Thursday, 21 February 2008

Kevin Logan, the senior US economist at Dresdner Kleinwort, said we are witnessing a chain reaction that began with rising mortgage defaults by low-income Americans 18 months ago. Mortgage-related derivatives have collapsed in value, endangering the creditworthiness of insurance companies that guarantee all sorts of bonds, including the auction-rate bonds issued by municipalities. "It is a contagion, and though you would like to think we are getting to the end of it, things just seem to keep popping up."The latest obscure corner of the credit market to hit trouble is the credit default swaps market, which investors use to buy protection from the risk of a default by corporate bonds. The cost of this protection soared to a record yesterday, amid rumours that packages of credit default swaps, called CPDOs, are being dumped by investors following warnings they may themselves default on their payouts.
In other signs that the credit crisis is far from over, Standard Chartered yesterday abandoned a plan to bail out its $7.15bn (£3.68bn) structured investment vehicle after market fears caused a plunge in the value of the fund's assets. The SIV, called Whistlejacket, was put into receivership last week. SIVs are funds that use short-term borrowing to buy longer, higher-yielding assets. The assets are used to back the debt that SIVs issue to investors. Deloitte, the receiver, is understood to have frozen all payments to Whistlejacket's senior debt holders. That debt will probably go into default today.
Meanwhile, a similar publicly quoted investment vehicle set up by KKR, called KKR Financial, said it was delaying paying its debt-holders and had begun restructuring talks with creditors.


wzweifler said...

Herbert Hoover in 1930 - "Now is the time to buy" In 2008 I add "distressed mortgage debt" We will buy distressed debt and want to talk to others who share our enthusiasm for this contrarian strategy. This includes the trading desks of august banks like Standard Chartered. If you want to unload 'em we want to BUY 'em!


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