thekingofNY
Cannasseur
Just saw this and it's interesting...in the big grand scheme of things its nothing and I am not worried about anything, well in terms of the economy, America is simply changing from a goods based economy to service based...
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajsxbVS.W2lQ&refer=home
By Oliver Biggadike and Shannon D. Harrington
Sept. 8 (Bloomberg) -- Investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.
Thirteen ``major'' dealers of credit-default swaps agreed ``unanimously'' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.
``This is a big deal,'' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. ``The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown.''
A settlement likely would be the largest in the market's decade-long history. Credit-default swaps on Fannie and Freddie have been among the most actively traded the past few months, according to reports from broker GFI Group Inc. Both companies also are among 125 companies in the benchmark Markit CDX North America Investment Grade Index, the most actively traded contract in credit markets, which investors use to speculate on corporate creditworthiness or to hedge against losses.
Money Exchange
The actual money exchanged may be limited, though, according to analysts at CreditSights Inc. Buyers of the contracts are paid face value in exchange for the underlying securities or the cash equivalent.
``If bonds rally and trade close to par, recovery could be close to 100 percent, with protection sellers having little to pay out despite a technical default,'' analysts Richard Hofmann and Adam Steer wrote in a note to clients.
Dealers today were quoting the CDX index contracts both with and without Fannie and Freddie. Contracts with the companies dropped 11.5 basis points to 133.5 basis points, according to broker Phoenix Partners Group. Contracts without the companies were trading about 2.5 basis points tighter, Phoenix prices show.
A Fannie and Freddie credit event also would be the biggest test to date of a process by which the market settles most contracts without an actual exchange of the securities. Under that process, dealers hold an auction to determine a recovery value for the securities, which is then used by investors to settle the contracts.
CEOs Ousted
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed Freddie and Fannie in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.
Today's conference call will determine whether enough dealers agree the Treasury's action constitutes a credit event, Louise Marshall, spokeswoman for ISDA, said in a phone interview from New York today.
``We believe conservatorship is a credit event,'' Barclays Plc analysts Vince Breitenbach and Jeff Meli said in a note to clients yesterday. Barclays is a member of the ISDA.
U.S. default protection costs as measured by the Markit CDX North America Investment Grade Index will also decline, they said. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt.
Default Protection Costs
Five-year contracts on Fannie Mae notes fell from a record high of 364 basis points on Aug. 20 and closed on Sept. 5 at 233, CMA Datavision prices show. The cost is equivalent to $233,000 annually to protect $10 million in notes from default.
ISDA, which sets standards for the global derivatives market and counts investment banks including Deutsche Bank AG and Lehman Brothers Holdings Inc. as members, will arrange any settlement of the default swaps, spokeswoman Marshall said. She declined to name any participants on today's call.
``Although the settlement effort will be massive, we do not see it as necessarily a negative,'' Gus Medeiros, credit analyst at Deutsche Bank in Sydney, wrote today in a research note. ``Write downs are potentially an issue for holders of preferred equity, but the Treasury said financial institutions exposed to these securities will work with regulators to restore capital positions.''
Treasury Control
Under the U.S. plan, the Treasury will get $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie Mae and Freddie Mac. The government will receive annual interest of 10 percent on its stake.
While common stockholders of Fannie and Freddie won't be eliminated, they will be last in line for any claims, Paulson said yesterday. Preferred shareholders will be second in absorbing losses, he said. Interest and principal payments will continue to be made on the companies' subordinated debt.
Last Updated: September 8, 2008 09:53 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajsxbVS.W2lQ&refer=home
By Oliver Biggadike and Shannon D. Harrington
Sept. 8 (Bloomberg) -- Investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.
Thirteen ``major'' dealers of credit-default swaps agreed ``unanimously'' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.
``This is a big deal,'' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. ``The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown.''
A settlement likely would be the largest in the market's decade-long history. Credit-default swaps on Fannie and Freddie have been among the most actively traded the past few months, according to reports from broker GFI Group Inc. Both companies also are among 125 companies in the benchmark Markit CDX North America Investment Grade Index, the most actively traded contract in credit markets, which investors use to speculate on corporate creditworthiness or to hedge against losses.
Money Exchange
The actual money exchanged may be limited, though, according to analysts at CreditSights Inc. Buyers of the contracts are paid face value in exchange for the underlying securities or the cash equivalent.
``If bonds rally and trade close to par, recovery could be close to 100 percent, with protection sellers having little to pay out despite a technical default,'' analysts Richard Hofmann and Adam Steer wrote in a note to clients.
Dealers today were quoting the CDX index contracts both with and without Fannie and Freddie. Contracts with the companies dropped 11.5 basis points to 133.5 basis points, according to broker Phoenix Partners Group. Contracts without the companies were trading about 2.5 basis points tighter, Phoenix prices show.
A Fannie and Freddie credit event also would be the biggest test to date of a process by which the market settles most contracts without an actual exchange of the securities. Under that process, dealers hold an auction to determine a recovery value for the securities, which is then used by investors to settle the contracts.
CEOs Ousted
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed Freddie and Fannie in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.
Today's conference call will determine whether enough dealers agree the Treasury's action constitutes a credit event, Louise Marshall, spokeswoman for ISDA, said in a phone interview from New York today.
``We believe conservatorship is a credit event,'' Barclays Plc analysts Vince Breitenbach and Jeff Meli said in a note to clients yesterday. Barclays is a member of the ISDA.
U.S. default protection costs as measured by the Markit CDX North America Investment Grade Index will also decline, they said. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt.
Default Protection Costs
Five-year contracts on Fannie Mae notes fell from a record high of 364 basis points on Aug. 20 and closed on Sept. 5 at 233, CMA Datavision prices show. The cost is equivalent to $233,000 annually to protect $10 million in notes from default.
ISDA, which sets standards for the global derivatives market and counts investment banks including Deutsche Bank AG and Lehman Brothers Holdings Inc. as members, will arrange any settlement of the default swaps, spokeswoman Marshall said. She declined to name any participants on today's call.
``Although the settlement effort will be massive, we do not see it as necessarily a negative,'' Gus Medeiros, credit analyst at Deutsche Bank in Sydney, wrote today in a research note. ``Write downs are potentially an issue for holders of preferred equity, but the Treasury said financial institutions exposed to these securities will work with regulators to restore capital positions.''
Treasury Control
Under the U.S. plan, the Treasury will get $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie Mae and Freddie Mac. The government will receive annual interest of 10 percent on its stake.
While common stockholders of Fannie and Freddie won't be eliminated, they will be last in line for any claims, Paulson said yesterday. Preferred shareholders will be second in absorbing losses, he said. Interest and principal payments will continue to be made on the companies' subordinated debt.
Last Updated: September 8, 2008 09:53 EDT
