Recent Blog Posts
-
The Times' Rorshach Geithner Story
Apr 27 20099:04am EDT -
Sinking Animal Spirits
Apr 27 20098:04am EDT -
Counter-cyclical Urban Policy
Apr 26 200910:04am EDT -
Be Your Own Counterfeiter
Apr 26 20099:04am EDT -
Being Tim Geithner
Apr 25 200912:04pm EDT -
Notes From a Press Conference Naif
Apr 25 20099:04am EDT -
What Good is the News?
Apr 25 20098:04am EDT -
Stressful Enough
Apr 24 20092:04pm EDT -
Not Regretting the Pound
Apr 24 20091:04pm EDT -
Introducing the New Ford Squeeze
Apr 24 20099:04am EDT -
Non-Economic Questions of the Day
Apr 24 20099:04am EDT -
The Stress Test Blind Alley
Apr 24 20098:04am EDT -
Happy Hour
Apr 23 20099:04pm EDT -
Recovery Without Rebalancing
Apr 23 20096:04pm EDT -
The Shape of Your Recession
Apr 23 20095:04pm EDT
Links
- Felix Salmon
- DealBreaker
- Ryan Avent: The Bellows
- The Epicurean Dealmaker
- Chris Anderson
- Ultimi Barbarorum
- MarketBeat
- Michelle Leder
- John Quiggin
- The Panelist
- Andrew Leonard
- Streetsblog
- Brad Setser
- Michael Mandel
- Financial Crookery
- Kash Mansori
- Dean Baker
- Calculated Risk
- Free Exchange
- Curbed
- Lance Knobel
- Econospeak
- Carbon Tax Center
- Overcoming Bias
- Mark Thoma
- Naked Capitalism
- Alphaville
- Barry Ritholtz
- Alexander Campbell
- The Bayesian Heresy
- Brad DeLong
- DealBook
- Greg Mankiw
- Deal Journal
- FP Passport
- Carl Bialik
- Marginal Revolution
- A Fistful of Euros
- Dan Gross
CLOs: Yes, Let's Panic
Sam Jones has a good report on the CLO situation over at Alphaville. It's bad: "80 is the new 90," he says, in terms of loan prices - which is bringing the triple-A tranches of market-value CLOs down into liquidation territory. And the effect on that is essentially as much as $35 billion of new supply hitting the market just as banks are in the middle of trying to offload the leveraged loans on their own books. All of which can't help but keep loan prices pressured downwards.
And it gets worse. Banks never really sold the triple-A tranches of CLOs, preferring to keep them on their own balance sheets. So when those CLOs are liquidated, banks - rather than buy-side investors - will take the brunt of the losses.
Why haven't the banks warned about this? You almost couldn't make it up:
Hitherto, banks haven't really mentioned their CLO exposures, because they have been, in net terms, erased from balance sheets using negative basis trades. So while banks may have huge gross exposures to CLO paper, it hasn't been an issue, because these positions were, from the outset, fully hedged.
Hedges with monolines.
So, yes, we probably should be worried.
