Daily Archives: July 14, 2008 @ 3:09 pm (Monday)

The $30 billion of Bear Stearns secs were sold to the Fed

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Doesn’t look like a funding operation.

Looks like JPM sold the Bear Stearns securities to the Fed and retained a first loss piece:

Text in JP Morgan’s 10Q:

“Concurrent with the closing of the merger, the Federal Reserve Bank of New York (the “FRBNY”) will take control, through a limited liability company (“LLC”) formed for this purpose, of a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as of March 14, 2008. The assets of the LLC will be funded by a $29 billion, 10-year term loan from the FRBNY, and a $1 billion, 10-year note from JPMorgan Chase. The JPMorgan Chase note will be subordinated to the FRBNY loan and will bear the first $1 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, the JPMorgan Chase note and the expense of the LLC, will be for the account of the FRBNY.”


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2008-07-14 Weekly Credit Graph Packet

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IG On-the-run Spreads (Jul 14)

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IG6 Spreads (Jul 14)

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IG7 Spreads (Jul 7)

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IG8 Spreads (Jul 14)

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IG9 Spreads (Jul 14)

First Bear Stearns, and now the agencies confirm the government is there to ‘write the check’; so, I expect credit spreads to continue to narrow over time.


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Reuters: Food price supports

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more inflation.

Prices are up due to short supplies due to biofuels and weather.

And the political response is handing out funds to those in need, even though that doesn’t create more to eat.

As previously discussed, governments have no choice but to step on the inflation pedal.

Whether it be for food support payments or financial sector support.

That’s how ‘democracy’ works.

(And democracy is way better than the second choice!)

World Bank’s Zoellick: Food prices high until 2012

by Alexandra Hudson

World Bank President Robert Zoellick said on Saturday he expected food prices to remain above 2004 levels until at least 2012 and energy prices would also remain high and volatile.

He repeated that with food and fuel prices in a “danger zone” there was a need for $10 billion to provide food and cash handouts for the world’s poorest.

Soaring oil and food prices have fueled inflation across the globe at the same time as economies slow, posing a sharp dilemma for lawmakers.


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FT: Time for comrade Paulson to pull the plug on the Fannie and Freddie charade

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Totally misguided regarding public purpose.

For one thing, the shareholders of the agencies are still there for ‘market discipline’ – all that’s been done for them is eliminated liquidity issues, not solvency issues.

At the end of the day a lot of houses were built for a lot of people who live there.

These are real assets and real standards of living that have been supported.

Is anyone arguing it’s a waste of real resources? That’s the real issue.

Also, fiscal policy is all about demand management, not a ‘pretty’ balance sheet by some arbitrary standard.

And, of course, without the fundamental understanding that the funds to pay taxes and buy government securities comes from government spending policy is likely to be suboptimal at best.

Also, note the bias towards ‘inflation’ that’s built into the political process.

This all supports prices and GDP.

There are no supply side constraints on government spending and/or lending with floating fx, unlike the gold standard of 1907/1930, and other fixed fx regimes, past and present.

Time for comrade Paulson to pull the plug on the Fannie and Freddie charade

by Willem Buiter

Are Fannie Mae and Freddie Mac adequately capitalised, as asserted recently by US Treasury Secretary Hank Paulson, Federal Reserve Board Chairman Ben Bernanke and their regulator Office of Federal Housing Enterprise Oversight Director James B. Lockhart III? The answer is: obviously not, if these two government-sponsored enterprises of the US federal government had to make a living on normal private commercial terms. Obviously not if they were subject to the market discipline preached by Paulson and Bernanke, but not practiced when it comes to large financial institutions perceived as systemically important (too large or too interconnected to fail) or too politically sensitive to fail.


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