Canadian money is momentarily binary

[solarbird]

Pulled up the exchange rate toy:

1 Can$ = US$1.0100 = ¥101.1110

Right, um, not much post today. The US$ is tanking, hard. It was actually up for a couple of days in a row, then fell over today. If it falls below ¥100.20 decisively then technical targets, I'm told, are in the ¥80 area. Fun times. This is only part of why oil bounced past US$110/barrel today tho'.

Minyanville asks, Can the Fed go Bankrupt? quoting the Financial Times as describing the new US$200B Fed plan as using “the best quality mortgages” as collateral for Treasuries. Here's the problem: the "best quality mortgages" in question are crap. And Karl at Market Ticker found the article and blogged about it before me, but I did find it on my own: Bloomberg did an investigation into the "AAA" CDOs, which are the kind of residential mortgage securities being used as collateral here. Only six (6) of 80 are actually worth their AAA ratings, and yet they all continue to have AAA ratings from at least one agency. The appalling (yet brilliant) interactive Shockwave chart must be seen. 74 of the 80 "AAA" CDOs they checked were below investment grade. 14 are effectively bankrupt outright already. Despite this all 80 have AAA ratings from Moody's. Of the 14 bankrupt CDOs, 13 also have AAA ratings from S&P. Fitch does less badly. And again: only six actually deserve their AAA ratings.

This is a farce, and it has been a farce, and it continues to be a farce. It's also fraud.

BTW - Fitch, being the least bad of the three, downgraded Countrywide as an issuer today to BBB-. Buh-bye.

As for the rest, no real analysis, just some links. Mish notes that everything has been worse than expected so far, and recommends continuing to bet on that when people say things like "no recession" and "mild recession" and all that. Kevin Depew describes Americans as "shot by both sides." And something is going on that we can't see; in addition to the US$200B new facility, and the TAF being expanded to US$100B, and the regular discount window operating at US$77B, today's 10-year bond action was freaky weird. Carlyle Group expects asset seizures by banks and seems to be going under in the next few days; Morgan Stanley has an emergency conference call scheduled for Friday at 2pm (these are never good); and everybody and their mother is looking at Bear Stearns for an explosion of some sort, with Washington Mutual hanging around the corner. Maybe one or more of those is it.

Comments

Dead before it explodes across the landscape

[(Anonymous)]

No worries. I'm surprised you've been able to keep up with it. I blanked out about two posts ago, trying to absorb the rat-a-tat-tat on dat ecoonomy's...rear end. I mean, crumbs!

Looks like Carlyle is down, down to goblin town as of today. The big question on my addled skull is, will the 200 billion from the Fed keep the music playing long enough for the major players to dump their crummy assets on some suckers while they sprint for the lifeboats.

The thing is, somebody's got to pay. And those chairs keep getting pulled out one by one. The band can't keep playing on and on, or is it a case of "if we keep our heads in the sand long enough, it'll blow over?"

- paul

[llachglin.livejournal.com]

My only consolation is that a lot of this financial economy is completely unhinged from what I think of as the "actual" economy--you know jobs, producing things, and then selling or trading things instead of paper. Historically bank failures brought down the general economy, and it seems like at some point the disappearance of viable credit instruments has to hit workers and consumers. But maybe the relationship between reality and finance is so disconnected that the actual economy will be buffered a bit.

This is really just a longwinded way of saying I hope this is true, because every indication in the financial markets is that we're about to enter the worst recession in my lifetime, if not the entire post-WWII era.

[solarbird]

All hopefully true. But the other problem is that the consumer really is tapped out. Really, really, really this time, and the credit (and "wealth extraction" via things like HELOCs) they've been living on - or what's left of it - is being taken away by this very process. And that's 70% of GDP. So hopefully there'll be some kind of buffer, but I'm not seeing a lot of room for one.

If you took oil out of the equation, the story might be different, but, well, you might as well try to take away air, or water.