Trojan House
November 15, 2007 2:30pm by Barry Ritholtz
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Well, I bought some FXP today just in case this Trojan Horse thing has legs…
er,
Trojan House…
Thats rich… I love it…
Barry, do you have a Christmas album recommendation for this season? That Sarah Mc was smashing hit around the house last year! :)
Cheers!
good cartoon
no hijack
just a comment re commodities and reality
24 hr fluctuations good indicator as to the depth of hedge fund involvement and why we shouldn’t read too much into them when analysing resource stocks for the future
rgds pcm
It ain’t the house that kills…it’s the monster leverage hidden inside.
This trojan horse is playing musical chairs, and the Fed’s in the game, as well.
In the repo action today, the Fed accepted $24.05B in mortgage backed securities. Of the total $47.25 of repos, $38.04B was made up of agency and MBS, roughly 80% of the total.
Before everyone gets excited about the total repo auction, keep in mind that $47.25B infusion was against $40.50B in expirations, and the treasury issued $6.5B today, so the total amount that could go into the markets was the difference in those amounts – only $0.25B. (This is why simply watching repos doesn’t really tell the story – if $47.5B could have gone to the markets, does anyone think the DOW would have dropped 120 points or would have been down 300-500 points without the infusion? Under the latter assumption, it would mean that banks borrowed vast sums in order to purposefully lose part of it to slow the decent of the market – maybe after a huge drop they might do this to avert a disaster, but not to avoid samll swings.)
Of more interest is the overall size and the collateral accepted – overnight bank rates must have been well outside the target rates in order to generate the need for such a large infusion, and with all the trash and semi-trash collateral thrown to the Fed, it looks like none of the banks were willing to lend to each other using MBS or agency as collateral.
Where’s the trust, guys?
It shouldn’t say Wall Street on the open doors, but The World.
I wrote yesterday about the possible bond insurer downgrades, but now Bloomberg has caught up to the story, as well. Read and cringe….
http://www.bloomberg.com/apps/news?pid=20601208&sid=aOjl_Hy9ibBI&refer=finance
Why is the Trojan House being given to Wall Street? Seems to me Wall Street gave the Trojan House to Main Street. But until the accountants finish playing hot-potato with their SIV restructuring, balance sheet (re-)restatements and Federal bailout strategies, we really can’t say which side of the wall the Trojan House is standing on. A superposition of accounting wave functions awaiting collapse due to SEC measurement?
Call it Schrodinger’s Trojan House.
The absolute best cartoon you’ve ever posted!
However, I’ve designed an even better one… if only some artist could render it for us:
Imagine this as a cartoon… newspaper, political-type:
“Curious onlookers gather on the street outside the Federal Reserve Building in Washington to watch a large multi-wheeled truck (like moving a building) that’s hauling what’s clearly evident to be a giant pile of steaming dog shit… with a long plug-in electrical cord run out from it. They’re maneuvering it near the Fed bldg with a crane assist to place it.” — Here’s the caption. One very surprised onlooker exclaims loudly while pointing at the activity:
(Shit!…There’re gonna test it!)
Well the only problem I see with the cartoon is that it doesn’t have the next set of doors which would say “Tax Payers”! shit rolls down hill I guess?
Well the only problem I see with the cartoon is that it doesn’t have the next set of doors which would say “Tax Payers”! shit rolls down hill I guess?
Well the only problem I see with the cartoon is that it doesn’t have the next set of doors which would say “Tax Payers”! shit rolls down hill I guess?
Posted by: STS | Nov 15, 2007 5:41:39 PM
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Exacyly right.
Barry,
This is part of the new ‘dollar wars’ and cutting rates more would give foreign holders of US dollars their signal to start dumping Treasury Bonds in earnest.
“Beware the toils of war…the mesh of the huge dragnet sweeping up the world, before you’re trapped, your enemies’ prey and plunder–soon they’ll raze your sturdy citadel to the roots! All this should obsess you, Hector, night and day.” The Iliad-Trojan War.
Maybe the cartoon is closer to reality than we think.
Paulson was sent to treasury by wall street to get the social security money away from the government. At this point, I think it more than likely the heat has been turned up for SS privatization, repleat with lies about how it was going broke, to get SS money to buy CDO’s. Would anyone be surprised if that was the plan ?
San Diego thought it was a good idea… wait… that was a hedge fund they invested in… way more conservative….