Indeed, TARP's $700 billion total only represents about 12% of non-Fannie Mae and Freddie Mac mortgages. Astoundingly, some investors are concerned some companies that need the money may not participate in the plan due to Congressional decisions to limit the pay of executives whose companies sell troubled assets to the federal government.Just 12%? I mean we are not even talking about Commercial Real Estate, Leave only credit cards auto and other loans... Not a good sign at all.
The whole article is worth reading...
THANKS VERY MUCH for not very much. So sayeth the options, stock, and credit markets about the U.S. government's proposed $700 billion rescue of Wall Street.
"It's not going to stop global-recession worries," says one derivatives strategist at a major investment bank, requesting anonymity. "It may put a floor on the price of some of the financial stocks, but it's not going to fix the other problems in the economy like consumer spending and the downturn in the housing market."
Even with near-certain passage of almost $1 trillion to buy ill-conceived financial products from teetering Wall Street firms and banks, Wall Street wants even more money. Many investors feel European lawmakers also need to adopt rescue plans for their troubled financial institutions.
Already, Fortis, Belgium's largest retail bank, received a $16.4 billion government bailout. Germany's second-largest commercial property lender, Hypo Real Estate Holding, got a credit line of $37 billion to $44 billion from various banks. Britain's nationalized lender Bradford & Bingley is taking over a $91 billion loan and mortgage portfolio.
Investors suffer when Wall Street does not get what it wants. Stocks are sharply lower in Asia and Europe, and U.S. investor risk perception has sharply increased since Friday, rather than declining as many had hoped, ahead of Congress voting into law the Troubled Asset Relief Plan, or TARP.
One popular measure of investor sentiment, the Chicago Board Options Exchange's Market volatility Index (VIX) is sharply higher as U.S. stocks are sharply lower. The options-market fear gauge rose 14% and is trading at almost 40, telegraphing concern that the Standard & Poor' 500 Index is likely to tumble even lower during the next 30 days.
If Congress spends too much time debating TARP, or adding amendments to the bill's language, stocks will likely decline even further. Consider this a form of green mail.
Anyone who thinks VIX at 40 is a magic number that represents extreme panic in the market is sadly mistaken. The panic in the marketplace is now largely driven by the credit markets. Anyone who relies solely on equity risk barometers to inform investing decisions will likely lose even more money.
"All the various risk metrics used to analyze asset classes are up sharply," Goldman Sachs' derivatives strategists advised clients this morning.
The strategists say one-month implied volatility is up an average of 52% across global equity indexes since Aug. 1. The gains are even higher in Germany and England. Implied volatility on the DAX 30, essentially Germany's version of the Dow Jones Industrial Average, is up 66% since August while the FTSE is up 65%.
The TED spread, or the difference between three-month LIBOR and three-month Treasury bill rates, is up more than 3% since Sept. 17, which might seem subdued though it the highest level since 1987. The increase demonstrates a "mass flight to quality" to assets that offer safe harbor, such as government debt.
Indeed, many investors are terrified that the U.S. government's rescue plan may be ineffective. "TARP or Trap," is how Credit Suisse's Andrew Garthwaite glibly summed it up for clients in a Monday morning advisory note.
He says the plan is incrementally positive as it could postpone, mark-to-market accounting rules, pending Securities and Exchange Commission approval, while also reducing funding and mortgage guarantee burdens. On the other hand – and this helps explain why so many investors are so panicked about the future – Garthwaite says the government's plan is too small, and lacks direct capital injections into banks. Also, the plan lacks a badly needed U.S. fiscal stimulus package.
Indeed, TARP's $700 billion total only represents about 12% of non-Fannie Mae and Freddie Mac mortgages. Astoundingly, some investors are concerned some companies that need the money may not participate in the plan due to Congressional decisions to limit the pay of executives whose companies sell troubled assets to the federal government.
TARP may not be a tar pit, but it could be just as sticky.
