November 21, 2007
Most Read Credit Crisis Stories (20-Nov-07)
Eight stories from the “Most Read” today … read ‘em and weep.
- Freddie Posts Loss, May Cut Dividend; Shares Plunge
- At Subprime Event Too Early to Tell Who’ll Survive
- Fed Pares Growth Forecast, Calls October Cut `Close’
- Credit Market Collapse Claims Victims as Lawyers Exit
- Citigroup, Bank Credit Swaps Rise on Subprime Concern
- Federated Investors Bails Out Cash Fund After Losses
- Corporate Bond Risk Increases as Freddie Mac Posts Record Loss
- Northern Rock May Not Get Extended Aid; Bids Reviewed
“Freddie Mac had $1.2 billion in provisions for credit losses and reduced the value of assets by $3.6 billion … A slump in the value of mortgages reduced core capital by two-thirds to $600 million more than Freddie Mac’s regulatory requirements, prompting the company to seek more money … Freddie Mac’s $713.1 billion portfolio as of September included $105 billion of securities backed by subprime mortgages.”
“‘These events tend to become deeper and play out longer than most people initially expect. This is one of the slowest-moving train wrecks we’ve seen,’ says Michael Mayo, an analyst who covers securities firms at Deutsche Bank AG in New York.”
“‘Participants generally viewed financial markets as still fragile and were concerned that an adverse shock — such as a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses — could further dent investor confidence and significantly increase the downside risks to the economy,’ the minutes said.”
Further dent? Body slam unfortunately is not a term you see in Fed minutes.
“While structured finance practices have been hit the hardest, mergers and acquisitions and private equity practices also face a slowdown … ‘the market has caved in.’”
“… analysts predict that writedowns by banks and securities firms, already $50 billion worldwide, will continue to grow.”
“Enhanced cash funds, which hold about $850 billion in assets in the U.S., are sold to wealthy investors and institutions as an alternative to money-market funds, offering higher yields by buying riskier assets such as mortgage-backed securities.”
“Countrywide’s ’survival strategy has depended on access to the secondary markets through’ Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, analyst Howard Shapiro wrote in a research note. ‘That strategy is less viable in an atmosphere where’ Fannie and Freddie are ‘capital constrained and may need to shrink.’”
“The government expects ‘the costs and risks associated with Northern Rock to be borne to the greatest extent possible by the current and future private sector providers of capital,’ the Treasury said.”
The “greatest extent possible” may turn out to be very little indeed.
November 21st, 2007 at 6:38 pm
C.M.
Haven’t seen you mention this but it appears that someone you have mentioned in the past as being a good judge of value (Marty Whitman) has a 10% stake in this company. Has he lost his touch ?
http://tinyurl.com/38oten
November 21st, 2007 at 7:21 pm
Todd: I have a lot of respect for Marty Whitman … everybody makes mistakes, even smart guys who are good judges of value. This crisis is a lot bigger and deeper than many, especially uninformed nitwits like me, expected.
November 21st, 2007 at 11:18 pm
Hi C.M.
I am increasingly interested in looking into the Japanese market, despite the disappointing stock market and recent Yen rally. Have you any friends who are experts in that area that you could kindly introduce me to? Or maybe you can spend some time write on Japan in your blog to share your view with the rest of us.
:)
November 22nd, 2007 at 7:22 am
ACA is toast. I hate to say it, but I also believe CFC has less than a 50% chance of survival.
This monster has been a LONG TIME coming.
November 22nd, 2007 at 2:39 pm
@Yuan: I dont’ know anything about the Japanese market or know anyone who does, but I plan to have a Japan section of my daily trading ideas newsletter ($15 intro month, $30 monthly thereafter) which will launch next month … that may give you some ideas.
November 27th, 2007 at 8:42 pm
CM
Not sure if you’re able to view this short video from Jim Cramer but he talks of how he recently visited southern California and saw miles and miles of empty homes. He comments that “if you’re on the East coast, you have no idea how bad it is out there.”
http://tinyurl.com/yqof7s
November 27th, 2007 at 9:12 pm
Todd: No, it won’t load for me. I think the market discounted those miles and miles of empty homes months ago but I may have too much faith in Mr Market’s judgment.