You could be forgiven for missing the news that the Fed is now accepting as collateral securities backed by credit card debt and auto loans. It doesn’t look like a very good sign. It also makes me wonder:
What if the ratings on collateral the Fed has accepted slip below their minimum standard? Is there a covenant violation? Will the Fed liquidate? Force counterparties to buy them back?
I’m willing to bet the answer here is: “Nothing will happen.”
Is the Fed doing anything at all to scrutinize the “quality” of the ratings? What if a AAA rating is based on insurance via an (insolvent?) monoline? Is the Fed even looking at this? Do they have the ability to even if they want to?
Again, I’m willing to bet the answer here is: “No, and no.”
Dangerous times.
Fed Expands Auction, Accepts Wider Collateral [MarketWatch]
Harvard Undergrad Who Inspired The Big Short Hoping To Change Wall Street From The Inside
Do A Lot Of Hedge Funds Bounce Back From 86 Percent Losses?
Let's Have A Serious Discussion (About Tiger's Texts)
Shia LaBeouf Has Learned A Few Things From His Time On Wall Street
Does Charlie Gasparino Owe David Einhorn (And Barry Ritholtz) An Apology?
The real question is how do I get BofA to sell MY mortgage, car loan & credit card to the Fed. I’m tired of payin’ em.
And the slow grind down begins (continues) welcome to Japan, 1991
Jim Cramer has advised the Fed that accepting his used toliet paper will also be good for the economy. It is asset rich.
the collateral is pledged against borrowings, USTs or cash depending on program (TSLF, TAF) not sold. also the collateral receives a haircut and in the case of the TAF twice the notional after the haicut is required to support the borrowed amount. if the collateral fails to maintain the minimum credit rating it is effectively rejected by the FED and needs to be replaced. if not, the borrower may be faced with a liquidation of the other over-collateralized positions to meet the minimum standards.
Found a pic of Carney and Levin at the Bloomberg Afterparty:
http://www.bloomberg.com/afterparty/slides/1_BPP046.html
“if the collateral fails to maintain the minimum credit rating it is effectively rejected by the FED and needs to be replaced. if not, the borrower may be faced with a liquidation of the other over-collateralized positions to meet the minimum standards.”
Please support these assertions.
:)
ep: been there – replaced the collateral
@4:21 PM
Good response. However, it’d be nice if the Fed at least let it be known what size haircut they are applying. It should give us a clue at how junky this collateral really is. There’s not much transparency here, don’t you agree?
wow 4:22…that was a good one.
tool.
EP,
Thanks for the laughs lately… Hope you enjoy the challenges of the future… Good luck and godspeed…
Best
~SEG
“Posted by guest, May 02, 2008 4:26PM
ep: been there – replaced the collateral”
I’m genuinely surprised!
@4:22 PM
My eyes hurt. I’m calling an ambulance chacer right now.
@4:22 that’s a picture of “Tracy Ullman and Bruce Wagner” but nice try.
God it’s quiet…I’m bookin’ it. Nice reading you ep.
mccain’s daughter: http://www.bloomberg.com/afterparty/slides/_NIC2647a.html
EP- Thanks for the posts over the past month or so. I’ve enjoyed your rants, despite what others have had to say.
@4:51
Oh no! they took Cindy McCain’s head and some how put it on top of a Samoan wrestler’s body. Barbara Bush II maintains her place as hottest first daughter or potential first daughter. Followed closely by Sasha Obama http://www.babble.com/CS/blogs/politicalnanny/archive/tags/Sasha+Obama/default.aspx …mmm…. brown sugar. (JK, dudes.)
@6:39pm. Sasha Obama is a minor! Google Warren Jeffs and stay out of Texas.
Oh, you’re JK. Thank God.
@ 4:22 – Damm. How did Crist snag that action?
EP- no thanks for the rants over the past month or so. I haven’t enjoyed your posts, despite what few have had to say.