Dammed if You Do and if You Don't

Thorny indeed... Thornburg Mortgage said it booked a $40 million gain by terminating $41.1 billion of interest rate hedges.

The mortgage lender also sold $20.5 billion of mortgage-backed securities at 95 cents on the dollar. Last time we checked, that's at a LOSS.

This isn't Vegas with high paying 97.7% slots, a town (much like Wall Street) built on bad math by the public.

Thornburg will post a loss of $930 million on the sale in the third quarter, resulting in a probable net loss for the FULL year. Thats if they survive the year...

Thornburg used proceeds of the asset sales to pay down about $8.4 billion of commercial paper outstanding as of June 30.

The company also had to pay back about half of its $24.7 billion borrowed on credit lines because it didn't have enough cash to meet lenders' demands for more collateral.

Prickly even... KKR Financial said last week it sold $5.1 billion in mortgage loans for a loss of $40 million and may have more losses as prices fall on bonds linked to U.S. home loans.

Sound investment?? This week, KKR plans to raise $500 million by selling stock!!!

Farallon Capital Management and Morgan Stanley, the world's second-largest securities firm, will buy 16 Million shares of KKR.

Anarchy in the UK... Solent Capital Partners, an $8.8 billion U.K. hedge fund manager, Mainsail II Ltd. fund is drawing on emergency bank loans after failing to sell commercial paper, or short-term IOUs.

The fallout... Sean Murphy at RBC Capital Markets:

"Investors' focus is turning to the amount of job cuts you're going to have from this fallout."

The Nattering One muses again... will Nero fiddle as Rome burns. Answer: Join us next time to see if Moose & Flying Squirrel are... painted into a corner OR dammed if you do and dammed if you don't.

Hat tip to Flecks latest Central Banks Rob Average Citizen
. Financial Times Andy Xie comments:

"
Now is the time to act. Let the crooks go bankrupt...

The central banks should focus on price stability, not financial market stability, and should provide liquidity only to contain the multiplier effect of the bubble bursting on the economy
."

We concur, but sorry Andy it probably won't happen. Housing, creator of 80% of new jobs since 2001, is ready to collapse.

And due to massive capital misallocation led by the greed of globalization, profit "at the margin" and yield chasing, the US economy is now based on money shuffling and non durable services.

But its a big world and foreign demand from emerging economies can stem the tide.

Watch closely, as that "demand" based on American consumerism is about to dry up, and no one is immune, cuz when we get a cold, they get the flu.

The Treasury & Fed MUST bail out the financial sector as it is the last remaining vestige of our emasculated economy. And even if they attempt to, can they succeed?

Nouriel Roubini: chimes in: "The risks of a systemic crisis are rising: Liquidity injections and lender-of-last-resort bailout of insolvent borrowers...

however necessary and unavoidable during a liquidity panic -- will not work... they will only postpone and exacerbate the eventual and unavoidable insolvencies
."

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