outside of ECB mandate
  • ECB criticize states for their work regulations, totally outside of ECB mandate
  • ECB says because of the two above it is forced to raise rate and create unemployment and unrest, hell to evil workers and policiticans!
  • ECB just creates 100 billions in liquidity to save rich people and irresponsible banks shareholder value, ECB fully responsible for the mess because it did not act
  • ECB, now that rich people and shareholders are involved  might not raise rates after all !!!!

No MSM will report those simple facts put together of course...
by Laurent GUERBY on Thu Aug 9th, 2007 at 03:06:27 PM EST
[ Parent ]
Now you know who the ECB really work for.

The US Fed is not different.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Aug 9th, 2007 at 04:13:02 PM EST
[ Parent ]

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