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Red Flags in Credit Markets (Capitalism DeathWatchâ„¢)
WSJ ^ | WSJ

Posted on 02/23/2009 9:23:23 AM PST by quesney

Red lights are flashing in the credit market again.

The revival in risk appetite seen at the start of the year is fading as long-awaited government bailout plans have failed to materialise. The common thread is renewed pressure in a banking system already severely weakened by 18 months of financial markets turmoil. Governments are running out of time to stop the rot before the credit crisis takes another lurch for the worse.

First, consider the spread between U.S. dollar Libor, the rate for interbank lending, and the overnight indexed swap rate, which captures expectations for official interest rates. The spread narrowed sharply from October's peak of 366 basis points to a low of around 90 basis points in January. But now the spread has risen again to back over 100 basis points, amid renewed fears over bank funding and a further loss of trust in the system. Pre-crisis the typical spread was under 10 basis points.

Second, look at the Markit LCDX index of default swaps on 100 U.S. leveraged loans. The index rallied in January, but has now returned to 72.5% of face value, close to the record low seen in December. Auctions to determine swap payouts are producing very low indicative recovery rates: 40% versus an average recovery rate over the past 20 years for bank loans of around 81%. Low recoveries will hit loss reserves hard.

Third, spreads on nearly all tranches of the CMBX index, which tracks default swaps on 25 U.S. commercial mortgage-backed securities, have reached new record wide levels in February after a January rally. Moody's on Feb. 5 said it was considering cutting ratings on $302 billion of CMBS due to falling commercial property values and rising delinquencies.

(Excerpt) Read more at online.wsj.com ...


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To: Malsua
Hotlink doesn't work for first link.

for Jefferson Encylopedia. Click here: The first part of the quotation ("If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered") has not been found anywhere in Thomas Jefferson's writings, to Albert Gallatin or otherwise. It is identified in Respectfully Quoted as spurious, and the editor further points out that the words "inflation" and "deflation" did not come into use until 1864 and 1920, respectively.[3]

41 posted on 02/23/2009 2:40:06 PM PST by Malsua
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To: Malsua; HighlyOpinionated
Thanks Malsua for the links ...it is always nice when one is able to bring up (to use HighlyOpinionated's highly opinionated words) ' two sources, neither of which can be the left leaning agendized Snopes' to support a point, even when the poster who made the demands simply disappears like morning vapors.

Although I am surprised people really thought words like inflation and deflation were around in Jeffersonian times ....I guess Biden is not the only one with a warped historical perspective.

42 posted on 03/09/2009 10:10:10 PM PDT by spetznaz (Nuclear-tipped Ballistic Missiles: The Ultimate Phallic Symbol)
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