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The Federal Reserve $200 billion Treasury swap, toxic mortgage debt. Is a major bank about to go under? Hedge Fund market collapsing.

Posted by Adrian on March 13, 2008

This is old news now, when announced (12th March 2008 ) that the Fed were going to lend out $200 billlion to free up the interbank markets and clear out a lot of toxic mortgage back securities (MBS) sitting in banks. There was a euphoric rise to 416.66 points on the Dow Jones then falling back to -46.47 points refer to graph.

_dji1.png

But almost immediately after the euphoria the market read it two ways:

1. This is not going to work, interbank rates will still rise, liquidity markets will freeze up again and credit markets will continue to contract.

2. The whole fed injection was to rescue or prop up either Bear Stearns or Fannie Mae – both potential on the brink of insolvency.

So the market is still looking at stocks, debt ladened companies as risk and dumping them. Not too mention the precarious position the Hedge Funds industry is in (discussed in World Crisis Scenarios for the 21st century – worldwide economic depression (update 12). As a prelude into widespread ‘panic’ fund withdrawals), in regards to ‘bets’ gone wrong, missed margin calls, contracting credit markets, shrinking balance sheets and possible widespread insolvency.

The Times online March 13th 2008, :

“Several hedge funds with assets of more than $4 billion (£2 billion) were on the brink of collapse last night or had halted withdrawals, despite moves by the US Federal Reserve this week to ease America’s deteriorating credit crisis with a $200 billion collateral lending facility.

The potential closure of six funds came as a leading private equity executive, who declined to be named, said that such funds were “snapping like twigs”, with one failing every day.”

The Federal reserve appears to be continuing on with a rate cutting policy (so far with policy speeches and little care about the demise of the USD). Oil is now heading towards the $110 mark( barrel). Gold is still climbing, but yet to reach it’s anticipated $1000 mark, although there are solid trades (buy) at $984.

The continuing high oil price will be tracked in World Crisis scenarios for the 21st century – Peak oil (update 9)

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2 Responses to “The Federal Reserve $200 billion Treasury swap, toxic mortgage debt. Is a major bank about to go under? Hedge Fund market collapsing.”

  1. I’m grabbing my nuts and going to hibernate for this one. Nothing good is going to happen in the short run and the biggest worry I’ve got is how much will we have to sell out to stabilize this mess and what will those sales cost us in future independence and control.

  2. Valuable info here and if you discover yourself a similar position there are several strategies you can employ to manage your credit card accounts effectively. If you are going to open up a single credit card account, you will likely want to build sure that you have a Visa or a MasterCard. These cards are approved by most retailers, whereas other cards similar to American Express or Find may not be.

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