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Friday, October 10, 2008

Insider's Perspective on the Credit Crisis

1903 :en:stock certificate of the :en:Baltimor...

Amid a deepening international credit crisis and a rapidly decelerating global economy, global real estate markets are feeling the real-time effects of a tightly interlinked world that remains increasingly vulnerable. The markets have shifted from a virtuous cycle to a vicious cycle. The dramatically changing environment began with the U.S. subprime mortgage meltdown 18 months ago and then spread rapidly through the global financial system and now into all aspects of the economy.

Jones Lang LaSalle's capital markets experts share their insights and predictions on the current state of the global economy. Click here for a full report.

For additional information contact

Jack Minter Investment Sales jack.minter@am.jll.com
Kenneth Rudy Corporate Capital Markets kenneth.rudy@am.jll.com
Bart Steinfeld RE Investment Banking bart.steinfeld@am.jll.com

Wednesday, October 8, 2008

MetLife Spooks Investors - Forbes.com

MetLife Spooks Investors - Forbes.com: "Insurance stocks plunged Wednesday after MetLife annouced it would be raising capital, cutting jobs and withdrew its 2008 earnings guidance due to the dramatic downturn in the world financial markets.

In an effort to provide some semblance of certainty to nervous investors, MetLife (nyse: MET - news - people ) pre-annouced its third-quarter results, which it said will be hurt by a drop in investment income and fees due to the turmoil in the global financial markets.

In a separate announcement, MetLife said it would sell common stock to bolster its capital amid rising losses on investments. The offering of 75 million shares priced late Wednesday at $26.50, raising nearly $2 billion.

MetLife also promised Wednesday an unspecified number of job cuts by the end of the year.

By the end of Wednesday's highly volatile trading session, MetLife shares fell 26.8%, or $9.87, to $27.00.

"We are in these unprecedented times," Steve Kandarian, MetLife's chief investment officer, said on a call with investors Wednesday, according to the Associated Press. "I think we're as well positioned as anyone in our industry for these times, but we are not immune, nor is any other of our peers."

Those peers fell accordingly. Prudential Financial (nyse: PRU - news - people ) dropped 6.9%, or $3.22, to $43.29, and Lincoln National (nyse: LNC - news - people ) fell 8.5%, or $2.59, to $27.97.

Insurance companies have been among the hardest hit by the recent turmoil in the financial markets. American International Group (nyse: AIG - news - people ) was bailed out by the government, and investment manager and life insurer Hartford Financial Services (nyse: HIG - news - people ) got a much-needed capital infusion from Allianz of Germany. (See "Hartford Recovers With Help From Allianz.")

The mortgage insurance unit of Genworth Financial (nyse: GNW - news - people ) was downgraded recently by Standard & Poor's after its parent company announced that the unit may be on the block. (See "S&P Docks Genworth Mortgage Insurance Unit.")

Over the past month the SPDR KBW Insurance ETF (amex: KIE - news - people ) has fallen 35.9%.

Tuesday, October 7, 2008

Bloomberg.com: Exclusive

CHICAGO - JANUARY 16: The Tribune Tower, head...

http://www.daylife.com/image/0ath4Fza1T9AF Bloomberg.com: Exclusive: "Tribune, the Chicago-based media company bought by billionaire investor Zell last year, needs to sell the Chicago Cubs baseball team and improve revenue to avoid breaching its covenants, said Mike Simonton, an analyst at Fitch Ratings in Chicago. Tribune has $12.5 billion of debt and its loans were quoted as low as 37.5 cents on the dollar yesterday, according to S&P. Gary Weitman, a Tribune spokesman, declined to comment.

``We're cautious of how the negotiations would go with lenders if they needed to get an amendment or waiver from the banks,'' Simonton said."

Bloomberg.com: Exclusive

The March 05, 2007 front page of The Miami Her...

Bloomberg.com: Exclusive: "Banks for McClatchy, owner of the Miami Herald, demanded as much as 2.25 percentage points more in annual interest to relax the publisher's lending agreements, the Sacramento, California- based company said in a Sept. 30 regulatory filing. McClatchy was paying an interest margin of 1.25 percentage points at the start of the year. San Francisco-based construction-supplier Building Materials agreed last week to pay an extra 3.5 percentage points on $340 million of loans after its earnings fell below targets, according to a Sept. 30 filing.

``We're in a credit crunch and getting those covenants amended will be lot more painful,'' said Andrew Feltus, who oversees $8 billion in high-yield debt at Pioneer Investment Management Co. Inc. in Boston.

Debt rated below Baa3 by Moody's and less than BBB- at S&P is considered junk, or in the case of loans, leveraged. Loans are typically made by banks such as Citigroup Inc. and JPMorgan Chase & Co., which then sell pieces to mutual funds, hedge funds and other institutional investors.

The market for leveraged loans ballooned as banks arranged $956 billion of the debt in the first half of 2007, compared with $549 billion in 2005 as banks raced to finance the record amount of buyouts. The market ground to a halt a year ago as the subprime mortgage contagion spread, making investors"

Bloomberg.com: Exclusive

NEW YORK - FEBRUARY 21: Rev. John W. Moody (R...

Bloomberg.com: Exclusive: "Lenders, reeling from an almost 20 percent decline in loan prices, are punishing borrowers in jeopardy of breaking their loan agreements as the economy teeters on recession. As many as 135 companies are in danger of breaching targets set by their banks, S&P says. Sam Zell's Tribune Corp. and Leon Black's Realogy Corp. may soon trip their covenants, according to Moody's Investors Service, which like S&P is based in New York.

``We would use an opportunity of a company violating a covenant as an opportunity to strengthen our hand, particularly in a deal where the spread is too thin or original terms were too generous,'' said Scott Page, head of the bank loan group at Eaton Vance Corp. The Boston-based firm oversees about $156 billion."

Bloomberg.com: Exclusive

The value of $1 over time, in 1776 dollars. ht...

Value of $1 over time - in 1776 dollarsBloomberg.com: Exclusive: "McClatchy Co., Building Materials Holding Corp. and almost 100 other companies across the U.S. are suffering payback from lenders stung by at least $112 billion of losses in the loan market.

Banks and investors who are losing money on the record $1.7 trillion of high-yield, high-risk loans made in 2006 and 2007 are charging borrowers an average of 1.64 percentage points more in interest to amend borrowing agreements and avoid default, according to Standard & Poor's. That's the highest since 1997 and almost eight times more than the first half of last year."

Monday, October 6, 2008

Help! What is Carry Trade

50 yenCurrency Carry Trade: "A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use.

Investopedia Says... Here's an example of a 'yen carry trade': a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.

The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar was to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless he"

Help! What is LIBOR?

Image via WikipediaBloomberg.com: Exclusive: From "Libor Mystifies Americans as Mayor Reads `Doomsday' By Peter Robison

Libor, set every morning in London, is what banks pay to borrow money from each other. That in turn determines prices for financial contracts valued at $393 trillion as of Dec. 31, 2007, or $60,000 for every person in the world, and helps set consumer interest rates on everything"
In the past week, as governments in Europe rescued five banks and the U.S. debated a bailout, the cost of one-month bank loans in euros and overnight dollar loans soared to records. In practice, that means banks are hoarding cash, raising borrowing costs and slowing economies worldwide. Today's three-month Libor for loans in dollars jumped to 4.33 percent. Overnight dollar loans rose 168 percent on Sept. 30, to a record 6.8 percent from 2.6 percent. '

Libor is actually a set of rates, calculated for several currencies on periods ranging from overnight to 12 months. The British Bankers' Association compiles the dollar rate every day from data submitted by 16 banks, including Deutsche Bank AG and Royal Bank of Scotland Group Plc. There are also rates for the euro, Japanese yen, British pound, Swiss franc, and Australian and Canadian dollars.

Corporate bank loans are often linked to three-month Libor rates. Libor also affects interest costs on credit cards, student loans and adjustable-rate mortgages. From 2004 to 2006, more than half of the U.S. subprime mortgages at the root of the financial crisis, or those issued to the least creditworthy borrowers, had adjustable rates linked to Libor, said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Maryland.

Sunday, October 5, 2008

Bloomberg.com: U.S.

The map of all UN members. Data Base: http://e...

Bloomberg.com: U.S.: "Wachovia CEO Robert Steel, 57, stands to benefit from any improvement in bids for Wachovia. Recruited from the Treasury department in July to rebuild the lender's credibility with investors, he bought 1 million shares of Wachovia stock for about $16 million two weeks after arriving at the company.

Wells Fargo's bid won endorsement from stakeholders including Davis Selected Advisers LP, the Dodge & Cox mutual fund group and the Sandler family, according to a statement. The Sandlers sold Golden West Financial Corp. to Wachovia in 2006 for about $24 billion, when Wachovia was run by CEO Kennedy Thompson. The unit's option ARM home loans have since been blamed for contributing to Wachovia's record quarterly losses and Thompson lost his job."

Contagion could fracture the eurozone

The Guardian: "Somehow you always sensed that it was tempting fate when the German finance minister, Peer Steinbrück, said last month that the credit crunch was an American matter. How long would it be before the contagion that knocked the stuffing out of Wall Street and the City would claim a eurozone bank or two?

Well, the hubristic words were barely out of Steinbrück's mouth before we had our answer. The Belgians and the Dutch bailed out Fortis bank; the Irish made a blanket guarantee on deposits amid fears that at least one, and probably two, of their big banks were about to go belly up.

Steinbrück's musings on whether the US was losing its status as the world's economic hegemon were interrupted by the need to seek approval from Brussels for the ill-fated €35bn (£27bn) rescue of Germany's Hypo Real Estate banking group. And by the weekend the leaders of Europe's big four - Germany, France, Italy and Britain - were calling for an emergency global summit next month. A lesson for finance ministers: try not to anger the gods."

Europe Cannot Escape

DAVOS/SWITZERLAND, 25JAN07 - Christine Lagarde...

Image via WikipediaContagion could fracture the eurozone: "The week's events have challenged the smug notion that the credit crunch is a purely Anglo-Saxon affair. A glance around Europe shows this is far from the truth: from Iceland to Greece, there are signs of acute stress accentuated by the same marked slowdown as in the UK.

France's quarterly growth rate slowed from 0.7% in the third quarter of last year to 0.4% in each of the next two quarters, then went negative by 0.3% in quarter two of this year. Christine Lagarde, finance minister, expects GDP to contract again in the third quarter. This is technically a recession: two consecutive quarters of falling output.

Italy has performed even less well. GDP fell in both the fourth quarter of 2007 and the second quarter of this year, dragging the already anaemic annual growth rate down to zero. In France it is 1.1% and in Britain 1.4%. Germany has been the best performing of Europe's big four economies, but it too is slowing as demand for its exports is affected by the global slowdown. Germany's output fell by 0.5% in the second quarter, pulling its annual growth rate down to 1.7%.

By comparison, annual growth in the US is 2.2%, although the strong performance in the second quarter was due to a one-off $150bn (£85bn) tax cut, and the economy now appears to be slowing fast."

No One is Immune

Contagion could fracture the eurozone: "The first is that no part of the developed world will be immune."

ECB Inaction

Contagion could fracture the eurozone: "The second is that the 'real economy' effects took time to have an impact but are now intensifying. In this respect, the actions - or rather inactions - of the European Central Bank are curious. Unlike the Federal Reserve or the Bank of England, the ECB decided that the rise in inflation this year caused by higher oil and food prices merited raising interest rates.

Inflation is now falling and, judging by the comments of Jean-Claude Trichet, its president, the ECB is moving towards easing policy by early 2009. By which time there will be abundant evidence that Europe, Japan and the US are in recession, and this will have a marked impact on Britain, where 50% of exports go to the rest of Europe. Trichet is doing a fair impression of the emperor Nero; perhaps Mervyn King would run him closest among central bank governors."

Slow Burn

Contagion could fracture the eurozone: "A third conclusion is that the slow-burn effect on the European banking system probably has more to do with differences in accounting procedures than the way they were run.

EU Not a Political Union

Contagion could fracture the eurozone: "A fourth observation - again fairly obvious - is that the eurozone remains a hybrid. It is a monetary union but not a political union, and so countries such as Ireland have had to go it alone in bailing out struggling banks. There is a clear distinction between the US, where the government has financial clout across all 50 states, and the EU. Calling a global summit is not the same as actually doing something, and Angela Merkel has made clear that Germany will not bail out dodgy banks in other EU countries. The European Investment Bank is releasing £12bn of emergency aid to small businesses, but given the EU's size and the scale of the crisis, that is chicken-feed."

Monetary Union Without Political Union

Contagion could fracture the eurozone: "In the long term, monetary unions do not survive without political union, and so the fifth conclusion is that there are pressures both for closer integration and for disintegration. The crisis could strengthen those who argue that the halfway house is inherently unstable and will remain so until there is fiscal as well as monetary union. On the other hand, the growing threat of recession may make some countries question the value of remaining in a monetary union."

EU Breakup Risk

Contagion could fracture the eurozone "Deciding not to join [the European Union] is quite different from deciding to leave, and there would be considerable repercussions for a country that reinstated its own national currency in place of the euro. Goodhart puts the risk that monetary union will break up at 10-20%, which is small but certainly not insignificant."

Europe Banking Meltdown

TOPWRAP 4-Germany insures savings amid bank rescue talks | Markets | Markets News | Reuters: "The deposit guarantee announced by Germany, Europe's largest economy, could raise the stakes for EU members to match its terms and restart a debate about Europe's fragmented response to the credit crisis.

In the first crack in EU solidarity, Ireland last week promised to guarantee all deposits in its banks, prompting some depositors in Britain to move savings to Irish bank branches. On Saturday, leaders of Europe's four biggest economies -- Germany, France, Britain and Italy -- vowed to restore financial stability but decided against a coordinated, U.S.-style bailout.

Analysts said the broad pledge from European leaders stopped short of the more sweeping action required. 'It's like standing on the rails and watching a train coming at you,' said Daniel Gros, director of the Centre for European Policy Studies in Brussels.

Meanwhile, expectations are building that finance leaders from the Group of Seven richest nations scheduled for this week in Washington could set the stage for coordinated rate cuts as monetary policy makers step into the breach."

Germay Bailout 2

TOPWRAP 4-Germany insures savings amid bank rescue talks "TOLL FROM THE CREDIT CRUNCH

The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets and is seen as pushing industrialized countries toward recession. Benchmark interest rates on three-month dollar loans have been driven higher even as central banks flooded the market with cash. Overnight rates, meanwhile, have dropped to four-year lows, suggesting risk-wary banks are unwilling to lend to each other more than a day at a time.

The resulting pinch has shut down corporate access to credit as earnings fall. As companies cut back, analysts are bracing for tens of thousands of more job cuts and pressure on consumer spending, which represents about two thirds of the U.S. economy. JPMorgan and Goldman Sachs both predict that the United States entered a recession over the past week with growth expected to contract for two consecutive quarters.

Fed fund futures have fully priced in 50-basis point rate cut by the Federal Reserve this month as expectations have built that the European Central Bank could cut rates for the first time in five years.

In another sign of the stress on credit markets, California, the most populous and richest U.S. state and the largest municipal borrower, said last week it mi"

Germay Bailout

Angela Merkel, speaking in the European Parlia...

TOPWRAP 4-Germany insures savings amid bank rescue talks | Markets | Markets News | Reuters: "Germany offered a blanket guarantee on banks deposits in a bid to contain a spreading credit crisis as officials scrambled to find new capital for least three European banks before financial markets open in what is likely to be a new week of uncertainty.

Germany said it would guarantee more than 500 billion euros ($693 billion) in private deposit accounts to protect savers from the worst global financial crisis since the 1930s. Austria quickly followed suit. 'We say to savers that their deposits are safe,' Chancellor Angela Merkel said at a news conference in Berlin. 'The federal government is also committed to that.'

The pledge came as German officials struggled to save lender Hypo Real Estate (HRXG.DE: Quote, Profile, Research, Stock Buzz), Belgium and Luxembourg raced to find a buyer for troubled financial group Fortis (FOR.BR: Quote, Profile, Research, Stock Buzz) and UniCredit (CRDI.MI: Quote, Profile, Research, Stock Buzz), Italy's second-biggest bank, was locked in talks aiming to raise new capital."

Citigroup - Sunday Update 2

Citi wins court order in battle for Wachovia: "Citigroup said in [a] statement that it is prepared to continue negotiating with Wachovia, but Wachovia may not speak to others. 'We are confident that we will complete our announced merger with Wachovia. Nothing in the court's temporary order impacts our ability to ultimately do that,' it said.

Some lawyers believe Citigroup could have a real case, noting the exclusivity agreement and the fact that Citigroup provided financial support to Wachovia last week. 'Those are clearly strong facts on Citi's side,' Morton Pierce, chairman of the mergers and acquisition group at law firm Dewey & LeBoeuf, said on Friday. Dewey & LeBoeuf is not representing any of the parties in the transaction."

Citigroup - Sunday Update

Wells Fargo's corporate headquarters in San Fr...

Citi wins court order in battle for Wachovia - Reuters: "Citigroup, which has sustained about $60 billion of write-downs and losses during the credit crunch, planned to buy Wachovia's banking assets with U.S. help, including partial government guarantees on a $312 billion Wachovia loan book.

The deal is important for Citigroup Chief Executive Vikram Pandit, who is looking to turn around the ailing bank in part by focusing on stable businesses such as consumer banking. Wells Fargo, the seventh-largest U.S. bank by assets, has managed to remain consistently profitable during the credit crunch. Its bid would not require government backing. Regulators said on Friday they had not looked at the Wells Fargo bid."

Double-whammy for Treasury?

MiamiHerald.com: "After the Treasury buys up their bad debts, businesses could write off the debt as a loss -- and pay less in taxes to the Treasury as a result. Banks and other financial institutions can conceivably write off billions of dollars in losses after they sell bad mortgage assets to the government.

The bailout measure allows as much as $700 billion of taxpayer money to be used by the Treasury Department to buy up distressed mortgage-backed securities. Those securities are now dead weight on banks' balance sheets, smothering their ability to lend to each other, businesses and consumers. If a company ends up selling its securities at a loss to the government, the amount of the loss may be applied toward a deduction on their corporate taxes -- meaning that in addition to the $700 billion, the U.S. Treasury may also see less money coming back in corporate taxes as a result of its own program."

States Feel Credit Impact

Seal of the State Treasurer of California

Image via WikipediaMassachusetts looks into federal aid - Oct. 5, 2008: "Massachusetts looks into federal aid
State treasurer looks for possibility of low-cost loans as credit markets become increasingly tight. The treasurer of Massachusetts has asked the federal government about lending Massachusetts money under the same favorable terms it has given banks and firms during the financial crisis.

Treasurer Timothy Cahill's requests to the U.S. Treasury and Federal Reserve Bank of Boston this week were prompted by the state's inability to borrow from the short-term debt markets, The Boston Globe reported Saturday. The financial turmoil has caused credit markets to stop lending, or to charge prohibitive rates.

California has made a similar request, saying it would run out of money by the end of the month if the short-term debt markets do not ease. The state asked whether it could not obtain loans from the Fed.

Massachusetts has enough money to cover its expenses for the coming weeks, Cahill said. But a low-rate loan would ease a cash shortfall if the credit problems persist. "That's all we would ask them to do: Treat us like the investment banks," Cahill said. Federal officials have not responded to his request, Cahill said Friday.

The state's borrowing problems come as it deals with a $223 million shortfall in projected tax collections during the first quarter of the state's fiscal year. On Thursday, Gov. Deval Patrick announced the first of what could be a series of cuts to programs and operations to deal with the sagging collections. "

Saturday, October 4, 2008

Bloomberg.com: Exclusive

NEW YORK - SEPTEMBER 10: A man talks on a cel...

Bloomberg.com: Exclusive: "Lehman Cash Crunch Caused by Lender JPMorgan, Creditors Say

Creditors say that Lehman Brothers Holdings Inc.'s main lender and clearing agent, JPMorgan Chase & Co., caused the liquidity crisis that led to Lehman's collapse".

JPMorgan had more than $17 billion of Lehman's cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank ``froze'' Lehman's account, the creditors claimed.

JPMorgan, the biggest U.S. bank by deposits, financed Lehman's brokerage operations with daily advances, while money market funds and other short-term lenders provided overnight loans, according to bankruptcy court documents. When JPMorgan shut Lehman off from funds, Lehman ``suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired,'' according to the filing.

The creditors asked the judge in charge of the case to let them interview a witness and request relevant documents from JPMorgan and to pursue possible legal claims. U.S. Bankruptcy Judge James M. Peck is scheduled to hold a hearing Oct. 16 on that request, the creditors said.

Help! What is LIBOR?

Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "Oct. 3 (Bloomberg) -- When Sheila Bair took over as head of the U.S. Federal Deposit Insurance Corp. in 2006, the agency was probably better known for the ``FDIC'' logo on the doors of the nation's banks than for anything it did.

Now Bair is at the center of the financial crisis, speeding the takeover of failing banks and pressing the mortgage industry to ease loan terms. And she's vaulted from the leadership of a once-sleepy regulator into the league of Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, winning praise from Democrats and Republicans.

``She has more power because of the situation on the ground,'' said Senator Charles Schumer, a New York Democrat. ``No one is going to put handcuffs on her.''

``She's going to be Treasury secretary someday,'' said Tim Adams, a former department undersecretary under President George W. Bush who worked with Bair when she was an assistant secretary.

In just the last week, Bair, 54, invoked never-before-used authority to avert a financial-system breakdown by brokering a deal for Citigroup Inc.'s to buy Wachovia Corp.'s banking operations. She seized Washington Mutual Inc. and sold it to JPMorgan Chase & Co. and convinced the Senate to temporarily increase the FDIC's insurance of individual bank deposits -- a move Paulson opposed."

Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "`Destroyed the Market'

To be sure, she has angered investors. Some Wachovia shareholders blame her for wiping them out when she helped engineer the sale and warn that other banks will suffer for it.

``That destroyed the market,'' said Peter Kovalski, senior portfolio manager at Alpine Woods Capital Investors LLC. ``Taking over a healthy, well-capitalized bank, the way they did, now investors are not going to be willing to invest in any bank.''"

Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "Industry Reluctance

Bair's efforts to prod mortgage lenders to reduce loan principals for borrowers in danger of losing their homes have been met with reluctance from the industry. And some analysts say she hasn't done enough to clear out insolvent banks.

``She really hasn't shown her mettle in aggressively seizing banks and helping to sort out solvency issues,'' said Joseph Mason, an economist at Louisiana State University.

Still, Bair -- a lifelong Republican who has made a career in regulation with a decidedly non-Republican bent -- has stood out in an administration that's been criticized for going easy on oversight.

Bair, who has pushed banks to carry less debt and for strong net capital standards, has been ``a tougher regulator in a reasonable way than most Bush appointees,'' said House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat."

Bloomberg.com: Exclusive

STOCKTON, CA - APRIL 29: (FILE PHOTO) A forec...

Bloomberg.com: Exclusive: "Spreading Crisis

And in the last two years, as the crisis has spread to the broader financial system, she's been getting out in front of fellow Republicans, including Bernanke and Paulson.

In September 2006 she told a Fannie Mae conference she was concerned that the proliferation of non-traditional mortgages such as option ARMs was a danger to the banking system. In March 2007, she called for ``aggressive'' foreclosure relief.

Two months later, as Paulson declared the housing market crisis more than half over, Bernanke echoed Bair and called on lenders and the government to intensify efforts to prevent home foreclosures.

``She was one of the first to say that you couldn't just do it by interest rates, that you had to reduce the principal and that you couldn't just do it one by one,'' Frank said in an interview. Bair wasn't available for an interview."

Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "Virtues of Regulation

Bair doesn't shy away from acknowledging the problems in banking. More of them will fail, she told Bloomberg News in a Sept. 26 interview.

``The number will go up,'' she said. ``Banks overall continue to be safe and sound and very well-capitalized.''

At an event at the National Press Club a few days earlier, she said the most high-profile problems are coming from non- banks.

``There is some virtue to regulation,'' she said."

Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "Making a Point

When Bair found herself in control of IndyMac in July, she used the bank to make her point. She suspended foreclosures on $15 billion worth of mortgages and sought to work out deals for the 60,000 borrowers who were behind in payments.

``My hope is that the program for IndyMac Federal Bank will be a catalyst for others across the country to modify their loans more rapidly and systematically,'' she told lawmakers at a hearing last month."

Thursday, October 2, 2008

What is a Credit Default Swap?

A credit default swap is a credit derivative contract in which the buyer makes regular payments to the seller in exchange for the right to a payoff if there is a default or "credit event." Basically, these are insurance contracts, which were widely sold as a hedge against declines in the markets for complex securities.

Wednesday, October 1, 2008

The accounting rule you should care about

From cnnmoney.com

NEW YORK (CNNMoney.com) -- It's easy to understand why the proposal to spend $700 billion in taxpayer money to rescue banks would inspire impassioned debate in Washington.

But in a sign of just how complex and controversial the current credit crisis has become, a move to potentially change accounting rules on how banks and Wall Street firms value the securities they own is almost as heated.

Some argue that tight accounting rules are a major reason for the credit crisis in the first place. Others contend that changing the rules will just bury problems lurking beneath the surface and could further shake investor confidence in the already battered financial sector.

Roots of the problem

First a bit of background. The one fact everyone agrees on is that the current financial crisis centers on trillions of dollars worth of mortgage loans that were packaged together into financial instruments known as mortgage-backed securities, or MBS. Those securities were purchased by banks and Wall Street firms.

But as home prices started to fall and foreclosures rose, the value of these securities plunged. Today, there is almost no market for the securities.

This is why Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke proposed that the government buy the securities. The hope is that doing so could restart the MBS market at something well above the current fire sale valuations and that the government could hold the securities until the market improves.

Some advocates of the plan argue that taxpayers will be able to eventually make money if the government sells the securities at a higher price down the road. But the more immediate hope is that banks and Wall Street firms, freed from the toxic loans on their balance sheet, will start lending again.

Friday, October 10, 2008

Wednesday, October 8, 2008

Tuesday, October 7, 2008

Monday, October 6, 2008

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