by Calculated Risk on 9/16/2008 08:32:00 AM

From the BLS: Consumer Price Index

On a seasonally adjusted basis, the CPI-U decreased 0.1 percent in August, following a 0.8 percent increase in July. The index for energy fell 3.1 percent in August after three consecutive sharp increases.

Core inflation:

The index for all items less food and energy increased 0.2 percent in August after increasing 0.3 percent in July.

Interesting, the BLS reported a sharp decline (1.1 percent) in the lodging away from index, suggesting pricing weakness for hotels.

This is a little bit of good news, and takes some of the pressure off the Fed. However, the CPI has still increased 5.1% (SAAR) during the first eight months of 2008 - way too high for comfort.

by Calculated Risk on 9/15/2008 10:36:00 PM

Click on graph for larger image in new window.

The Shanghai SSE composite index fell below 2000 tonight (still trading). This is the lowest level since late 2006. The index is off about two-thirds from the peak.

This is a stunning stock market crash, and it's not just the Shanghai composite - it's an Asian market rout:

The Hang Seng is off 6%.

The Nikkei 225 is off 5%.

The Seoul Composite is off close to 6%.

by Calculated Risk on 9/15/2008 09:56:00 PM

Some interesting details from the NY Times: Fed Takes Steps to Aid A.I.G

The complex discussions, continuing into the night as a deal was hoped for before United States markets open on Tuesday, involved New York state regulators, federal regulators, private equity firms and Wall Street banks that rely on A.I.G.’s ability to honor its derivatives contracts ...
emphasis added
...
The urgency of the talks grew by late Monday as A.M. Best Company, a credit rating organization specialized in insurance and health-care companies, downgraded the credit of A.I.G. and several of its major subsidiaries. Fitch Ratings also downgraded A.I.G.’s credit Monday evening.

Standard & Poor’s downgraded its long-term and short-term counterparty ratings on A.I.G. Monday evening.

But none of those downgrades appeared to be trigger events requiring A.I.G. to post billions of dollars of collateral to its swap counterparties.
...
People briefed on the matter said that if JPMorgan and Goldman Sachs were able to raise a $75 billion credit line by Tuesday, it could avert the all-important debt downgrades by Standard & Poor’s and Moody’s.

AIG seems to be hanging by a thread.

by Calculated Risk on 9/15/2008 07:26:00 PM

From the Wells Fargo 8-K filed with the SEC today:

In connection with the filing today by Lehman Brothers Holdings Inc. (Lehman Brothers) of a Chapter 11 bankruptcy petition, Wells Fargo & Company (the Company) will record other-than-temporary impairment and take a non-cash charge to earnings in third quarter 2008 for investments in senior unsecured notes and perpetual preferred securities issued by Lehman Brothers. The Company’s investments in the notes and preferred securities are included in securities available for sale at a cost of approximately $90 million and $109 million, respectively. The notes currently trade at 25-30 cents on the dollar. The preferred securities currently trade at less than one percent of par value. The Company estimates that as of September 12, 2008, it had approximately $50 million of unsecured counterparty exposure to Lehman Brothers. The Company has no direct lending exposure to Lehman Brothers, and the Wells Fargo Advantage Money Market Funds do not have any direct exposure to Lehman Brothers.

So the $90 million in notes is worth about $25 million, and the $109 million in preferred securities is essentially worthless. With the unsecured counterparty exposure, this loss could be close to $200 million. Just last week, Wells Fargo reported $450 million (or so) in losses associated with Fannie and Freddie.

The Lehman confessional is open!

by Calculated Risk on 9/15/2008 07:17:00 PM

From MarketWatch: Fitch Ratings downgrades AIG to 'A'

Fitch Ratings said late Monday that it downgraded American International Group because the insurer's ability to raise capital for its holding company has become "extremely limited."

Fitch also kept AIG on Rating Watch Negative.

by Calculated Risk on 9/15/2008 05:15:00 PM

From Bloomberg: WaMu Rating Lowered to Junk by S&P on Mortgage Losses (hat tip Justin)

Washington Mutual Inc. ... had its credit rating cut to junk by Standard & Poor's because of the deteriorating housing market.
...
``Increasing market turmoil and the related impact from managing its concentrated mortgage franchise in this troubled housing and credit cycle led to the downgrade,'' S&P wrote.

And the beat goes on ...

by Calculated Risk on 9/15/2008 04:50:00 PM

Here is the TED Spread from Bloomberg (hat tip James, Glenn and others)

The TED spread has increased to 2.01% (from just over 1% last week). This is close to the highs reached in August 2007, late 2007 and in the spring of 2008 (the three previous waves of the credit crisis).

Note: the TED spread is the difference between the three month T-bill and the LIBOR interest rate. Usually the TED spread is less than 0.5%. The higher the spread, the greater the perceived credit risks (compared to "risk free" treasuries).

by Anonymous on 9/15/2008 04:28:00 PM

I thought maybe we'd need some comic relief on a day like today. And there's nothing like Gretchen Morgenson for comedy.

This may be the single dumbest thing Morgenson has ever written. I had to read this over several times, aloud, to make sure I wasn't misreading it:

Here is a modest suggestion for James B. Lockhart, chairman of the F.H.F.A., to consider: Do the new owners — us deep-pocketed taxpayers — a favor, and open up Mac ’n’ Mae’s books so we can see exactly what we own.

Also, force both companies to disclose details on every mortgage they guaranteed or purchased in the last 10 years. This would include loan type, the year when the loan was made, the original rating on the security and its originator.

That way, the new owners would be able to see how deep into the subprime loan swamp Fannie and Freddie waded during the lending spree. After all, according to Inside Mortgage Finance, an industry publication, Mac ’n’ Mae bought almost $170 billion in subprime mortgage-backed securities in 2005, roughly one-third of the total issuance that year. And they bought an additional $120 billion in subprime mortgage securities in 2006, or 27 percent of the total amount issued.

I can't even start with the fact that after all this time, Morgenson still can't keep straight on the difference between the rating of a security (or a tranche of one) and the "rating" of a mortgage loan. She has been making that mistake for about two years now, as far as my memory serves, and she will apparently never stop.

No, today we must contemplate the "modest" suggestion that Fannie and Freddie report loan-level data on every loan purchased or guaranteed in the last ten years, so that the taxpayers can see for themselves what we've got here.

By my rough calculation, the two GSEs purchased about $10.013 trillion in mortgage loans between 1997 and 2007. (Data here, Figure 26.) I do not have average loan size figures for all of those years, but in 2002, the midpoint, the average loan size was $160,000. Using that average, we get 62,581,250 loans.

(Wait, you say. The total mortgage debt outstanding for all holders of mortgage loans for the whole country at the end of 2007 was only $12 trillion. And total Fannie and Freddie portfolio (retained and MBS) at the end of 2007 was only about $5 trillion. Well, yes. But Morgenson wants data on every loan ever purchased in those years, whether they are still outstanding or not.)

So how are Billy Joe and Bobby Sue Taxpayer going to examine a database of 62.5 million loans? Fairly slowly, I'd guess. Since the Taxpayers don't generally run mainframes, it just wouldn't do to "disclose" this information on magnetic tape. A lot of them do have PCs, of course, and many of those PCs run Excel. Excel 2003 has a maximum number of rows per spreadsheet of 65,536, so you could get 62.5 million loans into no more than about 950 separate spreadsheets.

Maybe this could just be for the Taxpayers who run Access. Access has no limit for the number of records, although the database size is limited to 2GB. We don't really know how much data per 62.5 million loans Morgenson wants, so I don't really know how many separate databases we'd need here. I just know I wouldn't want to try to manipulate one on my home PC; I'd guess that it wouldn't exactly run very fast.

Of course there's always paper, which can be made available online as pdf. With a limited number of columns and a small font, you might be able to get 100 loans on a page. That would only require a 625,812.5 page "disclosure." That shouldn't create any server problems, and we could all go long on manufacturers of toner cartridges.

Now that I think about it, it would be sort of fun if Lockhart decided to take Morgenson up on her modest suggestion. That is, if he generated a 625,812.5 page report and emailed it to Morgenson. The Times must have pretty big servers, no?

You know you are in the presence of a not very well hidden agenda when someone proposes something this dumb. "The taxpayers" do not have the time or the expertise or the technology to browse through a disclosure regarding 62.5 million loans. Most sophisticated institutional investors don't have it, either. The GSEs disclose summary data because life is too damned short for anyone to get anything but summaries. All Morgenson is doing here is making a ridiculous demand that won't be met, so that she can then claim that Fannie and Freddie "refuse to disclose fully."

by Calculated Risk on 9/15/2008 03:32:00 PM

From MarketWatch:

Feds ask Goldman, JPMorgan Chase to lead AIG lending: report

AIG lending facility could be $70 bln-$75 bln: report

by Calculated Risk on 9/15/2008 03:19:00 PM

An open thread for comments ...

Both Wachovia and WaMu are off 26%.

AIG is off 56%.

No word from the NY Fed meeting on AIG.