Tuesday, June 26, 2007
A Non-US Look At Things
The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.Then the Bear Sterns hedge fund comes up:
"Excess liquidity in the global system will be slashed," it said. "Banks' capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing."
"The banks were not prepared to bid over 85pc of face value for CDOs rated "A" or better," he said.Well, jeeze, by the standards of today's hot LBO deals, 10% left over is darned good! Whaddaya mean calling that a problem? It does mean that there will be less money left over to lend, though.... Hmm, maybe there is a problem.
"God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc.
"We don't know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn."