Captain Crunch & The Kona Pipeline
Hat Tip to Tanta at Calculated Risk... From the Washington Post:
"Nicholas Schor and Liza Losada-Schor were ready and willing to spend up to $850,000 on a house in Maryland. That was a month ago, when the rate on their mortgage would have been as low as 6.25 percent.
But a sudden shift in the mortgage market means that the couple -- he's a psychiatrist, she's a clinical nurse psychotherapist -- now face a rate of more than 7 percent, reducing their buying power even though they have solid credit.
That's because in the past few days, rates on loans for more than $417,000, known as jumbo loans, have shot up."
From The NY Times Paul Krugman's "Very Scary Things": "When liquidity dries up ... it can produce a chain reaction of defaults.
Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C...
And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them."
Sound familiar? The Nattering One muses... Subprime, Alt-A now Prime; RMBS, CMBS, CDO, LBO, and as of 08/08 ABCP credit markets all infected.
Central banks globally sounding revelry last week... ECB $214B; Fed $78.5B worth of reanimation.
$400 Billion trapped in the LBO pipeline, with warehouse/bridge loan banks caught holding most of the un marketable paper on their books.
We rephrase the BIG QUESTION as posed in Autos, Buy Backs & LBO's: What will happen to companies, banks, bond holders, and markets...
where stock buybacks and LBO's were funded with borrowed funds, in any or all of these WHAT IF scenarios:
the debt gets downgraded?
the debt value declines substantially when marked to market?
there is a further drop in earnings growth?
earnings are negative?
the stock value plummets?
And ultimately, the debt can't be serviced?
If you think this set of Trestle's like waves in the RMBS and credit markets was harsh, you and the central banks ain't seen nothing yet.
Don't look now, but the next set of waves are Kona Pipeline size, and there is no way to avoid them.
Not even a duck dive will save the hardiest from getting sucked into this wash cycle. Dude, you better be able to hold your breath.
"Nicholas Schor and Liza Losada-Schor were ready and willing to spend up to $850,000 on a house in Maryland. That was a month ago, when the rate on their mortgage would have been as low as 6.25 percent.
But a sudden shift in the mortgage market means that the couple -- he's a psychiatrist, she's a clinical nurse psychotherapist -- now face a rate of more than 7 percent, reducing their buying power even though they have solid credit.
That's because in the past few days, rates on loans for more than $417,000, known as jumbo loans, have shot up."
From The NY Times Paul Krugman's "Very Scary Things": "When liquidity dries up ... it can produce a chain reaction of defaults.
Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C...
And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them."
Sound familiar? The Nattering One muses... Subprime, Alt-A now Prime; RMBS, CMBS, CDO, LBO, and as of 08/08 ABCP credit markets all infected.
Central banks globally sounding revelry last week... ECB $214B; Fed $78.5B worth of reanimation.
$400 Billion trapped in the LBO pipeline, with warehouse/bridge loan banks caught holding most of the un marketable paper on their books.
We rephrase the BIG QUESTION as posed in Autos, Buy Backs & LBO's: What will happen to companies, banks, bond holders, and markets...
where stock buybacks and LBO's were funded with borrowed funds, in any or all of these WHAT IF scenarios:
the debt gets downgraded?
the debt value declines substantially when marked to market?
there is a further drop in earnings growth?
earnings are negative?
the stock value plummets?
And ultimately, the debt can't be serviced?
If you think this set of Trestle's like waves in the RMBS and credit markets was harsh, you and the central banks ain't seen nothing yet.
Don't look now, but the next set of waves are Kona Pipeline size, and there is no way to avoid them.
Not even a duck dive will save the hardiest from getting sucked into this wash cycle. Dude, you better be able to hold your breath.
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