-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: August 9, 2007 1:01:26 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED],
[EMAIL PROTECTED]
Subject: Economy on IV -- Central Banks and Fed Inject Cash to Save
Dying Stock Market
What we seeing here is the hedge-fund equivalent of banks in 1929
locking their doors to customers to prevent a panicky withdrawal of
deposits that would bankrupt those banks:
"BNP Paribas said it was [freezing accounts and blocking trading
in] three funds worth a total of 2 billion euros ($2.75 billion):
Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS
Eonia.
“The complete evaporation of liquidity in certain segments <i.e.,
mortgages> of the U.S. market has made it impossible to judge the
true value of assets, regardless of their credit rating,” BNP
Paribas said in a statement. Banks in Germany issued similar
concerns.
WestLB Mellon Asset Management, a joint venture of German state
bank WestLB AG and The Bank of New York Mellon Corp., this week
[froze accounts and blocked trading in] its asset-backed securities
ABS Fund, which is part of the West LB Mellon Compass Fund."
Fed Enters Market To Tamp Down Rate
By GREG IP
August 9, 2007 11:11 a.m.
WASHINGTON -- The scramble for liquidity in Europe spilled over
into the U.S. The federal funds rate, the rate at which banks make
overnight loans to each other, was between 5.375% and 5.5% in early
trading in New York, analysts said, well above the Federal
Reserve's 5.25% target.
The Fed, in an effort to get the funds rate back down and meet the
spike in demand for cash, twice entered the market today to inject
cash. It lent $12 billion through a 14 day "repo," the name for an
operation that adds reserves to the banking system and alleviates
upward pressure on rates, and an additional $12 billion through an
overnight repo.
Lou Crandall, chief economist at Wrightson Associates, said the
total injection was considerably higher than the $15 billion he had
projected based on typical demand for reserves in the banking
system. Traders attributed the demand for funds to European banks
raising precautionary cash in the U.S. market, and speculated the
pressure would ease once the European day ended. "The U.S. markets
are being roiled by what happened in Europe but it's still mostly a
European problem, so generally Fed repos won't solve it right
away," Mr. Crandall said.
The average rate at which the money was lent was also marginally
higher than normal, an indication of the strength of demand for
cash. "What has happened so far is interesting but not
extraordinary," said Ray Stone of Stone & McCarthy Associates, an
economics and markets research firm. The Fed, he said, is probably
having trouble estimating demand for excess reserves because of the
"strain in the credit market" which is adding to the pressure on
reserves.
One risk the Fed faces is that if it injects too much cash, the Fed
funds rate would plummet later on to below its target. However,
unlike in previous eras, that is unlikely to be interpreted as a
deliberate easing of monetary policy. Since 1994, the Fed has
announced when it is changing its target for fed funds. After the
Sept. 11, 2001, terrorist attacks disrupted markets and sent demand
for cash soaring in 2001, the Fed poured money into the system and
warned this could send the fed funds rate below its target.
Earlier today, the ECB pumped €94.8 billion into European short-
term markets, shortly after issuing a statement saying, "The ECB
notes that there are tensions in the euro money market
notwithstanding the normal supply of aggregate euro liquidity."
-----------
Fed injects $24 billion to keep interest rate stable at 5.25%, calm
markets
http://www.forbes.com/business/feeds/afx/2007/08/09/afx4004440.html
Analysts say today's Fed action was nowhere near the significance
of what the European Central Bank had to do overnight. It stepped
in to add $130 billion after a liquidity shortfall in the European
money market.
Some market analysts, among them Tony Crescenzi at Miller Tabak,
think it is 'unsettling' that neither the ECB nor the Fed seemed to
have much foresight about the strains developing in their money
markets.
'If these problems turn out to be much larger,' Crescenzi said,
'the policy of reacting rather than preempting problems will likely
be characterized as a policy error.'
---------------
ECB Injects $130 Billion
to Ease Jittery Markets
By Joellen Perry
http://online.wsj.com/article/SB118666332147492919.html?mod=sphere_ts
FRANKFURT -- Mounting fears that the U.S. subprime crisis is
spreading to Europe prompted the European Central Bank to loan
€94.841 billion ($130.2 billion) in emergency funds to European
banks this morning, the first time it has taken this type of action
since just after the terrorist attacks of Sept. 11, 2001.
Concern that European banks face growing losses on investments
linked to U.S. mortgages shot the euro zone's overnight borrowing
rates to 4.7% today, their highest since October 2001 and well
above the ECB's benchmark financing rate of 4%.
------------
http://www.signonsandiego.com/news/business/20070809-0927-europe-
ecb-liquidity.html
ECB steps in to ease market fears by expanding cash
By Matt Moore
ASSOCIATED PRESS
9:27 a.m. August 9, 2007
FRANKFURT, Germany – The European Central Bank loaned nearly 95
billion euros ($130.81 billion) in overnight funds to banks at a
bargain rate of 4 percent on Thursday, putting more cash into a
global financial system jolted by the collapse of the U.S. subprime
mortgage market.
Analysts and economists were surprised by the move, with some
seeing it as evidence that the problems in subprime lending are
spilling into the general economy and others as a case of the
European Central Bank stepping in where the U.S. Federal Reserve
Bank has not.
“The ECB tender vs. Fed inaction reflects differences in U.S. and
European approaches to managing economies,” said Peter Morici, an
economics professor at the University of Maryland.
The European Central Bank, which controls monetary policy for
Germany, France and 11 other nations in the euro zone, said it
allocated 94.8 billion euros in the one-day quick tender to ensure
orderly market conditions. Forty-nine bidders took part in the tender.
The ECB action came after French bank BNP Paribas SA announced the
suspension of three asset-backed securities funds, saying it could
not value them accurately. That had sent stocks lower in Europe and
the United States as investors looked for safer havens such as
Treasurys.
In the United States, the Federal Reserve Bank of New York added
$24 billion of temporary reserves to the banking system through two
regular market operations, a spokesman said. The U.S. Treasury
Department said it “continues to monitor markets and remains
vigilant.”
The most recent repurchase agreement was on Wednesday, the day
after the Fed held its key interest rate steady at 5.25 percent,
and had added $8.75 billion in temporary reserves.
“Today's events show that either the Fed committed a large policy
error on Tuesday, or that both the Fed and the ECB are themselves
more in the dark on the problems that lie underneath the surface
than are investors in the financial markets,” Tony Crescenzi of
Miller Tabak said in a research note.
“While the Fed and the ECB may not have the providence to see all
problems that exist, it should at the very least have a greater
sense about conditions in the markets it controls – the money
market and the credit markets more generally – and of conditions in
the banking system.”
The Fed met Tuesday to discuss monetary policy and announced after
the meeting that inflation, not credit problems, remained its major
concern.
The ECB's move shows their difference in approach, analysts said.
“Europeans are inherently more activist, but the ECB is taking a
big risk. Efforts to prop up markets can fail and actually create a
crisis in confidence,” Morici said. “The tender offer may calm
markets or it may aggravate them. It is a risky business.”
In overnight trading, analysts said, the euro rates rose as high as
4.7 percent – a sign that wary banks were pulling back on lending
in general.
Defaults on subprime loans, or those made to people with poor
credit, have climbed sharply in the United States in recent months
and have triggered concern about the impact on credit markets
worldwide. But until the past few weeks, most of the banks and
companies affected were in the U.S.
“There is definitely a liquidity crunch going on,” said Andrew
Wilkison of Interactive Brokers in Greenwich, Connecticut. “But
where it is surfacing is unusual. I don't think many investors
expected it to turn up from
BNP Paribas said it was suspending three funds worth a total of 2
billion euros ($2.75 billion): Parvest Dynamic ABS, BNP Paribas ABS
Euribor and BNP Paribas ABS Eonia.
“The complete evaporation of liquidity in certain market segments
of the U.S. securitization market has made it impossible to value
certain assets fairly regardless of their quality or credit
rating,” BNP Paribas said in a statement.
That likely forced the ECB to act, Wilkison said.
“That tender was massive,” he said. “It was a third larger than the
9-11 cash offering – 69.3 billion euros ($95.14 billion) at the
time. This is no small move.”
BNP's announcement came on the heels of banks in Germany issuing
similar concerns.
WestLB Mellon Asset Management, the asset management joint venture
of German state bank WestLB AG and The Bank of New York Mellon
Corp., suspended redemptions this week from its asset-backed
securities ABS Fund, which is part of the West LB Mellon Compass Fund.
the corners of the Rhine to central Paris.”
WestLB AG denied speculation that it is facing a fund liquidity
problem.
Other companies, including Union Investment Asset Management, a
German mutual fund manager, and Frankfurt Trust, a unit of BHF-
Bank, have also halted redemptions.
“Securitized assets that have underpinnings in the U.S. subprime
market may now be difficult to put a price tag on given market
sentiment – as there is still lingering uncertainty whether the
meltdown has greater knock-on effects down the line,” said Cubillas
Ding, a senior analyst at Celent.
-----------
http://www.ft.com/cms/s/c0dd3018-469a-11dc-a3be-0000779fd2ac
Two scary headlines from Europe – that the European Central Bank
was intervening to provide liquidity, and that BNP Paribas was
freezing three of its investment funds to redemptions owing to what
it called the “complete evaporation of liquidity” in US credit
markets -- were enough to bring back in full force the fears that
the crunch in the credit market will turn into a full-blown
financial meltdown.
-------------
Markets tumble on sub-prime fears
Thursday, 09 Aug 2007 19:04
http://www.inthenews.co.uk/news/property/markets-tumble-on-sub-
prime-fears-$1120949.htm
George Bush insists the US economy remains sound
The world's stock markets were sent tumbling today after fears
about the state of the US mortgage market prompted a global sell-off.
In London the FTSE 100 index closed down 122.7 points, or 1.92 per
cent at 6,271.2, while shares across Europe also fell after the
European Central Bank (ECB) announced that it was pumping billions
of pounds worth of emergency funding into the continent's banking
systems.
The €95 billion (£63 billion) cash injection for strapped banks
represents the most significant intervention the ECB has made in
the banking sector since the aftermath of the September 11th terror
attacks in the US in 2001.
In New York the Dow Jones industrial average also slipped sharply
in early trading, with the US federal reserve similarly forced to
pump emergency reserves into the American banking system.
Today's wobble across the world's markets was prompted by the
announcement that French bank BNP Paribas had decided to suspend
three of its investment funds with heavy US debt exposure, amid
fears about the state of the sub-prime mortgage market there.
The market, which offers high-interest mortgages to homebuyers with
poor credit ratings or low incomes, has reported record numbers of
defaults over the past year as a result of rising interest rates in
America.
Investors are concerned that problems in the housing market could
result in a credit squeeze which will hit the country's wider economy.
An attempt by George Bush to calm their fears appears to have
fallen on deaf ears, with the US president yesterday predicting a
"soft landing" for stock markets and insisting that the country's
economy remained fundamentally sound.
"The underpinnings of our economy are strong," Mr Bush told
reporters following a meeting with his top economic advisers at the
US treasury department.
Amid growing turbulence on Wall Street he urged investors to focus
on the fundamentals of the US economy, stressing that second-
quarter economic growth had been strong and that unemployment and
inflation both remained low.
Housing prices 'will rise 40 per cent'
House prices in England will rise by 40% over the next five years,
new research has claimed.
Full Story
Growing repossessions 'cause for concern'
The number of houses repossessed because of mortgages falling into
arrears has jumped by 30% in the first half of 2007.
Full Story
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