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...Well there ya go...
Financial Companies' Stock Borrow Disappears
Posted by Tyler Durden at 11:10 AM
Wednesday, March 18, 2009
Rampant rumors from traders that repo desks are continuing to call in shares used to short financials such as Citi and AIG. This is causing a forced covering of all financial shorts, and an impossibility to put on new shorts... Interesting how this happens the day before Obama shows up on Leno. This fits in perfectly with Zero Hedge's conspiracy theory of the Volkswagen situation repeating itself in financial sector in general and Citi in particular.
Agency details new mark-to-market guidance
FASB to vote April 2 on alternatives for accounting in illiquid markets
WASHINGTON (MarketWatch) -- The Financial Accounting Standards Board on Wednesday provided additional details about proposed guidance the agency is issuing that could change how banks and other companies value illiquid mortgage assets.
At issue are controversial mark-to-market rules, an accounting methodology that requires banks and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments, based on the current market price for either the security or a similar asset.
The new guidance would give auditors more flexibility in valuing illiquid mortgage assets that may have a long term value or strong cash flow -- in other words they are not distressed assets, but they can't be sold in the markets today.
Proponents of abolishing or modifying the mark-to-market rules, which are also known as fair value regulations, say that assets owned by troubled banks have become impossible to value, as the market for these assets have frozen up due to the financial crisis.
The FASB's proposed guidance would stop short of changing the mark-to-market rules, but it would clarify how auditors should interpret those existing regulations. It would allow banks and other companies that have had a difficult time valuing illiquid mortgage and other securities, the ability to use "significant judgment" when valuing the assets.
The proposal is dubbed "Determining Whether a Market Is Not Active and a Transaction Is Not Distressed," and is in response to concerns by banks and other financial institutions who have been concerned that the market for illiquid mortgage securities is inactive and distressed, despite their strong cash flow.
However, it's unclear whether the additional guidance would be sufficient for bank auditors to make significant changes to how they value illiquid mortgage securities.
Be warned Ben....
The BOE executed their first "QE" operation today.
The "bid to cover" was an astonishing 7.35.
This means that for every bond purchased 7.35 were tendered, or made available by willing sellers.
Back in January I posted a Ticker in which I made clear what was likely to happen if Bernanke actually attempted to do (as opposed to threatening) QE:
Bernanke bluffed and the bond market called it. He cannot monetize several trillion in new issue plus the entirety of the 10 and 30 year bonds out there to stop a bond market sell-off. In addition, the market no longer believes him, as evidenced by today's price action. A serious bond-market sell-off will ramp the cost of all credit, including mortgages and commercial loans. If he tries to monetize the result will be current bondholders tendering into his buying, forcing him to essentially "consume" the entire float. That stunt will cause the dollar to implode and we wind up exactly like Iceland. Overnight. Ben knows this; ergo, he is screaming like a petulant child while the market laughs at him just like the market forced Paulson to do what he said he wouldn't with Fannie and Freddie. Bernanke had better shut the hell up before he precipitates a bond market dislocation; traders can and will try to force him to make good on the threat.
Ding. The BOE now has seen exactly what happens when you promise as a government to overpay for something - everyone hits your bid immediately!
This is a form of crack that the government cannot afford to loose into the market - as soon as the buying pressure is removed rates will start to rise again, forcing yet another purchase.
Ultimately The Fed winds up owning all of its own government's bonds, having destroyed the private capital market for sovereign debt (just as it has done for other securitized debt by threatening to overpay for those issues!)
The difference is that if this happens for sovereign debt then deficit spending becomes impossible on an instant basis; this would in turn force a nearly 75% contraction of government spending.
The outcome of this event would be the immediate destruction of Social Security, Medicare, half the military budget and half of all other government programs.
PS: Bernanke knows this, which is why it hasn't happened yet. Let's hope he continues to remember it, because the destruction of our government is very, very un-funny, and this would likely precipitate exactly that in a "vast and fast" form.
March 18 (Bloomberg) -- The Obama administration is considering using a new Federal Reserve program designed to spur consumer lending to help remove distressed assets from banks' balance sheets, according to people familiar with the matter.
Officials may meld the Treasury's plan to set up private investment funds to buy frozen assets with the Fed program, known as the Term Asset-Backed Securities Loan Facility, the people said. The Federal Deposit Insurance Corp. may also get a wider role, the people said.
Treasury Secretary Timothy Geithner may use an array of approaches to maximize the likelihood of cleansing banks' balance sheets so they can start lending again. The next announcement, which may come as soon as this week, will be critical after Geithner's first unveiling of the strategy caused a sell-off in financial stocks.
"The markets are just getting increasingly nervous, the longer they wait to announce the plan," said Stephen Myrow, a former Treasury official in the Bush administration who helped create the TALF.
The TALF would provide loans to investors and agree to take illiquid debt as collateral, the people said. It would be used alongside the Treasury's planned public-private investment funds.
March 18 (Bloomberg) -- The Federal Reserve said it will buy $300 billion in Treasury securities and increase its purchases of mortgage and agency debt in an effort to bolster housing and hasten the end of the recession.
"To provide greater support to mortgage lending and housing markets, the committee decided today to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage- backed securities," the Federal Open Market Committee said in a statement in Washington today. "Moreover, to help improve conditions in private credit markets, the committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."
Chairman Ben S. Bernanke is becoming more aggressive after unemployment climbed to 8.1 percent and economists forecast the economy will shrink through the middle of the year. Fed officials also kept the benchmark interest rate at between zero and 0.25 percent. The central bank also said it will consider expanding the Term Asset-Backed Securities Loan Facility to include "other financial assets," the statement said.
The Fed added that it will "increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.
Federal Reserve Chairman Ben S. Bernanke is trying to prevent the credit contraction from deepening what already may be the worst recession in 60 years. The U.S. jobless rate jumped to the highest level in more than a quarter century last month. Industrial production fell 1.4 percent, the fourth consecutive decline, while factory capacity in use slumped to 70.9 percent, matching the lowest level on record.