Bloomberg: China Halts Interbank Lending With US, China Morning Post…


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This may actually help bring LIBOR down as the US banks don’t need USD funds from China while the rest of the world does.

China Halts Interbank Lending With U.S., Morning Post Says

By Joost Akkermans

Sept. 25 (Bloomberg) China’s banking regulator told domestic banks to halt lending to U.S. financial institutions in the interbank market to help prevent possible losses, the South China Morning Post reported, citing people it didn’t identify.

The ban imposed by the China Banking Regulatory Commission is for interbank lending of all currencies to U.S. banks, though not to banks from other countries, the English-language Hong Kong newspaper said today.

The decree came after the regulator obtained data about the risk of local banks to bonds issued by Lehman Brothers Holdings Inc., according to the newspaper. The CBRC wasn’t available for comment yesterday, the Morning Post reported.


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US gasoline demand


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While demand has been falling, it’s only down about 500,000 bpd year over year. World demand is growing faster than that and is still forecast to grow by about 1 million bpd in 2009, last I heard.

This means the demand for Saudi crude will stay more than high enough for them to continue to be swing producer/price setter.

Change in Gasoline Demand


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Bernanke-“Grave”


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Karim writes:

Not a word you often see a Fed Chairman use:

….stabilization of our financial system is an essential precondition for economic recovery. I urge the Congress to act quickly to address the grave threats to financial stability that we currently face.

He outlined the channels in which this impacts the economy in this paragraph:

Ongoing developments in financial markets are directly affecting the broader economy through several channels, most notably by restricting the availability of credit. Mortgage credit terms have tightened significantly and fees have risen, especially for potential borrowers who lack substantial down payments or who have blemished credit histories. Mortgages that are ineligible for credit guarantees by Fannie Mae or Freddie Mac–for example, nonconforming jumbo mortgages–cannot be securitized and thus carry much higher interest rates than conforming mortgages. Some lenders have reduced borrowing limits on home equity lines of credit. Households also appear to be having more difficulty of late in obtaining nonmortgage credit. For example, the Federal Reserve’s Senior Loan Officer Opinion Survey reported that as of July an increasing proportion of banks had tightened standards for credit card and other consumer loans. In the business sector, through August, the financially strongest firms remained able to issue bonds but bond issuance by speculative-grade firms remained very light. More recently, however, deteriorating financial market conditions have disrupted the commercial paper market and other forms of financing for a wide range of firms, including investment-grade firms. Financing for commercial real estate projects has also tightened very significantly.

When worried lenders tighten credit, then spending, production, and job creation slow.

Separately, he stated that:

  • Economic activity was ‘decelerating broadly’ and that second half growth would be ‘appreciably below potential’
  • He noted improved housing affordability but also that th
  • He cited the usual ‘over time’ for the economy to improve and that inflation would moderate ‘later this year and next’, with significant uncertainty attached to both forecasts.


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Greed and irresponsibility


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This displays a profound misunderstanding that is also likely shared by the McCain campaign.

From an email from the Obama campaign to supporters sent last night.

Friend —

The era of greed and irresponsibility on Wall Street and in Washington has created a financial crisis as profound as any we have faced since the Great Depression.

While not technically incorrect in terms of defaults and a few other financial measures, the financial crisis of the depression resulted in a collapse in GDP and double-digit unemployment. This financial crisis hasn’t even yet caused two quarters of negative GDP, and unemployment of 6.5% isn’t (yet) anywhere near the levels of recent recessions.

Congress and the President are debating a bailout of our financial institutions with a price tag of $700 billion or more in taxpayer dollars. We cannot underestimate our responsibility in taking such an enormous step.

The $700B is not the price tag for tax payers. The fiscal cost is equal to the losses government might take if they overpay for the securities they are purchasing.

Whatever shape our recovery plan takes, it must be guided by core principles of fairness, balance, and responsibility to one another.

Agreed, and a good working knowledge of public accounting would go a long way to getting there.

Please sign on to show your support for an economic recovery plan based on the following:

• No Golden Parachutes — Taxpayer dollars should not be used to reward the irresponsible Wall Street executives who helmed this disaster.

• Main Street, Not Just Wall Street — Any bailout plan must include a payback strategy for taxpayers who are footing the bill and aid to innocent homeowners who are facing foreclosure.

• Bipartisan Oversight — The staggering amount of taxpayer money involved demands a bipartisan board to ensure accountability and oversight.

Show your support and encourage your friends and family to join you:

http://my.barackobama.com/ourplan

The failed economic policies and the same corrupt culture that led us into this mess will not help get us out of it. We need to get to work immediately on reforming the broken government — and the broken politics — that allowed this crisis to happen in the first place.

Yes, like putting controls in place to minimize fraudulent loan applications. But I suspect lenders have already done that.

And we have to understand that a recovery package is just the beginning. We have a plan that will guarantee our long-term prosperity — including tax cuts for 95 percent of families, an economic stimulus package that creates millions of new jobs and leads us towards energy independence, and health care that is affordable to every American.

Increasing demand before cutting our crude and gasoline imports will result in deteriorating terms of trade and a declining standard of living.

It won’t be easy. The kind of change we’re looking for never is.

Particularly when no one in Washington seems to understand public accounting.

But if we work together and stand by these principles, we can get through this crisis and emerge a stronger nation.

Yes, worst case the fiscal ‘automatic stabilizers’ will get us through as they always have.

Thank you,

Barack


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700BB


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On Wed, Sep 24, 2008 at 4:51 AM, Sean asks:

Do u think treasury will manage their new mortgage portfolio like a conventional manager – hedging the negative convexity with swaps and swaptions?

Good question!

I wouldn’t; they might.

It wouldn’t serve public purpose to do that. It would add to volatility.

Just doing the exchange reduces volatility as the government absorbs it, which I see as serving public purpose.


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Re: Amendment of ERISA


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(an email exchange)

Good find!

yes, this had to have contributed to the boom/bust and encouraged/sustained the rampant lender fraud that has resulted in the elevated defaults.

hopefully the pension funds have learned their lessons (the hard way, unfortunately but as always seems to be the case) and will dig deeper than just using the ratings agencies and diversification when they invest.

Warren

>   
>   On Wed, Sep 24, 2008 at 2:50 AM, Eric Tymoigne wrote:
>   
>   
>   All,
>   
>   I have finally found what I have been looking for a while.
>   
>   ERISA was amended on November 2000 to allow Pension Funds and Employer
>   benefit program to buy ABSs with investment grade below A, and to buy senior
>   tranches of CDOs as long as they have an investment grade of at least AA (at
>   least is how I interpret the sentence “the Amendment permits inclusion of
>   assets with LTVs in excess of 100%. However, securities backed by such
>   collateral (a) must be senior (i.e., non-subordinated) securities and (b) must
>   be rated in either of the two highest generic ratings categories by a rating
>   agency.”).
>   
>   All this, it seems to me that this is what has allowed, or at least initiated,
>   what we have seen in the 2000s. CDS, CDOs-squared, under-regulated
>   mortgage companies etc. were all there already but not until this came up did
>   the all thing got out of hand and subprime mortgage started to boom.
>   
>   Any thoughts?
>   
>   Best,
>   Eric
>   


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2008-09-24 USER


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MBA Mortgage Applications (Sep 19)

Survey n/a
Actual -10.6%
Prior 33.4%
Revised n/a

 
The MBA index of loan requests for home purchases fell 10 percent to 342.2.

Not good, but down from a larger spike last week, and still well above the lows.

Housing still looks to have bottomed albeit from very low levels.

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MBA Mortgage Purchasing (Sep 19)

Survey n/a
Actual 342.2
Prior 380.4
Revised n/a

 
A move down after a larger spike up, still off the bottom.

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MBA Mortgage Refinancing (Sep 19)

Survey n/a
Actual 2043.4
Prior 2300.0
Revised n/a

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MBA Mortgage Applications TABLE (Sep 19)

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MBA Mortgage Applications TABLE 2 (Sep 19)

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MBA Mortgage Applications TABLE 3 (Sep 19)

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MBA Mortgage Applications TABLE 4 (Sep 19)

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Existing Home Sales (Aug)

Survey 4.94M
Actual 4.91M
Prior 5.00M
Revised 5.02M

 
A bit worse than expected, prior revised up a bit. Still looks like it’s past the bottom.

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Existing Home Sales MoM (Aug)

Survey -1.2%
Actual -2.2%
Prior 3.1%
Revised 3.5%

 
Also worse than expected, and last month revised up.

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Existing Home Sales YoY (Aug)

Survey n/a
Actual -10.7%
Prior -12.8%
Revised n/a

 
Declines still dimishing.

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Existing Home Sales Inventory (Aug)

Survey n/a
Actual 4.255M
Prior 4.575M
Revised n/a

 
Good size drop as foreclosures get liquidated.
Along with plunging new home inventories and a lot of existing homes not livable, it looks to me like supply is starting to get thin.

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Existing Home Sales ALLX 1 (Aug)

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Existing Home Sales ALLX 2 (Aug)


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