Credit crunch update from people at the coal face

Thanks Daytona.

Yes, I saw something about this. A very intruiging move. I'm on record from three years back here as saying the s*it will really hit the fan when the Chinese go into Japan mode and their stock and housing markets crash. I recall that someone here guffawed and asked how markets in China could possibly affect house prices in Britain. It looks like he's soon to see that lesson...

That would be "Michael", but to be honest, you'll find damn near all of my stuff under the moniker "FoFP" as I've been using that since 1987.

You missed the other biggie this week: FAS157

I still can't quite believe how the Americans accepted getting in hoc to the Chinese in such spectacular fashion.

Sorry, don't know where that came from. The meaning of FoFP has always intrigued me.....

and they may be downgraded -

"Fitch Places Freddie Mac's 'AA-' Preferred Stock on Rating Watch Negative

Fitch Ratings-New York-20 November 2007: Fitch Ratings has placed Freddie Mac's (FRE) 'AA-' rated preferred stock on Rating Watch Negative following this morning's announcement that the company is considering a number of options to manage regulatory capital requirements. Fitch has also affirmed Freddie Mac's Long-term Issuer Default Rating (IDR) and other outstanding debt ratings. A complete list of ratings is provided at the end of this release. Fitch's rating action reflects FRE's recent and potential future challenges in meeting the 30% mandatory target capital surplus as required by the Office of Federal Housing Enterprise Oversight (OFHEO), the company's regulator. Recent financial performance has been adversely impacted by mark to market losses on investments, its guaranteed asset and derivatives, while provisions also increased due to expected higher credit related costs. In addition to a GAAP net loss of $2 billion in third quarter-2007 (3Q'07), FRE indicated that a number of factors have the potential to impact future financial performance and pressure regulatory capital going forward. As a result, FRE is exploring potential capital issues.

Fitch may downgrade FRE's preferred stock rating by one notch depending on the terms, conditions and amount of additional hybrid instruments raised relative to total capital. The growing component of preferred stock to total capital, currently at 23.4% of regulatory core capital, results in a higher expectation of loss absorption by preferred stock. Fitch would affirm the preferred stock rating if capital raising plans do not materially impact capital composition. The Rating Watch is expected to be resolved in the short term once capital plans are finalized.

Fitch has placed the following rating on Rating Watch Negative:

Freddie Mac Inc.

--Preferred stock 'AA-'.

Fitch has also affirmed the following ratings:

Freddie Mac Inc.

--Long-term IDR 'AAA';

--Senior unsecured 'AAA';

--Short-term IDR 'F1+';

--Short-term debt 'F1+'."

It's apparently a worst case scenario, but interesting to see the early prediction that ABCP up to A grade would be wiped out proving correct. Also seeing AAA being re-rated to BBB is frankly hilarious.

The UK still has rules that allow hard to value assets not to be reported -

"Pressure on UK financial sector to detail its exposure to crisis By David Prosser, Deputy Business Editor Published: 06 November 2007

City analysts have called for British banks to give public statements about their precise exposure to the global credit crisis, following increasing speculation that a UK institution could be forced into Citigroup-style write-offs. The demands reflect increasing frustration that, while leading Wall Street investment banks have made painful public disclosures of their potential liabilities, the British banking industry has remained largely silent. . . A spokesman for the Financial Services Authority said listed banks would be bound by the Stock Exchange listing rules in the same way as other companies. "There is a general onus on firms to make a disclosure of any price-sensitive information," he said. However, the rules allow companies to keep such information private if they are unable to quantify the size of the problem reasonably precisely. . . Analysts at Merrill Lynch calculate their own investment banking colleagues are assuming its sub-prime exposure is now worth only 63c in the dollar, while UBS is working on assumptions of 90c."

Well, they seemed to think that a plasma TV and a 4WD made it all worthwhile. Birthright, mess of pottage and all that.

"a Friend of Fernando Poo"

Ouch. Possibly more immediately, their hopes of riding in as shining knights to save the US mortgage markets now look rather tarnished.

We're in the wrong career eh? Amazing what you can be paid tens of millions per year to do.

I'd always assumed it was related, but I haven't followed banking regulation very closely.

This could be expected after Northern Rock. I'm guessing that most bank execs now figure that if they admit weakness, they'll se a bank run the same day.

What the RBoS guy called "mark to make-believe".

And this is before there are any real price falls in the US. Imagine the position once we're even at 15% down...

FoFP

""Nov. 20 (Bloomberg) -- The price to exchange fixed for floating interest-rate payments for two years surged to the highest in at least

The spread between the rates on a two-year interest-rate swap, used to hedge against and speculate on interest-rate swings, and Treasury note yields, widened to as much as 101.75 basis points, the largest gap since at least November 1988"

For those, like me, who have difficulty following this, an explanation and futher comment is available later in the thread -

Thanks again Daytona. Please keep up the good work.

As always, I hate trying to time markets, but I have to say my spidey sense is tingling. I feel a stocks crash coming on. If it happens in China, then this really is The Big One.

FoFP

Thanks as always Daytona. Please keep up the good work!

Does this remind anyone else of September 1987?

FoFP

Nah, probably just a 'blip'..

Perhaps the Nattering Nabobs of Negativity have returned?

FoFP

Just wondering, where have all the house price crash denialists gone?

I'm still here. Oh...

FoFP

They are still licking their wounds from how much money they lost as they sold up and rented and house prices continued to rise.

They are like managers of 'income' funds during the tech/internet boom... when vindication finally came it was too late

wrote

So it *is* similar then - Sep.'87 was just a 'blip' !