Sunday, Oct 14, 2007
Enter the Liquidity Enhancer (so we can go on partying for a bit longer)
FT: Banks line up $75bn mortgage debt fund
"Citigroup, Bank of America and JPMorgan are on Monday expected to announce plans for a fund to buy mortgage-linked securities in an attempt to allay fears of a downward price-spiral that would hit the balance sheets of big banks.
A person familiar with the discussions said that US banks collectively were expected to put up credit guarantees worth about $75bn for the fund, named the Single-Master Liquidity Enhancement."
Posted by trough2010 @ 11:05 PM (553 views) Add Comment
10 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. whiteknight said...
Some observations:
1. Is the method of calling in the CEOs of the investment banks and "encouraging" a solution a slicker way to move than happened here in the case of Northern Rock (regardless of whether what they are doing is sensible)? Of course, the bank met with the bank bosses here, but it looked like just a braying for free money. The "solution" was as hamfisted as the recent tax changes.
2. Re-packaging some stuff to pretend it isn't there doesn't fool anybody with a functioning cerebral cortex. Infact it merely confirms what they originally thought. Which is that this problem is just too big to treat in any normal way; such as a write-down of a loss.
3. Further parties also believe that the write-downs varied from bank to bank. Presumably as we speculated each bank just chose to get to a hand they thought everybody would wear for now. There is still no real appreciation for the scale of the problem. People in general know no more now than they did a few weeks ago. They have just decided they do. Hence, we will have another blow out imminently, whereupon they will be reminded of this fact. Most likely they will be losing money at the same time as they are being reminded.
2. David Smith's Sub Prime. . . said...
Did anyone see Bird and Fortune on last night's South Bank show?
3. tyrellcorporation said...
What's the bets this fund has been magicked out of thin air using some surreal financial instrument. I doubt very much they have a safe full of $75bn dollars in case things turn nasty. More debt mountains to pay for the wobbly debt mountain!
4. mrmickey said...
But how will these banks know what these mortgage backed securities are worth and therefore what they should pay for them they could be worthless. I would have thought no bank in their right mind would want to buy these securities, so I assume things are very very bad out there, I think it's a case now of either banks buying these valueless securities by printing more money or financial meltdown is going to ensue.
5. Smokenmirrors said...
Let's see if I understand this correctly: several banks are holding SIVs etc off-balance-sheet, and no one wants to buy these SIVs the open market (they are backed by sub-prime mortgages and would have to be sold at a loss). So these same banks are creating a 'fund' which will buy them at a rate above the open market, so they can say "Look - we've sold these SIVs at a great price! All is well!", to their shareholders? Will anyone be fooled?
6. This comment has been removed as it was found to be in breach of our Blog Policies.
7. Icarus said...
The underlying bad debt won't go away. Schemes of this kind are proposed by executives in order to postpone the day of reckoning with investors. Also, the scheme covers only 'highly rated assets' - does this exclude sub-prime, which is, after all, the root of the problem?
8. iguana said...
Following the Bird and Fortune logic, no doubt the Single-Master Liquidity Enhancement Fund (such lovely big reassuring words!) will then be bundled up into nice shiny new CDO's and sold on to suckers (investors). Well then that solves all of the problems doesnt it?
9. trough2010 said...
Quite funny how this morning's 'Wake Up To Money' show (BBC Radio 5 Live) asked whether anyone would want to buy these investments: http://www.bbc.co.uk/radio/podcasts/money/
10. inbreda said...
Seriously - this sounds like market manipulation to me and must surely be illegal. They are "pretending" to have enough money to pump into the system to keep it alive if things go wrong in the hope that it will reassure everyone enough so that nothing goes wrong. Apart from the fact that they probably magic the money out of nowhere using some financial instrument which probably caused this mess to start with, they are talking up the market in which they are invested. That is surely illegal. It would be like the government selling lots of property immediately before announcing rate hikes and a pledge not to bail out any more banks.