Friday, September 7, 2007

Conduit Warnings Redux

Note: I believe that in the Bloomberg story mentioned in the original post the reporter writing about "purchases" of MBS paper by Australia's CB has her terms wrong. It appears that the Reserve Bank will from now on accept such bonds as collateral for repo, which is very different from direct purchases for cash. It elevates the CB's status back to "lender of last resort" from instead of "buyer of last resort". And yet... the same reporter is back on the same subject today (Sep. 7) saying:


"The risk of owning corporate bonds in Australia fell this week after a the central bank's move to pump money into the financial system by buying debt backed by home loans restored confidence banks will lend to each other...... The Reserve Bank of Australia's planned purchases eased concern that losses related to U.S. subprime debt will further cut funding avenues and earnings at the nation's companies." (bold added)

My original post is below.

----------------------------------------------------

In recent years many banks set up nominally separate conduits to keep mortgages and other loans off their balance sheets, enabling them to conserve regulatory capital. Such conduits played the oldest game in banking: they borrowed short by selling and rolling ABCP's and lent long by holding CDO's, CLO's and other such asset-backed securities. The banks kept the spread and at the same time conserved regulatory capital, which allowed them to make or purchase more loans on the books and then to shift them off by securitizing them and "selling" them to their conduits. Neat, eh?

Well, yes, until the ABCP market simply stopped functioning and the conduits could not fund themselves independently. Several banks have already had to technically "bail out" their own conduits by taking their assets back onto their books. This means higher regulatory capital requirements and lower ability to make or purchase additional loans, i.e. a form of immediate credit tightening.

One such example is reported by Bloomberg today, involving National Australia Bank (the country's largest) which has already taken on $US 4.9 billion from its conduits and will likely have to take back another $US 4 billion. ANZ, Australia's third largest bank also had to take back loans and will likely take back more, for a total of about $US 3.5 billion and Westpac has a potential exposure of $US 5 billion. All this has forced Australia's central bank to intervene directly into the market, buying mortgage-backed bonds for cash - a very unusual move that underscores the extent of the trouble. Events are rapidly evolving from "lender of last resort" to "buyer of last resort" - and the buck hopefully stops right there because after that it is the printing presses.

As reported by the WSJ, Citibank has 25% of the entire SIV/conduit market with $100 billion under management. Barclay's is also heavily involved and it already had to tap BOE a couple of times claiming, however, that it was facing technical glitches in interbank market settlements.

In closing, the trouble with asset-backed credit is migrating closer and closer to the balance sheets of big global banks and this is a "conduit" for serious trouble. It is one thing for hedge funds to go down in flames; high risk eventually turns into big losses. But if banks are starting to take direct hits into their balance sheets, that is a whole different ballgame, by at least an order of magnitude.

I also note that the ECB is being forced today to once again offer money to the interbank market, since the O/N rate moved to 4.68% yesterday, much higher than its 4.00% benchmark. The amount provided came to EUR 42 billion ($57 billion) - that's a lot of money and the recurrence of the need after earlier injections two weeks ago is a very bad sign, indeed.

Banks are turning into CB cash junkies.


16 comments:

  1. ...and the buck hopefully stops right there because after that it is the printing presses.

    What's the difference? To 'buy' something, doesn't a central bank just make an accounting entry, e.g. add to the seller's reserve account? Money is normally created this way in fiat money regimes, isn't it? A central bank is not constrained by a lack of money, rather by concerns about inflation, as you suggest and as most people paying any attention at all must be aware of by now.

    This is a kind of bailout, isn't it? The central bank becomes a market maker in paper no one else wants, at least not at the price being asked, maybe not at any price. Only the central bank does not have to be so concerned about selling later on, it seems.

    eh

    ReplyDelete
  2. You are absolutely correct.

    What I meant was that the Aussie CB stops at just this purchase and no more.

    ReplyDelete
  3. Another fine blog entry. And speaking of the printing presses, there is a reason that the yellow dog is beginning to bark again after a lull of well over a year.

    ReplyDelete
  4. Some of the difference between this behaviour and the printing presses relies also in the difference between a temporary and a permanent open market operation.

    But even if these operations from FED, ECB etc. are temporary this overall situation has already capped the offical discount rates: ECB "announced" and "confirmed" many times in june and july that today it should have raised the rate to 4.25%: today they just decided to keep it to 4.00%.

    Thus, to some extent, the ECB today effectively switched on the euro printing press. Look out below!

    ReplyDelete
  5. What's the difference?

    The ABCP market was designed to skirt around regulatory capital requirements.

    If these loans come back onto banks balance sheets, the banks will either need to go to the equity markets to raise capital or curtail lending (or both). That will be deflationary.

    http://www.minyanville.com/articles/index.php?a=13898

    I don't want to be pedantic, but when someobody says "crank up the printing presses" it means to me that a Central Bank is acting in a way that may create hyper-inflation.

    The only way that I'm aware that a Central Bank can create hyper-inflation is through monetization of non-debt based assets (equities, land, infrastructure, etc) or through the monetization of Government debt (growth in base money).

    ReplyDelete
  6. anonymous, well said....

    ReplyDelete
  7. This thread provides some clarification about what the Reserve Bank of Australia is actually doing. Or head directly to the source.

    Thanks for the helpful comments.

    eh

    ReplyDelete
  8. Beeing an European I am concerned: the ECB today clearly signalled that they would let the inflation run in order to bail out the borrowers and the lenders and ultimately all of this inflated credit market, rather than protect my savings from inflation.
    I believe inflation is the only way out from this credit bubble, meaning that houses for example will just stop appreciating, but they will not let this and other markets to deflate...
    It's time to be proactive savers and turn to hard assets...
    Big

    ReplyDelete
  9. Thank you vm anonymous for the tip on the RBA repo vs. purchase link. There is a very big difference between the two.

    ReplyDelete
  10. Just wonder what my savngs will be worth by the time this Central Bank gets done destroying the underlying currency with their corrupt and illegal actions..Care to comment..Hellasious...

    ReplyDelete
  11. The markets confirm these types of activity. If you let the markets speak to you, you'll hear volumes. Gold was at the podium today and it had something to say about market expectations as it realates to the ECB and the Fed...

    Anyway that you skin this cat, you come up with the same result. A dead cat.

    Econolicious

    ReplyDelete
  12. So in other words...The more the Federal Reserve and the ECB tinker with repos and rates, the higher gold-silver and oil will go. This, in effect, neutralizes the CB's reliquification effort by shutting down the consumption-debt driven world economy. I see debt people....

    ReplyDelete
  13. Hellasious,

    have seen the Economist report on sub-primes etc at

    http://www.eiu.com/site_info.asp?info_name=heading_for_the_rocks&rf=0

    Seems interesting.

    ReplyDelete
  14. Anonymous ha detto...

    So in other words...The more the Federal Reserve and the ECB tinker with repos and rates, the higher gold-silver and oil will go. This, in effect, neutralizes the CB's reliquification effort by shutting down the consumption-debt driven world economy. I see debt people....

    September 6, 2007 10:46 PM


    Very interesting comment indeed!
    CB efforts are useless if we think to static market conditions.

    But markets are moving and maybe the effect in the long run will be decreasing the USA and EU wealth by currency depreciation relative to other currencies, that is substituting it with China and India wealth... and substituting the USA and EU purchasing power and demand for imported goods with China and India internal demand.

    This process though can't be linear and painless.

    ReplyDelete
  15. Who says the ABCP market has stopped functioning? Bet you 250bps it ain't.

    ReplyDelete
  16. handjob spectacles -
    hardcore fatties -
    hardcore sex shack -
    hood hardcore -
    hottest anal sex -
    inferno babes -
    internet hookups -
    interracial paradise -
    interracial sex house -
    jerk me now -
    jizz on glasses -
    joyourself -
    jug fuckers -
    just creampie -
    just ebony sex -
    just gay hardcore -
    just lesbian sex -
    kat young -
    latina sex studio -
    latin sex lovers -
    leaking liquids -
    lesbian movie planet -
    lingerie queens -
    live jasmin -
    live voyeur porn -
    look at me bitch -
    love below the belt -
    lucy summers -
    mature belle -
    mature xxx archive -
    mega site pass -
    midlife mammas -
    milfs bang -
    milf searcher -
    mommy got boobs -
    monster cock madness -
    munching bush -
    my asian massage -
    naughty allie -
    naughty julie -
    older woman sex videos -
    old n fat -
    old n fat movies -
    petite goddess -
    pint sized pussy -
    porn video station -
    project teen sex -
    racks and blacks -
    rate my tranny -
    raw gay bears -
    raw pornstar movies -
    raw xxx movies -
    reality pass -
    real sex world -
    red ass models -
    samantha gauge -
    sex movies network -
    sex toys porno -
    sexy petite -
    sexy soft babes -
    shemale movie world -
    shemale sex zone -
    shemales paradise -
    shemale thrills -
    shy college girls -
    sinful facials -
    sinful gay -
    sinful gay teens -
    sinful interracial -
    sinful lesbian -
    sinful mature sex -
    sinful panty sex -
    small tits girls -
    snatches -
    spank hut -
    stocking babes -
    suburb slut -
    teen erotica club -
    teen gay club -
    teen gay hardcore -
    teen pov facials -
    teens love to fuck -
    the amateur lounge -
    titjob models -
    transsexuals porno -
    ultra hentai pass -
    wet teen panty -
    xxx pregnant movies -
    xxx teen tease -
    huge movie pass -
    15 on 1 -
    acme porn -
    adorable legs -
    all asian pass -
    all gag pass -
    all handjob pass -
    all network pass -
    all porn sites pass -
    amateur bangers -
    amateur jerkoff -
    anal fuck thrills -
    angel 2 slut -
    anime school sluts -
    argentina love -
    asian sex queens -
    asian sex thrills -
    baby got boobs -
    bad lesbian girls -
    badonka dunk -
    ball rats -
    bare foot fuckers -
    bbw sex videos -
    big black babes -
    big black pimp -
    big boob pass -
    big boobs galore -
    big breast sex -
    big cocks porn -
    big tit queens -
    big tits at school -
    big tits at work -
    big tits sex movies -
    bisexuals hardcore -
    blowjob babes -
    bonita babes -
    boobie bangers -
    brooke skye -
    busty amateur boobs -
    busty and real -
    cartoon sex online -
    cheerleaders hardcore -
    chicks go both ways -
    cock loving moms -
    college boy physicals -
    crazy club chicks -
    creampie models -
    cum guzzling queens -
    cumshots n facials -
    daddys friend -
    doggy style bitches -
    ebony arousal -
    exclusive wives -
    exotic shemale -
    explicit lesbians -
    extreme bisexuals -
    facials fever -
    faith belle -
    filled cup -
    finger till cum -
    first time twinks -
    foot fetish porno -
    footjob footjob -
    footjob models -
    fresh teen porn -
    fucking the help -
    gag on my cock -
    gag school -
    gang banged babes -
    gay bears hardcore -
    gay black hardcore -
    gay group sex videos -
    gay porn interracial -
    gay sex sins -
    gay sugar daddy -
    girls drink cum -
    give me anime -
    grannies fucked -
    group gonzo -
    group sex frenzy -
    group sex gays -
    group teen casting -
    hairy pussies sex -
    hairy pussy porno -
    handjob models -
    handjob spectacles -
    hardcore fatties -
    hardcore sex shack -
    hood hardcore -
    hottest anal sex -
    inferno babes -
    internet hookups -
    interracial paradise -
    interracial sex house -
    jerk me now -
    jizz on glasses -
    joyourself -
    jug fuckers -
    just creampie -
    just ebony sex -
    just gay hardcore -
    just lesbian sex -
    kat young -
    latina sex studio -
    latin sex lovers -
    leaking liquids -
    lesbian movie planet -
    lingerie queens -
    live jasmin -
    live voyeur porn -
    look at me bitch -
    love below the belt -
    lucy summers -
    mature belle -
    mature xxx archive -
    mega site pass -
    midlife mammas -
    milfs bang -
    milf searcher -
    mommy got boobs -
    monster cock madness -
    munching bush -
    my asian massage -
    naughty allie -
    naughty julie -
    older woman sex videos -
    old n fat -
    old n fat movies -
    petite goddess -
    pint sized pussy -
    porn video station -
    project teen sex -
    racks and blacks -
    rate my tranny -
    raw gay bears -
    raw pornstar movies -
    raw xxx movies -
    reality pass -
    real sex world -
    red ass models -
    samantha gauge -
    sex movies network -
    sex toys porno -
    sexy petite -
    sexy soft babes -
    shemale movie world -
    shemale sex zone -
    shemales paradise -
    shemale thrills -
    shy college girls -
    sinful facials -
    sinful gay -
    sinful gay teens -
    sinful interracial -
    sinful lesbian -
    sinful mature sex -
    sinful panty sex -
    small tits girls -
    snatches -
    spank hut -
    stocking babes -
    suburb slut -
    teen erotica club -
    teen gay club -
    teen gay hardcore -
    teen pov facials -
    teens love to fuck -
    the amateur lounge -
    titjob models -
    transsexuals porno -
    ultra hentai pass -
    wet teen panty -
    xxx pregnant movies -
    xxx teen tease -
    huge tits pass -
    15 on 1 -
    acme porn -
    adorable legs -
    all asian pass -
    all gag pass -
    all handjob pass -
    all network pass -
    all porn sites pass -
    amateur bangers -
    amateur jerkoff -
    anal fuck thrills -
    angel 2 slut -
    anime school sluts -
    argentina love -
    asian sex queens -
    asian sex thrills -
    baby got boobs -
    bad lesbian girls -
    badonka dunk -
    ball rats -
    bare foot fuckers -
    bbw sex videos -
    big black babes -
    big black pimp -
    big boob pass -
    big boobs galore -
    big breast sex -
    big cocks porn -
    big tit queens -
    big tits at school -
    big tits at work -
    big tits sex movies -
    bisexuals hardcore -
    blowjob babes -
    bonita babes -
    boobie bangers -
    brooke skye -
    busty amateur boobs -
    busty and real -
    cartoon sex online -
    cheerleaders hardcore -
    chicks go both ways -
    cock loving moms -
    college boy physicals -
    crazy club chicks -
    creampie models -
    cum guzzling queens -
    cumshots n facials -
    daddys friend -
    doggy style bitches -
    ebony arousal -
    exclusive wives -
    exotic shemale -
    explicit lesbians -
    extreme bisexuals -
    facials fever -
    faith belle -
    filled cup -
    finger till cum -
    first time twinks -
    foot fetish porno -
    footjob footjob -
    footjob models -
    fresh teen porn -
    fucking the help -
    gag on my cock -
    gag school -
    gang banged babes -
    gay bears hardcore -
    gay black hardcore -
    gay group sex videos -
    gay porn interracial -
    gay sex sins -
    gay sugar daddy -
    girls drink cum -
    give me anime -
    grannies fucked -
    group gonzo -
    group sex frenzy -
    group sex gays -
    group teen casting -
    hairy pussies sex -
    hairy pussy porno -
    handjob models -
    handjob spectacles -
    hardcore fatties -
    hardcore sex shack -
    hood hardcore -
    hottest anal sex -
    inferno babes -
    internet hookups -
    interracial paradise -
    interracial sex house -
    jerk me now -
    jizz on glasses -
    joyourself -
    jug fuckers -
    just creampie -
    just ebony sex -
    just gay hardcore -
    just lesbian sex -
    kat young -
    latina sex studio -
    latin sex lovers -
    leaking liquids -
    lesbian movie planet -
    lingerie queens -
    live jasmin -
    live voyeur porn -
    look at me bitch -
    love below the belt -
    lucy summers -
    mature belle -
    mature xxx archive -
    mega site pass -
    midlife mammas -
    milfs bang -
    milf searcher -
    mommy got boobs -
    monster cock madness -
    munching bush -
    my asian massage -
    naughty allie -
    naughty julie -
    older woman sex videos -
    old n fat -
    old n fat movies -
    petite goddess -
    pint sized pussy -
    porn video station -
    project teen sex -
    racks and blacks -
    rate my tranny -
    raw gay bears -
    raw pornstar movies -
    raw xxx movies -
    reality pass -
    real sex world -
    red ass models -
    samantha gauge -
    sex movies network -
    sex toys porno -
    sexy petite -
    sexy soft babes -
    shemale movie world -
    shemale sex zone -
    shemales paradise -
    shemale thrills -
    shy college girls -
    sinful facials -
    sinful gay -
    sinful gay teens -
    sinful interracial -
    sinful lesbian -
    sinful mature sex -
    sinful panty sex -
    small tits girls -
    snatches -
    spank hut -
    stocking babes -
    suburb slut -
    teen erotica club -
    teen gay club -
    teen gay hardcore -
    teen pov facials -
    teens love to fuck -
    the amateur lounge -
    titjob models -
    transsexuals porno -
    ultra hentai pass -
    wet teen panty -
    xxx pregnant movies -
    xxx teen tease -
    insane cock brothas -
    15 on 1 -
    acme porn -
    adorable legs -
    all asian pass -
    all gag pass -
    all handjob pass -
    all network pass -
    all porn sites pass -
    amateur bangers -
    amateur jerkoff -
    anal fuck thrills -
    angel 2 slut -
    anime school sluts -
    argentina love -
    asian sex queens -
    asian sex thrills -
    baby got boobs -
    bad lesbian girls -
    badonka dunk -
    ball rats -
    bare foot fuckers -
    bbw sex videos -
    big black babes -
    big black pimp -
    big boob pass -
    big boobs galore -
    big breast sex -
    big cocks porn -
    big tit queens -
    big tits at school -
    big tits at work -
    big tits sex movies -
    bisexuals hardcore -
    blowjob babes -
    bonita babes -
    boobie bangers -
    brooke skye -
    busty amateur boobs -
    busty and real -
    cartoon sex online -
    cheerleaders hardcore -
    chicks go both ways -
    cock loving moms -
    college boy physicals -
    crazy club chicks -
    creampie models -
    cum guzzling queens -
    cumshots n facials -
    daddys friend -
    doggy style bitches -
    ebony arousal -
    exclusive wives -
    exotic shemale -
    explicit lesbians -
    extreme bisexuals -
    facials fever -
    faith belle -
    filled cup -
    finger till cum -
    first time twinks -
    foot fetish porno -
    footjob footjob -
    footjob models -
    fresh teen porn -
    fucking the help -
    gag on my cock -
    gag school -
    gang banged babes -
    gay bears hardcore -
    gay black hardcore -
    gay group sex videos -
    gay porn interracial -
    gay sex sins -
    gay sugar daddy -
    girls drink cum -
    give me anime -
    grannies fucked -
    group gonzo -
    group sex frenzy -
    group sex gays -
    group teen casting -
    hairy pussies sex -
    hairy pussy porno -
    handjob models -
    handjob spectacles -
    hardcore fatties -
    hardcore sex shack -
    hood hardcore -
    hottest anal sex -
    inferno babes -
    internet hookups -
    interracial paradise -
    interracial sex house -
    jerk me now -
    jizz on glasses -
    joyourself -
    jug fuckers -
    just creampie -
    just ebony sex -
    just gay hardcore -
    just lesbian sex -
    kat young -
    latina sex studio -
    latin sex lovers -
    leaking liquids -
    lesbian movie planet -
    lingerie queens -
    live jasmin -
    live voyeur porn -
    look at me bitch -
    love below the belt -
    lucy summers -
    mature belle -
    mature xxx archive -
    mega site pass -
    midlife mammas -
    milfs bang -
    milf searcher -
    mommy got boobs -
    monster cock madness -
    munching bush -
    my asian massage -
    naughty allie -
    naughty julie -
    older woman sex videos -
    old n fat -
    old n fat movies -
    petite goddess -
    pint sized pussy -
    porn video station -
    project teen sex -
    racks and blacks -
    rate my tranny -
    raw gay bears -
    raw pornstar movies -
    raw xxx movies -
    reality pass -
    real sex world -
    red ass models -
    samantha gauge -
    sex movies network -
    sex toys porno -
    sexy petite -
    sexy soft babes -
    shemale movie world -
    shemale sex zone -
    shemales paradise -
    shemale thrills -
    shy college girls -
    sinful facials -
    sinful gay -
    sinful gay teens -
    sinful interracial -
    sinful lesbian -
    sinful mature sex -
    sinful panty sex -
    small tits girls -
    snatches -
    spank hut -
    stocking babes -
    suburb slut -
    teen erotica club -
    teen gay club -
    teen gay hardcore -
    teen pov facials -
    teens love to fuck -
    the amateur lounge -
    titjob models -
    transsexuals porno -
    ultra hentai pass -
    wet teen panty -
    xxx pregnant movies -
    xxx teen tease -
    just facials -
    15 on 1 -
    acme porn -
    adorable legs -
    all asian pass -
    all gag pass -
    all handjob pass -
    all network pass -
    all porn sites pass -
    amateur bangers -
    amateur jerkoff -
    anal fuck thrills -
    angel 2 slut -
    anime school sluts -
    argentina love -
    asian sex queens -
    asian sex thrills -
    baby got boobs -
    bad lesbian girls -
    badonka dunk -
    ball rats -
    bare foot fuckers -
    bbw sex videos -
    big black babes -
    big black pimp -
    big boob pass -
    big boobs galore -
    big breast sex -
    big cocks porn -
    big tit queens -
    big tits at school -
    big tits at work -
    big tits sex movies -
    bisexuals hardcore -
    blowjob babes -
    bonita babes -
    boobie bangers -
    brooke skye -
    busty amateur boobs -
    busty and real -
    cartoon sex online -
    cheerleaders hardcore -
    chicks go both ways -
    cock loving moms -
    college boy physicals -
    crazy club chicks -
    creampie models -
    cum guzzling queens -
    cumshots n facials -
    daddys friend -
    doggy style bitches -
    ebony arousal -
    exclusive wives -
    exotic shemale -
    explicit lesbians -
    extreme bisexuals -
    facials fever -
    faith belle -
    filled cup -
    finger till cum -
    first time twinks -
    foot fetish porno -
    footjob footjob -
    footjob models -
    fresh teen porn -
    fucking the help -
    gag on my cock -
    gag school -
    gang banged babes -
    gay bears hardcore -
    gay black hardcore -
    gay group sex videos -
    gay porn interracial -
    gay sex sins -
    gay sugar daddy -
    girls drink cum -
    give me anime -
    grannies fucked -
    group gonzo -
    group sex frenzy -
    group sex gays -
    group teen casting -
    hairy pussies sex -
    hairy pussy porno -
    handjob models -
    handjob spectacles -
    hardcore fatties -
    hardcore sex shack -
    hood hardcore -
    hottest anal sex -
    inferno babes -
    internet hookups -
    interracial paradise -
    interracial sex house -
    jerk me now -
    jizz on glasses -
    joyourself -
    jug fuckers -
    just creampie -
    just ebony sex -
    just gay hardcore -
    just lesbian sex -
    kat young -
    latina sex studio -
    latin sex lovers -
    leaking liquids -
    lesbian movie planet -
    lingerie queens -
    live jasmin -
    live voyeur porn -

    ReplyDelete