Will the Sun come up tomorrow?
Posted on 03/06/2008 8:49:42 PM PST by DeaconBenjamin
Property investment trusts shares have crashed on panic selling in New York after an affiliate of the private equity giant Carlyle Group fell into default on mortgage losses.
Carlyle Capital Corp (CCC) said it had missed margin calls to seven creditors and lacked collateral to cover its trading exposure to mortgage securities. advertisement
The news sent shockwaves through the financial markets. Carlyle Capital has leveraged itself to the hilt, taking out debt at a ratio of 32:1 to invest in the US mortgage assets. It held securities worth a $21.7bn (£10.8bn) last month, raising the spectre of distress sales on a scale large enough to trigger a cascade of liquidations by other funds.
Fears of forced sales ravaged real estate investment trusts, which also own big holdings of Fannie Mae and Freddie Mac debt. Anworth Mortgage shares plunged 24pc and Capstead Mortgage was off 25pc.
Thornburg Mortgage crashed 60pc after revealing an SEC-filing in New York that it had missed a $28m margin call to JP Morgan Chase. It has suffered from the collapse in investor demand for so-called jumbo mortgages.
An analyst report that UBS was engaged in a "fire-sale" of mortgage securities worth $24bn accelerated the flight from risk. Most of the assets are alleged to be Alt A securities, the next notch up from sub-prime. The Dow Jones index fell 164 points in early trading to 12,090.
Traders said Carlyle had been scooping up AAA-rated mortgage securities, believing that they had fallen fall below inherent value. The risky bet - known as "catching a falling knife" - appears similar to the strategy that ensnared the UK hedge fund Peloton Partners, which was forced to close a $2bn fund last week.
The assets were issued by Fannie Mae and Freddie Mac, federally-chartered bodies that have an implicit US government guarantee.
“Carlyle Capital has leveraged itself to the hilt,”
That will do it.
Not good — the’re some smart cookies. Makes me wonder what’s in store for the less smart cookies.
The asian markets are down 3+%.
This is impossible, because leftists have assured us for years that Papa Bush’s Carlyle cabal rules the world.
The dollar is under 103 yen.
Bring in the clowns! I suppose Shillary, or the Halfrican American will fix this.
More fear mongering to point fingers at something that isn’t there.
If I had some extra doe I'd be buying and renting in many places. Income generators are abound.... I am sure their are many pulling these assets together as cowards run.
* grin * disclaimer! Just passing on a good joke ....
Mortgages are a great investment individually. Most people will eat Top Ramen and ride to work on a bicycle before they walk away from the roof over their heads. Even the great majority of sub-prime loans are not in default
The problem comes with these CDO's that lost their moorings to the value of the underlying paper.
-ccm
Doug Noland has been warning about this scenario happening for years. Unfortunately, he was way early on the call, didn’t get to finish his doctorate because of it, but is being proved 100% right several years later.
The margin calls are what are killing everyone. I work at a grain elevator and depending on what the grain market does each day, sometimes we have to pony up 5+ million dollars or more. 3 straight days of limit up moves in the grains and certain people are about ready to hang themselves!! LOL!!! It’s alot less tense in the office when the market is limit down, although my farmer husband doesn’t particularly like it!
Why? Are you in the futures market by choice, or is it an instrumental part of the business of grain elevators? Why does an increase in the value of your grain cost you money?
So is all this mess the government's own doing? Didn't old Hillary tell her fund-raiser crowed in CT some years back down times would be ahead.
We have bids for grain (at least right now) out through 2010. We have purchased grain from the farmers already for those months, so we in turn have to hedge those sales so we don’t lose our $ if the market drops. Futures go up-margin calls are made, futures go down-we get money back. Alot of the grain elevators around have now pulled the bids and aren’t buying anything past this current crop year because of this reason. Just part of the business. Not really a big deal until the market gets as volitile as it has been recently.
What mess. Thanks for the link.
They are connected through the capital adequacy requirements of the major banks. Having lost risk capital cushions in subprimes, they are scrambling to hold only securities that do not require risk reserves. That is why US treasury yields are dropping while other rates are rising - the first don't require bank reserves and the second, do.
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