Wall Street circles its wagons

[zengrifter]

The Peter Schiff quoted in the article is jailed tax rebel Irwin Schiff's son. zg

Ps - The end is near!

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Wall Street circles wagons on risky securities

Fri Jun 22, 2007 6:15PM EDT
By Al Yoon - Analysis

NEW YORK (Reuters) - It was Wall Street's version of hide and seek this week as some of the world's largest investment banks remained tight-lipped on the likely fall in price of some complex securities that may soon infect global debt and equity markets.

In the past week the stock market lost ground, the bond market saw prices bounce around, and investors were left with the sinking feeling that things could get worse as credit worries undermined the $1 trillion market for collateralized debt obligations (CDOs).

The losses suffered by two funds containing these complex securities, many tied to risky mortgage loans, sent Bear Stearns Cos. (BSC.N: Quote, Profile, Research) executives scrambling to re-finance the funds this week.

But the large and sophisticated investors in these funds did not run for the hills. Instead, they went silent.

If word of the exact nature of the losses became public, it would have forced many other funds to revalue their holdings and perhaps lose money, setting off a domino effect that could rattle markets globally.

"Wall Street is now engineering a way to pretend that nearly worthless subprime bonds are maintaining" their original values, said Peter Schiff, president of Euro Pacific Capital, a broker-dealer based in Darien, Connecticut.

...more - http://www.reuters.com/article/reute...ent_n_analysis

[zengrifter]

Banks 'set to call in a swathe of loans'

By Ambrose Evans-Pritchard
Last Updated: 7:25am BST 26/06/2007

The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.

Bear Stearns headquarters in New York

The group said the fast-moving crisis at two Bear Stearns hedge funds had exposed the underlying rot in the US sub-prime mortgage market, and the vast nexus of collateralised debt obligations known as CDOs.

"Excess liquidity in the global system will be slashed," it said. "Banks' capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing."

Charles Dumas, the group's global strategist, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market. The sale had to be called off after buyers took just $200m of the $850m mix.

"The banks were not prepared to bid over 85pc of face value for CDOs rated "A" or better," he said.

"God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc.

"We don't know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn."

US property writer Paul Muolo described the Bearn Stearns crisis as the “subprime Chernobyl”, saying the bank had created a “cone of silence”.

...more - http://www.telegraph.co.uk/money/mai...-mostviewedbox