Dustdevil writes:
Because there will be no commercial paper to sell...

DEFLATION BABY!
Dustdevil | 12.21.07 - 2:08 pm | #

James writes:
May be obvious or perhaps not so obvious, like the elephant in the living room: evidently MS and UBS and MER have had to sell some of themselves to foreign sovereign funds for the simple reason that NO US investor wants to put any of his money in them. Either because he is too scared, or doesn't have the money, or whatever. When you have to go abroad to "strangers" tp be salvaged, I'd say things are pretty bad. BAD. Has this really sunk in yet?
James | 12.21.07 - 2:13 pm | #

tj & the bear writes:
I'd say things are pretty bad

Not according to the Street. Apparently Santa Claus is a foreigner bearing cash!
tj & the bear | 12.21.07 - 2:19 pm | #

chippers writes:
Now that we're all prime, don't you just feel better? I know I do!
chippers | 12.21.07 - 2:36 pm | #

Average Joe writes:
I hear alot of the bulls/optimists claiming that these foreign cash infusions are a signal that these problems are short-term and overblown. They point out that these investors are not stupid, they are very savvy and know what they are doing.


In the next breath they point out all the Money Market cash sitting on the sidelines, waiting to come back into the market at a moment's notice.

Well, I guess they are implying that foreign money knows more about what's going on in this country and in these corporations that the people actually in these corporations and in this country.

I find that hard to believe.
Average Joe | 12.21.07 - 2:39 pm | #

Broward Horne writes:
they decided not to just re-write the rules

Maybe they're hoping for better publicity from the next nosedive?
Broward Horne | Homepage | 12.21.07 - 2:39 pm | #

Dustdevil writes:
This is a heroin addict market. The market just went into respiratory arrest and the paramedic's are intubating (write downs). It will be FORCED awake with a dose of Narcan intraosseous, followed by copious amounts of vomiting. (deflation)
Dustdevil | 12.21.07 - 2:41 pm | #

mp writes:
The Conjure Clock reads 11:59:00.
mp | 12.21.07 - 2:47 pm | #

daveNYC writes:
Aw crap, we've started using the clock with a second hand.
daveNYC | 12.21.07 - 2:52 pm | #

mp writes:
"Markit and the dealer community remain fully committed to the index and will update the market as and when appropriate."

It's touching, isn't it? Kind of like a one-night stand.

I'll call you in the morning.
mp | 12.21.07 - 3:02 pm | #

12th percentile writes:
The conjure clock is almost as exciting as the Y2K Bug countdown. That one was a bit anticlimatic.

Will Dick Clark be hosting Conjure's countdown?
12th percentile | 12.21.07 - 3:04 pm | #

awgee writes:
WSJ - Banks decide not to go forward with Super SIV due to lack on interest. HE-he
awgee | 12.21.07 - 3:14 pm | #

sr writes:
Mega SIV fund abandoned

www.cnbc.com
sr | 12.21.07 - 3:14 pm | #

mp writes:
"Will Dick Clark be hosting Conjure's countdown?"

No. It has to be someone sophisticated and urbane, with a cane and top hat.

I thought about Henry Mencken, but he wouldn't celebrate it, he'd analyze it. No, it has to be someone like Fred Astaire, or Cole Porter, but they're both dead.

And, there has to be a chorus line, with lots of shimmering, glittery gals.
mp | 12.21.07 - 3:15 pm | #

sk writes:
CNBC reports that the SIV dies due to lack of interest. Man, I wish there had been a vehicle to short it.

-K
sk | Homepage | 12.21.07 - 3:15 pm | #

Robert Coté writes:
Ummm am I correct in describing this as an ABX reset freeze? I guess everything is contagious now.
Robert Coté | Homepage | 12.21.07 - 3:16 pm | #

S N writes:
Perpetual lending through TAF is a big suicidal mine that is going to destroy those banks that makes use of it to save them.

Why?
• To borrow money, these banks have to exchange collateral and these collaterals has to be some form of securities.
• Banks don’t own stocks. Which means these collaterals has to be either treasury securities or CDOs, MBX and etc.
o It is here the problem comes into surface. The money comes from TAF can’t be used to leverage. So to get non-leverage cash, you could only use non-leveraged collateral.
o Using treasury as collateral means, negative cash flow since the interest earned on treasury is lower than the interest paid to TAF against these collateral. So, the TAF essentially drains the money over long term from the bank when the collateral is treasury.
o Under using non-treasury, assuming that non-treasury securities yield more than the interest paid to TAF cash, you still make some balance income. But now your positive income is reduced. So anyone banks that leveraged based on their cash-flow will get a big hit.
 As long as these collateral pays earns interest from the original borrowers to the banks (in case of credit issue), the banks are safe. But they can’t lend any more money and have to hoard cash for themselves to pay off their TAF borrowing. Since this cash hoarding by banks is going to freeze future lending which is going to reduce the future borrowers of these securities, the price and values of these securities are going to go lower as time proceeds. Losing value is going to cause some of the borrowers who put these collaterals are going to BK. The BK causes two types of problem, one the banks are going to lose interest they earn against the BK collateral. Once the critical mass of collaterals stops earning interest, the banks would be left holding these collaterals. This is the day of reckoning for the banks. Since the money borrowed from TAF can’t be lent or leveraged, you have a pile of cash that doesn’t earn any money but drains the existing capitol. With the fractional reserve system, the remaining small amount of cash is going to evaporate instantaneously. The bank is insolvent at this moment.
 Now here is the kick; Since large number of banks are borrowing money from TAF, the probability and possibility of simultaneous banks runs are going to be extremely higher. Large number of banks going insolvent within a small period of time is going to cause bank-runs on all other remaining banks simultaneously in a spiral way.
 These banks if they are public, then they are not going to go down without draining further money in the form of share dilution or investment in them.
 The other kick here is that the most amount of money created from thin air (TAF) is going to go back to thin air by paying off TAF.
 The remaining money would be shared among bank account holders against their money they lost in their insured accounts. In this case, the collater
S N | 12.21.07 - 3:17 pm | #

LaSalle Street writes:
super-siv is dead http://online.wsj.com/article/ SB...s_us_whats_news

This just a few days after they said all systems were "a-ok" and they were going to start right after the new year.

Second, yes no ABX 08-01 but Markit.com is getting ready to roll out an alt-a CDX in Janaury. Son of ABX
LaSalle Street | 12.21.07 - 3:18 pm | #

Geoff writes:
Give it a bit less than an hour 12th percentile... the Friday afternoon tiptoe into the confessional is coming up soon. Remember, conjure clock is event driven (and practically on geological time.) But also remember, it's still creeping ever closer to midnight, like a steamroller with no one at the controls and full of fuel. Keep grabbing those nickels...
Geoff | 12.21.07 - 3:18 pm | #

ac writes:
Not according to the Street. Apparently Santa Claus is a foreigner bearing cash!

...

BULLETIN U.S. STOCKS SURGE, DRIVEN BY TECHNOLOGY EARNINGS; DOW INDUSTRIALS UP MORE THAN 200 POINTS

...

I guess the quadruple witching has absolutely nothing to do with it?

It's kinda scary when the entire financial system, including the media, is configured to artificially concentrate real wealth.

ac | 12.21.07 - 3:20 pm | #

Robert Coté writes:
Nah, Conjure's Countdown will be hosted by some tough but classy broad in a housecoat and bunny slippers from her barcalounger while swilling Martinelli's sparkling cider telling all those damn lookie loos to get out of the way, she's trying to watch S&L trial reruns on late night Court-TV.
Robert Coté | Homepage | 12.21.07 - 3:22 pm | #

S N writes:
 The remaining money would be shared among bank account holders against their money lost in their insured accounts. In this case, the collateral provided to TAF becomes FEDs property since they lost their cash lent against them. But this would happen only after FDIC BK.
 Any collateral left in TAF after their borrower BK, has to be auctioned since US government can’t hold private properties and hence banks will put only collaterals that are zero value in the open market. This will happen over the period of subsequent TAF auction rather than in the initial auction.
• Monetization of bad debt held by banks is started through perpetual TAF auction at the cost of destroying banks


My personal feeling is that this coming depression would be in many magnitude compare to the last depression for the simple reason that interest rate would be going up to sky while the it ravaging peoples life.
S N | 12.21.07 - 3:23 pm | #

awgee writes:
According to Steve Liesman, no Super SIV means the distress in the credit market is decreasing.
awgee | 12.21.07 - 3:24 pm | #

Tanta writes:
Ummm am I correct in describing this as an ABX reset freeze?

I wouldn't call it that.

I'd say there's no new index because there aren't enough new securities to make an index out of. So this is a measure of how far H02 07 subprime mortgage originations/security issues have fallen: to the point where there aren't enough to create a composite index.

Of course it's related to the reset freeze: servicers are freezing rates because there are no refi opportunities for existing loans (or purchase financing for would-be buyers).
Tanta | Homepage | 12.21.07 - 3:24 pm | #

uncle festus writes:
OT-

I guess the Super-Siv is dead. M-LEC, we hardly knew ye...


http://online.wsj.com/article/ SB...s_us_whats_news
uncle festus | 12.21.07 - 3:27 pm | #

Robert Coté writes:
This is a measure of how far H02 07 subprime mortgage originations/security issues have fallen: to the point where there aren't enough to create a composite index.

Exactly. The new index would be thin, volatile, and dangerous. IOW an index that reflects the underlying securities.
Robert Coté | Homepage | 12.21.07 - 3:28 pm | #

Dustdevil writes:
The Vault is closed :)

http://www.federalreserve.gov/re...ses/h3/Current/
Dustdevil | 12.21.07 - 3:31 pm | #

Dustdevil writes:
I'd say there's no new index because there aren't enough new securities to make an index out of. So this is a measure of how far H02 07 subprime mortgage originations/security issues have fallen: to the point where there aren't enough to create a composite index.

And what does that ell you about the Macro Economy?
Dustdevil | 12.21.07 - 3:33 pm | #

Red Pill writes:
I guess the quadruple witching has absolutely nothing to do with it?

It's kinda scary when the entire financial system, including the media, is configured to artificially concentrate real wealth.

ac | 12.21.07 - 3:20 pm | #


I finally realized this truth last year. Lot's of people joke about how it's tough for the little guy but ignorance of the actual workings is low enough to keep idealisms alive.

I finally dug into the gory details last year and discovered it was actually true.

Bummer.
Red Pill | 12.21.07 - 3:34 pm | #

Tanta writes:
Exactly. The new index would be thin, volatile, and dangerous. IOW an index that reflects the underlying securities.

Actually, I suspect that if they did create an index with the few deals they have to work with, you might have a less volatile and dangerous thing. That is, assuming that the few deals that got put together in H02 were the very cream of the crap.

Now, if you put together an index of the loans that ended up stuffed onto somebody's balance sheet somewhere because they couldn't get securitized . . . that'd be an ugly thing.
Tanta | Homepage | 12.21.07 - 3:34 pm | #

Tanta writes:
And what does that ell you about the Macro Economy?

Why, it tells me that we need Hope! Now!
Tanta | Homepage | 12.21.07 - 3:36 pm | #

Dustdevil writes:
Tanta -

Inflation or Deflation?
Dustdevil | 12.21.07 - 3:37 pm | #

Mike writes:
Red Pill, what did you find?
Mike | 12.21.07 - 3:40 pm | #

-ck- writes:
At the mortgage lender fair is September, a rep from Option One said they'd become a prime lender with sub prime rates. Most of the other formerly sub prime lenders were in a similar position -- trying to create a prime or FHA business model out of the wreckage of what they used to be.

The 1/5/08 lender fair should be interesting . . .
-ck- | 12.21.07 - 3:40 pm | #

Worried writes:
"Of course it's related to the reset freeze: servicers are freezing rates because there are no refi opportunities for existing loans"

wow. been following this all night and day and I had not realised that as one single sentence. Kind of makes Paulsons comments be seen in a kinder light. Desparate situation. His "forced down" comments seem reasonable now. Certainly concentrates the mind to see just how grim this is.
Worried | 12.21.07 - 3:49 pm | #

dr strangemoney writes:
mp: The Conjure Clock reads 11:59:00.

Oh cheap soap opera! You can only juice that one so many times before I'm desensitized. Next thing we know, we'll find out the clock runs backwards. And then we'll find out the clock turns out to be the O-Joe Clock, the mysterious, long lost twin clock of the Conjure Clock and is a countdown until the recession is over.
dr strangemoney | 12.21.07 - 4:10 pm | #

James writes:
Vivien Merrill Lynch Morgan Stanley Bear Stearns Leigh in Streetcar: "I've always depended on the kindness of strangers" (as she is led off to the insane asylum).
James | 12.21.07 - 4:13 pm | #

mp writes:
Dr. Strangemoney, my record, and that of Conjure Bag, is well-known here. We made the call on this crisis months ago. If we've made an incorrect call since then, please point it out to us.

As to the Conjure Clock, the rules are what they are. Sorry.
mp | 12.21.07 - 4:21 pm | #

sk writes:
re:S N

That's a fascinating thesis. Let me explore and question and clarify some aspects, ok ?

The money comes from TAF can’t be used to leverage.


The reasoning to back this would be that they have to pay it back in 28 days and there's NO guarantee that they'll be able to borrow it again (and so create a rolling loan ) from the Fed, since the bid/cover ratio is around 3, right ? And there's no point in a perfectly efficient system to borrow it from another bank since THAT bank may as well do the leveraging itself - and anyway scrambling every 28 days would be heart-stopping, right ?

Since this cash hoarding by banks is going to freeze future lending which is going to reduce the future borrowers of these securities, the price and values of these securities are going to go lower as time proceeds.


I don't follow the above. Care to clarify that ?

If I can be persuaded of the above then the rest follows ( to me ).

I suppose then that the TAF really is fulfilling its very narrow purpose of providing liquidity and NOT a permanent injection of funds ( and we also know that the Fed's has cut back its TOMO in the same amount as the TAF ); but perversely, your thesis suggests that they not only don't just maintain the status quo but actually make things worse. Fascinating.

-K
sk | Homepage | 12.21.07 - 4:29 pm | #

giacutter writes:
Dick Clark hosting the CB clock countdown?

Nah.

I have an image of Wolf Blitzer, giving a play-by-play just like he did from the Baghdad hotel 16 years ago.
giacutter | 12.21.07 - 4:39 pm | #

Speed writes:
ok, what's Conjure Clock?
Speed | 12.21.07 - 4:42 pm | #

12th Percentile writes:
Actually I think I saw the O-Joe clock at my local pawn shop.
12th Percentile | 12.21.07 - 4:58 pm | #

hiker90 writes:
Tanta,

Stocks or bonds?

Puts or calls?

Gold or platinum?

WSJ or NYT?

White wine or red wine?

SNL or MadTV?

Football or futbol?

I've gotta get my slap happy self out of the office. Pulled an all nighter to finish a report for work and am on my 3rd thermos of coffee.

Safe travels y'all.
hiker90 | 12.21.07 - 4:59 pm | #

S N writes:
Leveraging constraint is part of the TAF borrowing put by FED.

Since TAF puts limitation of not leveraging the borrowed money, the banks would be forced to hoard the cash to repay TAF debt (to prevent the cash-flow drain in case of non-treasury securities collateral; loss in case of treasury securities collateral).
S N | 12.21.07 - 5:01 pm | #

albrt writes:
"evidently MS and UBS and MER have had to sell some of themselves to foreign sovereign funds"

Good thing we don't elect commies who would regulate markets and socialize certain parts of the economy.

Instead we let con men loot everything and run it into the ground, then we sell ourselves off to the Chinese communists.

We will be much better off under the unelected Chinese communists than under home-grown, elected leftists who would have reduced "growth" (defined as the velocity with which money moves into the pockets of Wall Street bankers) by regulating.
albrt | 12.21.07 - 6:53 pm | #

dr strangemoney writes:
mp: If we've made an incorrect call since then, please point it out to us.

I was just joking about the addition of seconds to the clock. Sort of like where it takes all summer for somebody to drive to the hospital on a soap opera.
dr strangemoney | Homepage | 12.22.07 - 4:15 pm | #

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