I wrote a piece yesterday, "Here Come the Banks! Good Luck Getting Anything Else Financed". Here Come the Banks! The basic gist was, with the FDIC guarantee of new bank debt for the first three years of it's term, a deluge of bank debt issuance was on it's way, starting today with Goldman Sachs (who again doesn't NEED any help but if its being given away, what the heck right?) and Morgan Stanley. Total issuance for the whole sector is expected to total $400 billion. Goldman's issuance, three-year paper. is expected to come at three-year Treasury +3.20%. Other issuers will come wider, which is funny because they are all guaranteed by the FDIC. What has happened is big bond funds have been selling Freddie and Fannie debt and mortgage backed securities so they can buy this high yielding risk free debt. This of course sticks prospective home buyers and prospective refinance clients right in the eye and defeats the attempt to help the all important housing market.
So today, as well as launching a new facility to buy asset-backed paper the Fed will buy up to $600 billion of Freddie and Fannie debt and mortgage backed securities. Problem solved! As Bruce Springsteen said, "Some day we'll look back on this and it will all seem funny."
Fed spending $100B to buy loans isn't much different than if the government spent $100B to buy SUVs off the dealer lots. These investments are not helping America, and its companies, become more competitive. We need to focus our assistance on moving forward with new business models that enhance competitiveness so companies can succeed in global markets. Read more at http://www.ThePhoenixPrinciple.com
Posted by: adam hartung | November 25, 2008 at 03:39 PM
sounds like they are way through the 700bb number
Posted by: | November 25, 2008 at 08:53 AM