From FFDICs FT article: Some of these things [failed bridge loans] are big enough to hurt banks in both capital and liquidity terms,” the banker said.

Ummm, isn't the term of art for an illiquid, capital impaired bank; "insolvent?"

FFDIC,
Nice short article. The conduit world is just starting to come to light... for me anyway. It sounds nice that the parent banks are able to support all of the liabilities form their conduits, but I am left wondering... Wouldn't we hope so? If that comes into question, then then this mess would really be out of control. It seems to me that the logical question is, are the parent banks able to do anything ELSE if their balance sheets become so encumbered?

While the numbers involved seem large, in most cases they are small compared with banks’ total assets.

Ratings agencies estimate that banks would be able to cope with even an extreme scenario – such as having to fund all their conduits – without experiencing undue stress.

I'm getting lost here. Why wouldn't funding $1 trillion be a big deal?

As a former First Data Employee, this couldn't happen to nicer people.
Housing Novice | 09.07.07 - 2:49 pm | #

As a current FDC employee, I'm thinking 3 months later, I will become a former FDC employee.

regarding a deepening of the liquidity crisis, in the mbs market i would say that some parts of the market have continued to deteriorate since the last major headline stories came out (TMA?), while some seem to have stopped getting worse (you can get bids)...but the description i like is that if you want to sell something you have to be willing to make the buyer filthy rich...

Check that comeuppance

I prefer the original "comepuppance," as these puppies need to have their noses rubbed in it for once.

A rate cut will not do one bit of good...my sock draw full of doll heads and cocaine told me so.

It is really hitting the fan. M&A scene in pretty much a stand still. The one European bank corpse will have to float to surface for the liquidity to start to normalize over here. While I have a pretty good idea, who the corpse is, I won't dare to raise it here. But somebody in its death shocks is sucking all the liquidity out of the bank system over here.

"While the numbers involved seem large, in most cases they are small compared with banks’ total assets."

Hello out there! What ratio is this...
total bank assets : total bank equity
?????

Can we take a big step and assume please that easily 1/2 of the debt warehouse, SIV, conduit players are BK?

They're dead, imo.

What's next? What are the consequences?

It is really hitting the fan. M&A scene in pretty much a stand still. The one European bank corpse will have to float to surface for the liquidity to start to normalize over here. While I have a pretty good idea, who the corpse is, I won't dare to raise it here. But somebody in its death shocks is sucking all the liquidity out of the bank system over here.

why won't you dare raise it here?

dryfly,

Where else are you reading about this feral pig in a snake's belly?

We are not Japan...this could turn out worse if you can believe that.

"I certainly agree somebody is dead and sucking up liquidity and threatening other banks not to lend!"

Banks have limits on how much they can lend to any particular bank. If they are full up with a bank, they will still lend to other banks. So I don't believe that one bank being near its death should have an impact on liquidity, unless no one knows who that bank is...

There is a problem with liquidity on the 1M and longer for most currencies (we'll see if the ECB lending for 3M at least unblocks the situation up to the 3M). The problem is there is no liquidity out there. Two months ago one could borrow one billion USD in one shot. Now it's taking an entire day to borrow a percentage of that.

People have commented on the upsurge in Libor. That's not the problem for IBs. Everyone (or at least, I hope everyone) is hedged with swaps that are fixed to Libor. The problems are: (1) We're not able to borrow the amounts we need to hedge when the swap rate is fixed; instead we're having to spread the borrowing out over time, both before and after. This creates risk, but the expected value of p&l is at least 0. (2) The real rate of borrow is higher than Libor. Now theoretically this shouldn't happen. Basically the Libor should be the clearing rate at which banks are willing to lend and to borrow. But that isn't what we're seeing. What we're seeing is some banks saying that Libor is x, but refusing to lend at x. (I'm speaking of USD Libor here, since I'm following this more closely.) This creates a loss - not more risk, just money off the plate - for every bank on the planet, which is reaching 20 to 40 bips at the moment. (So if your mortgage rate is a function of Libor, and you see Libor skyrocketing, just be thankful that it isn't as high as it should be.) That means about 500 k lost for a 3M 1 billion deposit. Banks can take that kind of loss and survive, but bonuses are going to be a lot thinner because that kind of thing adds up.

I do think there will be an IB corpse out there, if this goes on much longer than a month.

Well, it is pretty clear that there is a corpse. At least one, maybe several. The problem is the uncertainty. Once it is clear who is holding what and who is gone...then the liquidity freeze will unravel. But let me tell you ... For example, the European debt dependent M&A scene is dead, muerto, tot, död...until further notice.