Michael (![[info]](http://p-stat.livejournal.com/img/userinfo.gif){kind=small} ikilled007) wrote,@ 2008-05-08 23:14:00 |
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The Worst is Over
Part whatever in a really long series of trying to educate whip_lash.
Courtesy of themessthatgreenspanmade.blogspot.com, is this gem:
Is this what a bursting bubble looks like? It seems odd to me that, after having already burst at least two times this year, the commodities bubble would look like this on a chart:
What is
ernunnos going to win from you again? Remind me.And from The Daily Reckoning comes this hysterically funny item. A pure act of desperation. Of course, the worst is behind us, right?
U.S. Fed Now Accepts Credit Card Debt as Collateral
The Fed has become the mother of all credit exiles, accepting Wall Street's over-valued, under-performing, dead-beat loans. At least that is what it's done in a metaphorical sense. What did it do practically?
First the Fed increased by US$25 billion the amount of money it will auction to banks (commercial and investment) through its Term Auction Facility (TAF). Here banker people, borrow more. Please.
Second, the Fed expanded the list of collateral it will accept for asset-swapping through its Term Securities Lending (Facility). Remember, that's the one that lets banks and prime brokers swap mortgage-backed securities for Treasury bonds for up to 28-days.
The Fed is now expanding that list of asset-backed securities to include collateralized car loans, credit card receivables, and student loans. It's doing so because the lack of demand for bonds backed by those assets has had a real political impact in an election year. Students can't get loans for American universities because investors won't buy bonds issued by the banks who made the loans to the students. No funding, no college.
We don't know if you are as agitated reading about the Fed loan programs as we are writing about them. It's pretty agitating. You have to translate what the Fed has done from Central Bank speak to what it really means.
What it really means is that that the Fed has lowered interest rates as far as it can to deal with the bank lending crisis. It still hasn't encouraged banks to loan to each other, or investors to buy bonds backed by various kinds of consumer liabilities. But it HAS had some effects.
Remember last week we said the interest rate on U.S. Treasury bonds is below the rate of inflation? Well, American real estate speculator Sam Zell says this has lured some investors back into the market for residential mortgage-backed securities. "Is it in large volumes? No. Is it the natural first step in the evolution? Yes."
The evolution of what? New credit markets? A credit market where the Fed trashes the yield on U.S. government debt in order to make the yield on mortgage-backed debt look less trashy? One asset might look less trashy in a side-by-side comparison. But for investors, isn't this like choosing which leper you'd like to take home and introduce to your mother?
Our take is this: the Fed has probably stopped cutting rates for awhile because it's apparent that cutting rates has not solved the problem in the credit markets. That problem is still the same: poor asset quality. But even on that score, not everyone agrees.
Whip, buddy, face facts: life in the US is about to change dramatically for the worse. Good luck!
