Posts Tagged credit
Why a Greek Default Would be Worse Than Lehman Brothers’ Collapse
Posted by Oksana Grebenjuk in Investing on Июнь 3rd, 2011
If Greece defaults on its debt, the direct secondary effects on financial institutions could be much worse than what we saw after the collapse of Lehman Brothers.
The collapse of Lehman Brothers sent shockwaves through the global financial system—in part because it revealed that the United States government was willing to let a large, interconnected, complex financial company go bankrupt. Panic erupted, threatening the financial stability of other companies.
But the actual direct effects were few. Lehman had some 600,000 derivatives contracts and hundreds of billions in outstanding bonds, but Lehman’s institutional creditors were generally required to reserve some capital against Lehman’s collapse. This greatly diminished the direct knock-on effects of Lehman’s bankruptcy. Capital cushions actually cushioned.
There is roughly 270 billion Euros in outstanding Greek sovereign debt. Banks—mostly European banks—hold around 100 billion Euros of Greek bonds. Insurance companies, pensions funds and central banks hold most of the other 170 billion. For the most part, these holders of Greek debt have not had to reserve any capital against losses. This means that most of the holders of Greek debt will feel the full brunt of the losses, which raises the question of whether they are adequately capitalized to take the loss.
European bank capital regulations treat Eurozone sovereign debt as riskless. This was, in effect, a subsidy to the riskier Eurozone governments—allowing them to borrow at far lower costs than they other would have faced. The spread between German and Greek debt fell to 20 basis points in 2004, thanks largely to this subsidy. Read the rest of this entry »
The Stupidity of Hope: Greece Is Still Going to Default
Posted by Oksana Grebenjuk in Favourites, Trading Markets on Июнь 2nd, 2011
Keeping in mind that the words “hope” and “Greece” should almost never be used in the same sentence, here would be the one exception: Let’s “hope” markets aren’t rallying on “hope” for “Greece.”
Hope, apparently, does spring eternal, however, and it seems as though despite all the evidence to the contrary, there are still people out there with money to spend who believe that Greece can be rescued yet from its seemingly intractable fiscal position.
How else to explain Monday’s surge in the euro and drop in the US dollar, which had been rallying on well-placed hopes that the periphery of Europe was sliding further into the debt abyss and ready to implode?
Irrationality, we now can conclude, comes in many forms. The latest form is in some weakly substantiated murmurs out of Germany that the core of the core of euro zone nations might be softening its stance towards a Greek bailout and is ready to ease its demands that the nation speed up its ultimately unavoidable debt restructuring.
Despite compelling evidence that Germany is in no political position to turn suddenly benevolent towards its free-spending weak sister to the south, the rally was on. Read the rest of this entry »
Six Ways to Improve Your Chances of Getting a Mortgage
Posted by Oksana Grebenjuk in Banks on Апрель 4th, 2011
Remember how Spring was always the home-buying season? Don’t count on that happening this year and you can point the finger, at least in part, at the new lending hoops buyers must jump through. According to MortgageMatch.com, one out of three home buyers will fail to get a mortgage this spring.
Understanding the mortgage process and meeting lenders’ more stringent qualification requirements have become big obstacles for applicants, according to a survey the site conducted. Most recent home buyers — 70% — described the mortgaging process as more difficult than they expected. And those who bought homes during the bubble years, when mortgage loans were given out like candy at Halloween, are especially shell-shocked by the new lending standards.
One of the biggest problems home buyers run into today concern their credit scores and how, in general, they don’t work to improve them before applying for a loan. In the same vein, a recent Fannie Mae survey found that poor credit was the top reason that renters gave for not buying a home.
(Following closely behind poor credit was the self-awareness that they couldn’t actually afford to buy or keep up a home and the perception that now is not really a good time to buy. Hooray for enlightenment on the first point, but with home prices back to 2002 levels and interest rates among the lowest ever seen, how isn’t this a good time to buy?) Read the rest of this entry »
The Only Kind Of Credit Card Debt That You Should Ever Have
Posted by Oksana Grebenjuk in Banks on Декабрь 16th, 2010
I know that we all are all taught that credit card debt is a bad thing. I typically agree with this as all debt is bad debt. There is however a certain form of credit card debt that is essential for certain individuals to have. This debt is vital to the success of their future financial buying power. What is this form of debt?
The answer is secured credit card debt.
Secured credit card debt is appropriate for individuals looking to rebuild their credit. You might need to rebuild your credit for any of the following reasons:
too many financial obligations
job loss
foreclosure
repossession
bankruptcy
neglect
Secured credit cards are the best tool for rebuilding your credit. In order to qualify for a secured card, you have to make a deposit into a bank account with the card company. Your account is backed up by the deposits in the bank account. Your credit limit is equal to the deposit amount. Read the rest of this entry »
Municipal bonds turn bearish as yields rise
Posted by Oksana Grebenjuk in Fund Markets on Ноябрь 24th, 2010
Yields on municipal bonds has risen recently, with long-term yields rising more sharply than those on the short-end since the beginning of the November.
R.J. Gallo, senior portfolio manager and head of the municipal bond investment group at Federated Investors, noted that the 30-year, AAA-rated municipal yield rose 76 basis points through November 17, producing a loss of about 6 percent for the 22-years-and-longer portion of the Barclays Municipal Bond Index.
Similarly, the 10-year AAA muni yield rose 50 basis points and the 5-year yield rose 28 basis points over the same period, producing estimated losses on the corresponding portions of the Barclays index of 2.5 percent and 1 percent, respectively.
“We believe a sharp deterioration in the balance of supply and demand for municipal securities are driving this bear steepener,” Gallo said. “Uncertainty about whether the popular Build America Bonds (BABs) program… will expire at the end of this year has prompted a near-term supply surge. Meanwhile, investor demand has slowed due to a number of factors, including an increase in investors’ risk appetite, the Fed’s new quantitative easing program (QE2), calendar effects and, to a lesser degree, concerns about municipal credit quality.”
Initiated as part of the February 2009 federal stimulus bill, the BABs program provides municipal issuers with a cash rebate subsidy equal to 35 percent of a bond’s coupon rate on taxable securities, allowing issuers to offer taxable bonds without fully paying the higher interest cost. Read the rest of this entry »
IMF: HK economic growth robust, but risks remain
Posted by Oksana Grebenjuk in Trading Markets on Ноябрь 23rd, 2010
Hong Kong’s economic growth is likely to reach 6.75 percent this year and moderate to 5-5.5 percent in 2011, the International Monetary Fund (IMF) said on Wednesday.
«The Hong Kong economy is now back onto a robust growth trajectory with the key sources of demand firing on all cylinders,» the IMF said. «Net exports have been buoyed by vigorous growth in the Mainland and the ongoing global recovery. Investment has benefited from the implementation of various multi-year public infrastructure projects and private investment in machinery and equipment has picked up. At the same time, consumption bounced back as labor market conditions improved and confidence returned.»
Hong Kong Financial Secretary John Tsang welcomed the IMF’s positive outlook for the SAR, noting «the continued broad-based recovery of the economy shows Hong Kong has weathered the global financial storm well».
However, the IMF also pointed out that Hong Kong now faces a very different set of challenges from those of the past two years.
«As the output gap closes, inflationary pressures are likely to rise in both factor and product markets,» it said. «At the same time, strong domestic growth prospects and abundant global liquidity have the potential to attract further capital inflows. Finally, accommodative monetary conditions imported from abroad-combined with tight domestic supply conditions for new housing units-are already fueling property price inflation. Read the rest of this entry »
What To Expect From QE II
Posted by Oksana Grebenjuk in Trading Markets on Октябрь 29th, 2010
Nearly everyone in the game expects Ben Bernanke’s gang to announce another round of quantitative easing (defined as the direct purchase of bonds) at the conclusion of the November 3rd FOMC meeting. However, given that this particular tool has a very brief history of use, there is quite a bit of discussion over what we should expect from the program.
First, the expectations in the markets are for the FOMC to announce the commencement of a bond buying program that will total somewhere in the vicinity of $300 billion to $500 billion by the end of January. Anything short of $500 billion could be viewed as a disappointment to traders as the market is now clearly set up to «sell the news.»
Given the Fedspeak that has been provided recently, we would expect the Fed to say that they will assess the situation at the end of January and decide from meeting to meeting whether «additional accommodation» is needed. Thus, look for the FOMC to start small and be «data dependent» going forward. However, it is important to understand that Ben Bernanke is likely to err on the side of too much stimulus so as to avoid any possibility of a Japan-style deflationary cycle.
So, what’s the plan? We expect to see the FOMC make purchases of bonds in the 2-year to 10-year range. The goal is to push longer-term interest rates lower in the hope that investors will stop hoarding short-term bonds and take more risks by moving out the yield curve, take on more credit risk, and investing in equities and/or real estate. Read the rest of this entry »
Are There Bubbles All Around?
Posted by Oksana Grebenjuk in Investing on Октябрь 26th, 2010
One thing we learned in the 1990s and the 2000s is that there can be asset bubbles in the economy without growth in either money stock variables or increases in consumer (flow expenditure) price inflation. The financial system seems to be flexible enough so that it can leverage up where it wants to even though monetary policy and consumer spending seem to be «in control». This is the lesson of modern «financial engineering.»
However, the monetary statistics are not benign for most of the time period from January 1961 up to September 2008. During this time period, the monetary base which is supposedly under the control of the Federal Reserve System rose at a compound annual rate of slightly more than 6%. Total credit during this time period rose much more rapidly. Consequently, the United States experienced a period if «credit inflation» that dominated everything going on during this 47 years or so. This secular inflation drove the financial innovation that took place as the whole financial system took on more-and-more leverage and more-and-more risk.
Since September 2008, the Federal Reserve has caused the Monetary Base to increase explosively by more than 130%. However, the banking system is not lending and much of these funds seem to have ended up on the balance sheets of the banking system. Excess reserves in the banking system went from about $2 billion in August 2008 to almost $1.2 trillion in February 2010. Excess reserves for September 2010 averaged slightly below $1 trillion.
Even with all of these excess reserves, the current concern is whether or not the economy will go into a period where prices actually decline. That is, might the United States be headed for a period of deflation? Read the rest of this entry »
The Fallible Mr. Buffett
Posted by Oksana Grebenjuk in Investing on Июнь 10th, 2010
For years, we’ve become accustomed to hearing how no one could have seen the unfolding subprime crisis… not even, according to Warren Buffett, the credit rating agencies.
The very companies that paid millions to do efficient research could not foresee a problem of this magnitude?
What is Buffett thinking?
This is the guy that once stood up for the little guy, defending him from corporate madness.
And now he’s defending credit rating agencies — some of the very companies that took us to the edge of financial ruin, all while holding stock?
Why is he now catering to the corporate elitists that helped foster the subprime meltdown?
Why is he defending Goldman Sachs and its CEO Lloyd Blankfein — accused on fraud charges from the SEC and undergoing an alleged Justice Department investigation of criminal wrongdoing surrounding the structuring of ridiculous derivative contracts? Read the rest of this entry »
What Lies Behind ‘Disappointing’ US Economic Data?
Posted by Oksana Grebenjuk in Trading Markets on Июнь 9th, 2010
Larry Summers, Director of the White House National Economic Council, has called for a new ‘mini-stimulus’ of $200 billion to attempt to pull the US economy out what he terms its ‘very deep valley’. Summers’ was clearly a response to ‘disappointing’ trends revealed in the the latest US economic data. Similar concerns lay behind the call of US Treasury Secretary Geithner, in the run up to the G20 summit, for Europe and Japan to do more to boost demand.
Certainly recent US data confirms the limited character of US economic recovery from the Great Recession. As widely reported, the overwhelming majority of new US jobs created in May were temporary ones for conducting the census — private sector job creation fell to its lowest level since January. US housing sales in key regions have fallen by 25-30% following the expiry of the government tax credit scheme. House prices, on the S&P Case-Schiller index, have been declining since last September. The revised 1st quarter 2010 US GDP figures lowered the estimate of economic growth in that quarter from an annualised 3.2% in the first estimate to 3.0% in the latest — both are a major deceleration from the 5.6% recorded in the 4th quarter of 2009.
Summers and Geithner’s concern is therefore clearly justified. US economic growth is losing momentum at a point in the business cycle, that of an early stage of recovery, when acceleration might have been anticipated. Overall US GDP is still 1.2% below its peak level of the 2nd quarter of 2008 — meaning that not only is this recession the deepest in post-World War II US economic history but recovery is also the slowest. Read the rest of this entry »
Свежие комментарии