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The unwinding of the investment vehicles that drove the credit boom is roiling the once-staid corporate leveraged loan market, and the pain may not be over yet. For years the US loan market was a clubby world dominated by banks, insurance companies and a few mutual funds. In the early part of the decade steady returns, low defaults and high recovery in bankruptcy attracted new buyers that used leverage to boost returns. Now these vehicles are unravelling in a wave of selling that is causing and feeding on volatility in the asset class. “We expect market volatility around loans to...

Time for the Darwinian flush Highlights from the latest Hayman Advisors letter to clients (i.e. the text in full): October 14, 2008 ‘The ultimate result of shielding man from the effects of folly is to people the world with fools.’ Herbert Spencer What’s Next? It is the “what’s next” that scares us the most. There is no doubt that many books will be written chronicling the times we are living through today. When we wrote to you in July 2007, we really meant “feet first”! The common denominator of everything that has gone wrong so far has been reckless amounts...

Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders. Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments. Like banks, they...

Default Swaps May Be Next In Credit Crisis Ultimate Moral Hazard Looms in the Markets By JULIE SATOW, Staff Reporter of the Sun | September 22, 2008 The biggest Wall Street story most Americans haven't yet heard of is the $62 trillion unregulated credit default swaps market. Here is one scenario: A hedge fund buys insurance in case a company defaults on its bonds — a so-called credit default swap — when the hedge fund doesn't necessarily own the bonds. Then it immediately shorts the stock, driving down the company's share price, leading to a downgrade, and eventually triggering a...

Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers 'They constructed a mechanism that simply didn't work' By JULIE SATOW, Staff Reporter of the Sun | September 18, 2008 http://www.nysun.com/business/ex-sec-official-blames-agency-for-blow-up/86130/ The Securities and Exchange Commission can blame itself for the current crisis. That is the allegation being made by a former SEC official, Lee Pickard, who says a rule change in 2004 led to the failure of Lehman Brothers, Bear Stearns, and Merrill Lynch. The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed...

Hedge funds ready to blow as positions liquidated Adele Ferguson | September 06, 2008 DEBT-GORGED hedge funds are the next ticking bomb in the global credit crisis as they liquidate their positions in equities and commodities ahead of an expected spike in quarterly redemptions by investors throughout September. The first hedge fund victim was Ospraie Management, which announced earlier this week it would close its flagship hedge fund and liquidate its stock after it plunged 27 per cent in August due to losses in energy, mining and natural resources equity holdings. Other hedge funds are expected to topple as investors...

Carlyle unit misses some margin calls By Martin Arnold and Harry Sender in London Published: March 6 2008 13:01 | Last updated: March 6 2008 13:01 Carlyle Capital Corp became the latest casualty of the banks’ increasingly unforgiving attitude towards even the most powerful private equity funds on Thursday when the highly leveraged mortgage-backed securities fund said it had failed to meet margin calls from some of its lenders. The fund, listed in Amsterdam by the Carlyle Group last year, has been hit by a fall in the value of its $21.7bn portfolio of AAA-rated residential mortgage-backed securities, illustrating that...

Insight: True impact of mark-to-market on the credit crisis By Paul J Davies Published: February 28 2008 16:25 | Last updated: February 28 2008 16:25 Back in April 1993 the eyes of the world were on the beseiged Balkan town of Srebrenica, which the UN declared a safe haven for Bosnian muslims, and on Northern Ireland, where secret talks between leaders from rival factions kick-started a tentative peace process. In the same month, a less-noticed development saw US accountancy regulators approve a rule that paved the way for today’s widespread use of mark-to-market accounting standards. This rule, which forced US...

Hedge Funds Feel New Heat By GREGORY ZUCKERMAN February 23, 2008; Page A1 The past decade has been the era of the hedge fund, as investors snapped them up for their track record of beating the market with often highly complex trades. But now, as the credit crunch upends financial markets, that very complexity is coming back to bite some of them. In the past year, shares of Fortress Investment Group LLC -- which became the symbol of hedge-fund success when it went public last February -- are down 50% as investors wring their hands about the value of its...

Most anybody in the mortgage business will tell you that August was a month that will live in infamy: The market was in turmoil, as doubts about the stability of subprime loans spread to other sectors of the mortgage world. How bad was it? A survey of mortgage brokers suggests that one in three consumers who recently signed purchase contracts canceled in August -- up from just 4 percent three years ago, according to the research firm that conducted the survey for Inside Mortgage Finance, a trade journal. The cancellation rate undoubtedly was fed by two scenarios playing out: Many...

THE DOWNWARD SPIRAL IN housing, the source of so much of the turmoil in so many markets and already proceeding at a rather sickeningly dizzying pace, accelerated further in these memorable three months. For both existing and new homes, sales and prices continued to buckle and inventories continued to extend their unrelenting rise to the heavens. Wachovia, which knows a thing or two about real estate, mortgages and the like, relays the news that in August, sales of new homes sagged to an annual pace of 795,000 units, a breathtaking 40% below the peak set in October '05, and median...

Environmental requirements in San Bernardino County. Transportation projects approved by voters last fall. Such mundane matters have little to do with California's annual budget, but they are among the chief reasons the spending plan for the current fiscal year is almost seven weeks overdue. The reason: California's requirement that the budget pass with a two-thirds vote in each house. It is one of only three states to have the requirement, which gives minority Republicans a rare chance to exert influence. "Quite frankly, there are a few places to which we can leverage those kind of policy issues, and this is...

BEIJING - When North Korea fired a volley of missiles this week, it not only defied warnings from longtime enemies the United States and Japan, it also spurned the pleas of its chief benefactor — China. For a country that is North Korea's stalwart diplomatic protector and economic lifeline, providing the North with trade, lots of aid and all of its oil, China seemingly has little pull with its neighbor and ally of 55 years. "China sends oil, grain and other assistance to North Korea. But aid isn't a weapon if it's not used as a weapon," said Zhang Liangui,...

Pyongyang's antics catch out Beijing BEIJING - The international flap caused by reports that North Korea is preparing to test-fire its new Taepodong 2 intercontinental ballistic missile has placed China in an unenviable position. Beijing appears to have had no impact on restraining its restive neighbor in this instance, leading the world to wonder just how influential it in fact is, given that it is traditionally viewed as the country with the most hold over North Korea. It could be that Beijing just didn't want to try to push Pyongyang too hard, or simply that there is nothing it can...

WASHINGTON - A Republican Party official and Jack Abramoff's lobbying team bluntly discussed using large political donations as a way to pressure lawmakers into securing federal money for a tribal client, according to e-mails gathered by prosecutors. The e-mails detail how Abramoff's team worked to leverage assistance from the White House, Congress and the GOP to get a reluctant federal agency and a single Republican congressional aide to stop blocking school construction money for the Saginaw Chippewa tribe. The e-mails were obtained by The Associated Press. Abramoff's team ultimately prevailed when the congressional aide was overruled, several lawmakers pressured an...

SAN FRANCISCO (MarketWatch) -- Moody's Investors Service on Friday placed New York Times Co.'s (NYT) A2 senior unsecured long term debt, and P-1 commercial paper ratings on review for possible downgrade. The agency said the review is prompted by Moody's growing concerns about the media company's high financial leverage, deteriorating operating margins and weak free cash flow available for debt reduction, combined with concerns over intensifying cross media competition, including the Internet, and growing event risk in the newspaper sector. A multi-notch ratings transition will be considered in light of the company's financial and operating challenges, Moody's said.

Americans may feel richer because of soaring home prices, but they're not. U.S. families' wealth stagnated during the economy's recession and recovery from 2001 through 2004, as lackluster wage growth, sagging stock prices and rising debt levels offset the gains from higher home values, the Federal Reserve reported Thursday in its latest Survey of Consumer Finances.Home prices jumped nearly 27 percent during the survey period, and the share of households owning homes rose to 69.1 percent in 2004, the report said. That made Americans feel good. And it did help boost the total value of families' assets — such as...

The world economy is currently running on a resource that is controlled by our enemies. This threatens to leave us prostrate. It must change—and the good news is that it can change, quickly. Using portions of the hundreds of billions of petrodollars they are annually draining from our economy, Middle Easterners have established training centers for terrorists, paid bounties to the families of suicide bombers, and funded the purchase of weapons and explosives. Oil revenues underwrite new media outlets that propagandize hatefully against the United States and the West. They pay for more than 10,000 radical madrassahs set up around...

Who Scares the Rest? (See Bottom Left) By DAVID E. SANGER Published: May 8, 2005 MAYBE North Korea really is preparing to make the ground shake, to prove that its 50-year quest to acquire a nuclear arsenal has succeeded. Or maybe Kim Jong Il, son of the country's founder, is just playing with the rest of the world's heads. Truths of the Second Nuclear AgeEither way, North Korea demonstrates a truth of the second nuclear age: The political power of atomic weapons no longer rests on the size of your stockpile, which was the measure during the cold war. Instead,...

WASHINGTON - The standard responses from members of Congress during the president's State of the Union address usually follow a graduated scale of support: from stone silence to polite applause to standing ovation and, finally, the occasional enthusiastic, ``hurrah!'' But as President Bush laid out his case --snip-- he managed to earn a rare response from Democrats that did not bode well for his plans. They hissed. Their reaction came when Bush asserted that Social Security is ``headed toward bankruptcy'' -- a point that most Democrats and some analysts dispute. ``When you start out by stating a premise that's factually...