Mish's Economic Trend Global Analysis April 10, 2008
The Federal Reserve's Term Auction Facility, TAF, has failed to produce the intended results - encourage more bank to bank lending at reduced rates. That should not be too surprising. If the Fed is willing to be a "swapper of last resort," why should banks risk lending to each other?
After all, bank-to-bank loans are unsecured. Who wants that risk, especially when banks have every reason not to trust each other? Please see Failures of the Term Auction Facility for detailed analysis of this situation.
CLOs Pawned Off To The FED
Now things are getting even crazier at the Fed's Swap-O-Rama as Buyout CLOs Are Being Used for Fed Loans...
The poster child for this is an 92.6% AAA rated Washington Mutual(WM) mortgage pool affectionately known as WMALT 2007-0C1. Here is the status of that pool as of March 31, 2008.
March Pool Stats
* 25.3% 60 day delinquent or worse
* 13.35% Foreclosure
* 4.44% REO
Bear in mind, that pool is less than a year old. For more details, please see WaMu Alt-A Pool Deteriorates Further.
Now we see CLOs being created for the express purpose of swapping to the Fed. The reason the CLOs are being created is there is no market for the underlying loans. Yet supposedly Moody's, Fitch, and the S&P are supposed to rate this garbage investment grade so that it can be swapped with the Fed. Amazing..."
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