It seems as though every week, the public is forced to learn another one of Wall Street's strange names for a surefire deal that couldn't miss. But the reason we're learning about those strange names is because -- contrary to promises -- the can't miss deals are shutting down -- taking Wall Street's credibility down along with them.

The latest of these is auction rate securities (ARSs) -- a $330 billion market for long-term bonds that are supposed to pay lower rates because their interest rates are set through auctions. The New York Times reports that municipalities who issued ARSs are suffering because 1,000 of these auctions failed and instead of paying 3% interest rates, they have to pay 20%. And if that wasn't bad enough, the investment banks that oversee these auctions are refusing to let investors withdraw their money.

Which investment banks are imposing this pain? Goldman Sachs Group (NYSE: GS), Merrill Lynch (NYSE: MER), and Lehman Brothers Holdings (NYSE: LEH) and the problem with ARSs is not limited to municipalities entities such as the Port Authority of New York and New Jersey. Closed-end mutual funds, student loan companies and corporations also issue them.

Continue reading Auction Rate Securities: The latest $330 billion catastrophe

Auction Rate Securities: The latest $330 billion catastrophe originally appeared on BloggingStocks on Fri, 15 Feb 2008 09:05:00 EST. Please see our terms for use of feeds.

MAJOR PAPERS:

• The active ingredient in Baxter International Inc's (NYSE: BAX) generic version of the anticlotting drug heparin, under investigation for four deaths and hundreds of bad reactions, was made in China, the Wall Street Journal reported.
• Structured investment vehicles that provide short term debt to fund the purchases of municipal bonds and student loans are under increasing pressure, according to the Wall Street Journal's "Heard on the Street". Citigroup Incorporated (NYSE: C), JP Morgan Chase & Co (NYSE: JPM) and Merrill Lynch & Co Inc (NYSE: MER) are among the banks that could be affected.

• The New York Times reported that Hewlett-Packard Company (NYSE: HPQ) has settled with The New York Times Company (NYSE: NYT) and McGraw Hill Companies Incorporated's (NYSE: MHP) BusinessWeek journalists related to a spying scandal that stemmed from obtaining telephone records. The involved parties did not disclose the amount of the settlement.

• Mike Zafirovski, CEO of Nortel Networks Corporation (NYSE: NT), said the company would examine possible opportunities to be taken over "when they arise." Mr. Zafirovski did not comment on rumors of a Motorola Inc (NYSE: MOT) merger, Reuters reported.

Newspaper wrap-up: Investigated ingredient in Baxter's generic heparin drug made in China originally appeared on BloggingStocks on Thu, 14 Feb 2008 08:00:00 EST. Please see our terms for use of feeds.

With the price of Thanksgiving dinner up 11% this year over last, the Fed won't help consumers because it's confident that inflation -- as measured by Personal Consumption Expenditures (PCE) will range between 1% and 2%. Meanwhile, Washington is happy to create lucrative business deals for Wall Street -- in the form of arrangements to manage and keep records of its Structured Investment Vehicle (SIV) bailout.

What is the Fed smoking? I don't know any personal consumption expenditures that are growing at 1% to 2%. The price of oil has quadrupled since January 2001 to $99.29 a barrel, gasoline prices are up 40% since last year, airfares have more than doubled -- a flight from Boston to Florida that cost $300 last year is now $700 -- and the dollar has lost 61% of its value since January 2001. I guess the Fed has decided to define PCE in a way that conveniently confirms its pro-inflation interest rate policy.

Meanwhile, the Treasury Department has backed a Super-SIV plan to bail out banks, such as Citigroup Inc. (NYSE: C) which created the $320 billion SIVs industry and invested the proceeds of SIV-issued commercial paper in now-worthless mortgage backed securities (MBSs).

Continue reading Wall Street turkeys get pardon as Fed lets consumers pay for rampant inflation

Wall Street turkeys get pardon as Fed lets consumers pay for rampant inflation originally appeared on BloggingStocks on Wed, 21 Nov 2007 10:44:00 EST. Please see our terms for use of feeds.

Banks are looking for your help. They want you to help bail them out of the mess they created - short-term notes (commercial paper) in funds called structured investment vehicles (SIVs). As expected, Citigroup (NYSE: C), J.P Morgan Chase (NYSE: JPM), and Bank of America (NYSE: BAC) announced their intention to set up a $100 billion dollar "Super SIV" that will buy the current SIVs with the hopes of freeing up some cash so commercial paper can start flowing again. Estimates are that $400 billion is tied up in SIVs and the inability of banks to refinance this short term debt has stalled the credit markets since July.

The U.S. Treasury Department helped to put this fix together, but is not backing it financially. The biggest problem with these SIVs is that they are held off the books and those banks left holding the bag could be in big trouble. Citigroup, whose been leading the charge to set up this "Super SIV," also holds the biggest share of the SIV pie.

Treasury Security Henry Paulson's playing dumb. He told reporters yesterday [subscription required] after an event at the University of Texas at Austin, "The regulators didn't have a clear enough visibility with what was going on in terms of these off-balance-sheet SIVs," according to a report today in the Wall Street Journal. Wow. Wasn't he ever involved in the sale of these things when he was Chairman and Chief Executive at Goldman Sachs? Could he have given the regulators some clues when he got to treasury, if he really believed that? He did signal changes in regulation may be coming to prevent this type of disaster in the future.

Continue reading Banks looking for brave investors to bail them out

Banks looking for brave investors to bail them out originally appeared on BloggingStocks on Tue, 16 Oct 2007 11:21:00 EST. Please see our terms for use of feeds.