by Calculated Risk on 3/09/2009 09:00:00 PM

Teams from the Treasury Department and Federal Reserve are analyzing the appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and are evaluating a number of other types of AAA-rated newly issued ABS for possible acceptance under the expanded program.
Federal Reserve, TALF, March 3, 2009

From the Christian Science Monitor: Real estate woes seep into malls, office towers

By April, the federal government expects to have a plan to refinance office towers and shopping centers in danger of defaulting. The scale is likely to be massive...

For now, commercial delinquencies are few. But office vacancy rates are heading toward record levels, according to one estimate, and banks are exposed, with $1.72 trillion in commercial real estate loans outstanding as of Feb. 18.

Just as significant, many insurance companies and pension funds have invested in real estate, putting them at risk, as well.
...
This year some $300 billion in loans to developers are due to be refinanced by commercial banks. Given the decline in the economy, many real estate ventures might not be able to survive if they are not able to refinance their loans on better terms more reflective of today’s economic conditions. But banks are largely refusing to refinance as the properties drop in value.

Last year there was some discussion of a bailout for CRE investors, and that didn't make any sense. This article seems to suggest that the Fed will be helping with a solvency problem because of rising vacancy rates and falling property values. I don't think that is the Fed's intention.

The Fed is considering a program to provide liquidity for newly issued AAA-rated CMBS. That won't help investors who bought at the top, but it will help property owners with strong cash flow positions to refinance. The Fed's role is liquidity, not solvency.

No Pop-up comments.

by Calculated Risk on 3/09/2009 06:23:00 PM

The FDIC allowed 60 Minutes to follow along on the seizing of Heritage Community Bank in Glenwood, Illinois on Feb 27th. This segment provides glimpses of the process. (ht Jon)

Note: If the comments don't work, try clicking here.

by Calculated Risk on 3/09/2009 04:04:00 PM

Another down day ... and that means another link to the four Grizzly Bears (not including foreign markets and the Naz)

DOW off 1.2%

S&P 500 off 1.0%, off 56.8% from the high, lowest since Sept 12, 1996.

NASDAQ off 1.9%

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

This is the 2nd worst S&P 500 / DOW bear market in the U.S. in 100 years. At this point - 17 months into the bear market - this is the worst ever (lower than the Great Depression bear after 17 months).

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

The low in 1996 was 598.48.

Another 78 points or so to get back to 1995 prices.

by Calculated Risk on 3/09/2009 03:28:00 PM

From Bloomberg: AIG Told U.S. Failure May Cripple Banks, Money Funds

American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as “strictly confidential” and circulated among federal and state regulators.

Here is the “strictly confidential” document.

by Calculated Risk on 3/09/2009 03:08:00 PM

From CNBC: Roubini: US Recession Could Last Up to 36 Months. A few excerpts and video:

"We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression," Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a less severe L-shaped recession at 33.3 percent.
...
"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."

Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."
...
"The market friendly view for the banks is nationalization," said Roubini. "Temporarily take over the banks, clean them up and get them working again."
...
Among his solutions: fix the housing market by breaking "every mortgage contract."

by Calculated Risk on 3/09/2009 01:02:00 PM

Branden suggests Buffett is looking at the Merrill Lynch Corporate Master Index OAS (Option adjusted spread).

Click on table for larger image in new window.

This graph shows the OAS for the index for the last 2 years.

This is a broad index of investment grade corporate debt:

The Merrill Lynch US Corporate Index tracks the performance of US dollar denominated investment grade corporate debt publicly issued in the US domestic market.

This does show widening spreads.

by Calculated Risk on 3/09/2009 11:05:00 AM

On CNBC this morning, Warren Buffett mentioned that credit conditions are tightening again. Here is a look at a few indicators:

Click on table for larger image in new window.

The first graph shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury.

There has been some increase in the spread the last couple of weeks, but the spread is still way below the recent peak. The spreads are still very high, even for higher rated paper, but especially for lower rated paper.

The Moody's data is from the St. Louis Fed:

Moody's tries to include bonds with remaining maturities as close as possible to 30 years. Moody's drops bonds if the remaining life falls below 20 years, if the bond is susceptible to redemption, or if the rating changes.

There has been improvement in the A2P2 spread. This has declined to 0.90 - under 1.0 for the first time since September 2008. This is far below the record (for this cycle) of 5.86 after Thanksgiving, but still above the normal spread.

This is the spread between high and low quality 30 day nonfinancial commercial paper.

Meanwhile the TED spread has increased a little, and is now at 1.09 - after being slightly below 1.0 for most of February. This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 4.63 on Oct 10th and a normal spread is around 0.5.

By these indicators the credit markets might be tightening a little, but nothing like the end of 2008.

by Calculated Risk on 3/09/2009 08:51:00 AM

Warren Buffett is on CNBC this morning ...

From the CNBC live blog, a few Buffett comments:

6:05a: Economy is "close to the worst case." Can't imagine it being much worse ... The economy "has fallen off a cliff."

6:06a: Buffett says consumers are "scared and confused." He hasn't seen consumers, or Americans in general, as fearful as now. American people "feel they don't know what's going on" so they've pulled back.
...
6:32a: Buffett says credit conditions are tightening again, but aren't as bad as they were last September.
emphasis added

Yes, all the graphs in the February summary showed the economy was cliff diving.

by Calculated Risk on 3/09/2009 12:45:00 AM

Comments now work in a pop-up although the comment indicator says "0". That should be fixed tomorrow.

Here is an open thread, a few sources for futures and the foreign markets. The futures are about neutral right now ...

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets. (off a little tonight)

And a graph of the Asian markets.

Best to all.

by Calculated Risk on 3/08/2009 09:38:00 PM

Larry Summers is interviewed by the Financial Times: Summers calls for boost to demand

“The old global imbalances agenda was more demand in China, less demand in America. Nobody thinks that is the right agenda now,” said Mr Summers.

“There’s no place that should be reducing its contribution to global demand right now. It is really the universal demand agenda.”

While the US and other western nations should return to living within their means in the medium term, everyone should raise spending sharply now.

“The right macro-economic focus for the G20 is on global demand and the world needs more global demand,” said Mr Summers.
...
“This notion that the economy is self-stabilising is usually right but it is wrong a few times a century. And this is one of those times . . . there’s a need for extraordinary public action at those times.”

The G20 finance ministers will meet next Saturday (March 14th) in the U.K. in preparation for the full G20 London summit on April 2nd. So Summers is trying to influence the agenda for next week.