Last night I dreamt that the cookie monster was the credit crunch and he was munching through a pile of cookies that were actually various banks and building societies. Keep that image in your mind, as you go through a couple of stories detailing the remorseless spread of credit problems around the world.
Northern Rock may have found a buyer
The Wreck may have found a saviour. Branson and his Virgin money outfit are now the preferred bidder. Virgin stands ready to repay £11bn of the Bank of England's loan. The remaining £9bn will be paid off at some distant point in the future. Nevertheless, the Bank of England must be relieved. The Wreck is finally off their hands, and they can now prepare for similar emergency funding should other distressed building societies and buy-to-let mortgage lenders slip into trouble. Whoever could we mean!!
HSBC in $35bn SIV bail-out
What exactly is a SIV? This article says that SIV stands for Structured Investment Vehicle. Whatever it is, it is a very expensive piece of financial engineering. HSBC have just forked out a cool $35bn to cover losses of two of their SIVS. That is almost three quid for every person on the planet. Rather than foolishly speculating on asset backed commercial paper, HSBC could have bought everyone on dear old mother earth a big mac.
Credit crunch will slow growth
Do you remember back in the summer when you first heard those terrible words - credit crunch? At the time, we were safely assured that it would be but a passing phase, and that economic growth would continue undaunted.
Unfortunately, the world is waking up to the real possibility of a recession in 2008. Today, the Financial Times acknowledges the risks to growth. Talking of the possibility that house prices might fall by up to 25 percent, the FT concludes that "it is hard to believe declines of anything like this magnitude will not lead to a dramatic slowing in the consumer spending that has driven the economy in recent years."
Credit crunch spreads to Asia
The infection spreads. Asian investors fear that some of the subprime rubbish ended up in Asia. In China and Korea, panicked investors are pulling out of anything risky. Over the last few days, yields on three-month deposits in China and Korea have plummeted from about 4 percent to 1 percent. Spooked investors are pulling out of money market funds and credit derivatives.
Freddie Mac and Fannie May
This is an old story from last week, but the Economist covered it well. Freddie Mac and Fanny May are two large quasi-government organisations that insure high quality mortgages. As the sub prime crisis unfolded, many felt that Freddie and Fannie could help bail out beleaguered lenders. However, Freddie Mac reported massive losses last week, effectively closing off the possibility that these institutions could be used to save the US housing market.
Shiller offers some "radical" solutions to the US housing crash
Normally, Robert Shiller can be relied upon to speak a lot of sense about housing. However, this article in the New York Times is a real disappointment. It starts out with some apocalyptic references to the current US housing crash, most notably, by comparing it to the great Depression. It then follows up with a confusing list of half baked ideas. Personally, this doesn't look like the work of Shiller. Rather, it looks like an over-edited summary of a much longer article, which was hacked to pieces by some ill-informed journalist. If you're looking for any solutions to the UK housing bubble, you won't find it here.
Euro banks halt trading in some mortgage bonds
The credit crunch is like a ball and chain, doing a demolition job on financial markets. Last week, European banks announced the closure of the covered bond market. Covered bonds are debt securities that are usually backed up by mortgages. It is one of the many funding markets European banks have looked to raise money to issue mortgages. The closure of the market just made it that little bit harder for European banks to issue mortgages.