Carlyle Group Fund, Margin Calls, Insolvent Banks & The Fed
Carlyle Group, the world's second biggest leveraged buyout firm by assets owns Carlyle Capital Corp.
The firm's mortgage-bond fund, was suspended from Amsterdam trading today after it failed to repay lenders, who in turn sold assets held as collateral.
Carlyle borrowed to buy about $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac, notes that Carlyle says have the ``implicit guarantee'' of the U.S. government.
The fund plunged 58 percent yesterday to $5 after first disclosing it couldn't meet lenders' demands for more collateral to offset a decline in its holdings.
Carlyle's counterparties are Wall Street firms, which use repurchase agreements to lend money and require securities be put up as collateral.
As the perceived credit worthiness of asset-backed bonds declined, the amount of money that can be borrowed using them as collateral fell.
The fund expects more margin calls, which may deplete capital. The pool may be liquidated and the stock left worthless.
Willem Sels, a credit strategist at Dresdner Kleinwort: "Banks are hoarding cash, they're having difficulty funding themselves.
Our concern is that market moves in price lead to mark-to-market losses, which lead to margin calls and forced selling, and then more losses in a vicious circle."
The Nattering One muses... the vicious circle is the vortex of the multiplier effect working in reverse.
There are no guarantees (FHLMC & FNMA) and the banks are already insolvent, witness 72 US banks using the TAF...
Get ready for your dollar assets to shrink further, as the Fed will have to print their way out of this one.
But that is the mandate of the Fed, through debauchery and inflation, steal from the poor and give to the rich.
Hattip to Bloomberg .
The firm's mortgage-bond fund, was suspended from Amsterdam trading today after it failed to repay lenders, who in turn sold assets held as collateral.
Carlyle borrowed to buy about $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac, notes that Carlyle says have the ``implicit guarantee'' of the U.S. government.
The fund plunged 58 percent yesterday to $5 after first disclosing it couldn't meet lenders' demands for more collateral to offset a decline in its holdings.
Carlyle's counterparties are Wall Street firms, which use repurchase agreements to lend money and require securities be put up as collateral.
As the perceived credit worthiness of asset-backed bonds declined, the amount of money that can be borrowed using them as collateral fell.
The fund expects more margin calls, which may deplete capital. The pool may be liquidated and the stock left worthless.
Willem Sels, a credit strategist at Dresdner Kleinwort: "Banks are hoarding cash, they're having difficulty funding themselves.
Our concern is that market moves in price lead to mark-to-market losses, which lead to margin calls and forced selling, and then more losses in a vicious circle."
The Nattering One muses... the vicious circle is the vortex of the multiplier effect working in reverse.
There are no guarantees (FHLMC & FNMA) and the banks are already insolvent, witness 72 US banks using the TAF...
Get ready for your dollar assets to shrink further, as the Fed will have to print their way out of this one.
But that is the mandate of the Fed, through debauchery and inflation, steal from the poor and give to the rich.
Hattip to Bloomberg .
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