All the King´s Horses or Rearranging the Deck Chairs on the Titantic?
 “Humpty Dumpty sat on a wall: Humpty Dumpty had a great fall. All the King’s horses and all the King’s men couldn’t put Humpty Dumpty in his place again.”
Doug Noland recently looked over the Fed Z1 report for the 3Q. The data and his comments can be found in the last paragraphs. This is the key statement in the review:
Total (non-financial and financial) Credit growth accelerated from Q2’s 8.6% pace to a remarkable 11.1% annualized rate.
So the Z1 report gives the impression that credit and importantly the underlying securities backing credit are still in boom like conditions. Is ¨credit growth¨ actually what is still transpiring? I think not, and would submit that the Z1 report at this stage is about as worthless as other official reports I have commented on.
What we see in this report is the nominal face value of credit and securities that have been issued as liabilities in the system. It is important and in fact essential to recognize that although the word ¨credit¨is used to label this, in actuality these are ¨liabilities¨. And here is an overall picture of the quantity of liabilities already out there.
Click to enlarge:
When looked at this way and against the events in the economy, I believe that intuitively we can gauge just how big the problem is. The overriding question is, how much of this liability leviathan is still solvent or even fully priced at par? Is there really still $47 trillion in credit market debt still outstanding? Is this still even growing, or is it in fact contracting? And even if it is still growing in nominal terms via new Ponzi finance issuance, what is actually happening with these securities in real or market terms? The use of the word ¨äctually¨is a key concept of my analytical thinking.
Another important question to ask now is what is the impact or effect of injecting a few billion here and there of new capital into the walking wounded.? This gives the impression that all the King´s horses are out to rescue Humpty Dumpty. But remember the rescuers typically aren´t all the King´s horsemen at all, but other Playas with a strong vested interest in Ponzi finance. These rescuers are in fact almost always other Ponzi prisoners and wall sitters, with their own sets of liabiliites to prop up. Just taking one example of this, MBIA,, does a billion from Warburg Pincus really matter, or are the Boyz just rearranging the deck chairs on the Titantic? Even with a billion does this look like a AAA rating? From the Financial Times.
‘Essentially, we can assume MBIA is on super-secret probation,’ said Rob Haines, an analyst with CreditSights. Michael Cox, securitisation analyst at RBS in London, said the next two weeks would be a critical period… ‘[These companies] have become the focus for those searching for the next domino to fall as the credit crisis unfolds,’ he said. MBIA insures just over $1,000bn of municipal and structured finance bonds. However, it only had the ability to pay $14.2bn of claims as of September 30.”
The evidence is acute that numerous sectors of the liability Leviathan are also being destroyed at a fast clip. Will new capital injections in even the tens of billions from true Ponzi finance believers really matter?
Mike Kirby, head of research at Green Street Securities, a specialist in quoted real estate companies, says: “The CMBS [commercial mortgage-backed securities] market for the most part is shut down and dysfunctional right now. Banks still have an enormous amount of paper on their books from six months ago when lending standards were much looser.”
Credit expansion or contraction?
Dec. 10 (Bloomberg) — UBS AG will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by a European bank, and replenish capital by selling stakes to investors in Singapore and the Middle East.
Rearranging the deck chairs or all the King´s Horses?
Europe’s largest bank by assets plans to raise 13 billion Swiss francs ($11.5 billion) from Government of Singapore Investment Corp. and an unidentified Middle Eastern investor by selling them bonds that will convert into shares, Chairman Marcel Ospel said on a conference call with reporters today.
WaMu, credit contraction= seeks new capital: gee is there a pattern here, and is this actually ¨credit growth¨? Bernard Ducalion looks at the exposure involved, and the slivers of equity capital supporting it for WaMu and Countrywide. These write offs look rather token.
Dec. 10 (Bloomberg) — Washington Mutual Inc., the biggest U.S. savings and loan, will write down the value of its home lending unit by $1.6 billion in the fourth quarter. Washington Mutual, known as WaMu, said today it will sell $2.5 billion of convertible stock.
Real versus nominal credit growth or contraction?
A report yesterday by Standard & Poor’s found that about 30 U.S.-oriented enhanced cash funds rated by S&P had lost a total of $20 billion, or 25%, of their assets, in the third quarter. In one of the more dramatic instances, one fund (which S&P declined to identify) saw its assets under management shrink by 98%, or $2.5 billion.
And in actuality just how much demand really is there for deck chairs?
WASHINGTON (AP) — Mortgage finance giants Fannie Mae and Freddie Mac are changing their criteria for purchasing delinquent home loans they’ve guaranteed, in order to reduce the number they buy from investors, the companies said Monday.
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