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Monday, December 3, 2007

Libor Spikes Again, More Moodys Downgrades

Despite daily, desperate, massive injections of liquidity Libor is still spiking higher. Be worried. No es bueno. More downgrades from Moody’s are pending and the Florida school boards have decided to reject any losses on their frozen funds…

This little short covering bounce in equities has run its course. If not today, then very soon…

Bloomberg Charts:
1 month Libor - US0001M
Asset Backed Commercial Paper (ABCP) - FCPOAB

One-Month Pound Libor Soars as Banks Seek Year-End Funding: “The cost of borrowing in pounds for a month climbed the most in more than 10 years as banks sought funds to cover their commitments through to the start of 2008 amid a credit squeeze.

The London interbank offered rate that banks charge each other for such loans due after the end of the year jumped 63 basis points to 6.72 percent, the highest since December 1998, the British Bankers' Association said today.

Soaring bank lending rates reflect growing concern about the strength of financial institutions after more than $60 billion of writedowns this year linked to U.S. subprime-mortgage defaults. The European Central Bank, Bank of England and the Federal Reserve all offered emergency funds last week in an attempt to soothe concerns that credit conditions will deteriorate at the end of the year.

Today is the first day on which a cash loan of one month in pounds will cover a borrower's needs through the end-of-year holiday period.”

Yen Rises as Moody's Prepares Rating Cuts on Subprime Losses: “The yen rebounded from a two-week low against the dollar after Moody's Investors Service said it is preparing the biggest credit-rating cuts since subprime-mortgage defaults rocked financial markets.

The yen rose versus all 16 most-traded currencies as investors retreated from carry trades and sold higher-yielding assets bought with loans from Japan. The yen also advanced as Bank of Japan Governor Toshihiko Fukui signaled interest rates may have to rise.”

This is one of many clues that last weeks short covering rally is running out of steam.

Moody's May Cut Ratings on $105 Billion of SIVs (Update1): “Moody's Investors Service is preparing the biggest credit rating cuts since subprime mortgages contaminated the bond market, foreshadowing losses for investments that pay Florida teachers and money market funds.

Moody's may lower ratings on $105 billion of debt sold by structured investment vehicles after the net asset values of 20 SIVs sponsored by firms including New York-based Citigroup Inc. declined to 55 percent from 71 percent a month ago, Moody's said in a statement Nov. 30. The assets were valued at 102 percent in June.

“The assets that SIVs hold are continuing to decline in value,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group, Switzerland's second-biggest bank by assets. “As they do that it's creating more problems for the holders.”

School districts, towns and cities across Florida were denied access to their money after the State Board of Administration halted withdrawals from the Local Government Investment Pool on Nov. 29 to stem a run on the fund, which had $2 billion in SIVs and other debt tainted by the subprime collapse, state records show.

Downgrades would make it more difficult for SIVs, companies that use short-term debt to invest in higher-yielding assets, to obtain financing. Three of the funds defaulted in the past four months. Treasury Secretary Henry Paulson is working with Citigroup, New York-based JPMorgan Chase & Co. and Bank of America Corp. in Charlotte, North Carolina, to form an $80 billion fund to help bail them out.”

Can you say fire sale? A downgrade of this magnitude will force the holders of this structured debt to liquidate en masse.

Florida Schools Struggle to Pay Teachers Amid Freeze (Update4): “School districts, counties and cities across Florida sought to raise cash after being denied access to their deposits in a $14 billion state-run investment fund.

The Jefferson County school district was forced to take out a short-term loan to cover payroll for the 220 teachers and other employees in the system after $2.7 million it held in the pool was frozen yesterday. At least five other districts also obtained last-minute loans, said Wayne Blanton, executive director of the Florida School Boards Association.

“The unthinkable and the unimaginable have just happened here in Florida,” said Hal Wilson, chief financial officer of the Jefferson County school district, located 30 miles (48 kilometers) east of the state capital Tallahassee. “What we just experienced here is a classic run-on-the bank meltdown.”

Florida's State Board of Administration, manager of the Local Government Investment Pool, halted withdrawals yesterday at an emergency meeting after $13 billion was pulled out this month from participants. Governments from Orange County, home of Disney World, to Pompano Beach asked for their money back following disclosures that the fund held $1.5 billion of downgraded and defaulted debt.”

Florida Governments Reject Idea of Accepting Losses on Pool: “A newly formed advisory panel composed of Florida school and local government officials with money frozen in a state-run investment pool said they won't accept a return of less than 100 percent of their investment.

Members of the new panel, on a conference call late yesterday with officials from the agency that runs the fund, rejected a proposal to survey pool participants to determine whether they would accept as little as 90 cents on the dollar of their deposits in order to access their money in December.

“The very fact that you're out here talking to us about taking less than 100 percent is in my mind unacceptable,” said MaryEllen Elia, superintendent of Hillsborough County Public Schools, which has $573 million tied up in the pool, more than any other school district. “You need to figure out how to make the taxpayers in Florida whole. It isn't going to be fixed by asking us to take less than what we put in there.””

When all else fails, just WILL the losses away. Just refuse to accept them. Make them unreal with the force of your mind alone. Just concentrate really really hard on the big fat negative sign and force it to disappear.