US Treasury Debt 'Riskier' Than the German Bund For 'the First Time Ever'

U.S. Treasuries Riskier Than German Debt, Default Swaps Show
By Abigail Moses

March 11 (Bloomberg) -- The risk of losses on U.S. Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show.

Contracts on 10-year Treasuries traded at a record 16 basis points earlier today, compared with 15 basis points on German government notes, according to data compiled by BNP Paribas SA. In July, U.S. credit-default swaps were at 1.6 basis points, compared with 2.5 basis points on bunds.

Federal Reserve Chairman Ben S. Bernanke announced plans today to lend as much as $200 billion of Treasury notes in exchange for debt including private mortgage-backed bonds to avert an exodus from the securities that threatens to deepen the housing slump and economic slowdown.

``The U.S. government is not immune from the consequences of the credit crisis,'' said Fabrizio Capanna, BNP's head of high-grade corporate trading in London. ``Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.''

The Fed is trying to ease investor concern that a decline in house valuations and record foreclosures will add to losses for companies including Freddie Mac and Fannie Mae, the two biggest providers of U.S. mortgages. The $4.5 trillion of agency mortgage securities is about the same size as the market for Treasury notes.

Credit-default swaps are used to speculate on the ability of companies or governments to repay their debt and offer a benchmark for pricing securities. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline indicates improvement in the perception of credit quality; an increase, the opposite.

Hoarding Treasuries

A basis point on a credit-default swap contract protecting $10 million of debt from default for 10 years is equivalent to $1,000 a year.

Investors and securities firms have hoarded Treasuries during the credit crisis because they are considered the safest and most easily traded securities, reducing yields on two-year notes to the lowest since 2003. Yields on Treasuries have been lower than on German bunds since October.

U.S. yields rose today by the most since May 2004 to 1.77 percent from 1.5 percent on Bernanke's plan.

To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net

Last Updated: March 11, 2008 13:47 EDT

Fed Man Says: STOP!

Bank Stocks Rally on Fed Move
Tuesday March 11, 11:23 am ET
By Dan Seymour, AP Business Writer

Bank Stocks Rally As Fed Offers to Swap Super-Safe Treasury Bonds for Mortgage Debt

NEW YORK (AP) -- Bank stocks spiked Tuesday after the Federal Reserve offered to swap $200 billion of ultra-safe Treasury bonds for some of the troubled investments roiling Wall Street.

The offer is designed to make it easier for banks to raise cash. By temporarily trading no-risk Treasurys for mortgage bonds that have become toxic on Wall Street, the Fed is giving banks collateral they can use to borrow money.

Over the last few months, lenders have developed a distaste for risk and uncertainty, and numerous markets where banks typically raise cash have frozen up. It is easy to borrow money using Treasury debt as collateral because the U.S. government is considered the most creditworthy borrower in the world.

"It takes a lot of the pressure off the short-term funding side of the major brokers," said Sanford Bernstein analyst Brad Hintz, who used to be chief financial officer of Lehman Brothers Holdings Inc. "What the Fed is doing is attempting to break the back of uncertainty in the repo market and ensure that no major financial institution goes down."

Hintz said a bank failure today would be far more problematic than it would have been 20 years ago. Through a complex series of contracts and swaps, Wall Street has created a nexus of interconnected risk, he said. The Fed needs to ensure no banks go bankrupt because they are so dependent on one another, he said.

Shares of investment banks, which were clobbered by a seizure in certain corners of the bond market Monday, recovered much of their value Tuesday.

Lehman Brothers climbed almost 7 percent, while Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Merrill Lynch & Co., and Citigroup Inc. all spiked more than 4 percent.

The Philadelphia Stock Exchange KBW Bank Index, which tracks 24 banks and lenders, surged nearly 5 percent. The dollar jumped, and "safe havens" such as gold and Treasury bonds, which investors have been flocking to in order to shelter their investments from the credit crisis, posted declines that have been rare in 2008.

Douglas Peta, market strategist at J. & W. Seligman & Co., said he is not convinced the money banks borrow will be put to good use.

Banks are struggling, and Peta said rather than lending the capital they raise the companies may use it to bolster their own balance sheets. This is good for the companies themselves, he said, but would not help financial markets.

"That's the equivalent of taking money and stuffing it under the mattress," he said. "What we're looking for is money to be lent."

The Fed has tried to stem the sell-off of a range of debt, particularly home loans, by cutting interest rates.

This approach has not worked, said LibertyView Capital Management President Rick Meckler, because companies that are borrowing at lower interest rates are still not using it to buy risky investments.

Despite lower interest rates, many lenders are still under pressure to dump their investments to buttress their finances or repay their own lenders. This selling has yanked down prices for many kinds of investments, he said, which in turn forced more selling.

Meckler said by coming up with more creative ways to inject liquidity into financial markets, the Fed will hopefully relieve some of the pressure on lenders to sell their assets.

"You were really in a vicious cycle," he said. "This is an attempt to break that cycle."

The Feds Were After Spitzer Personally

We couldn't make sense of some of the initial facts on the Eliot Spitzer scandal that broke this afternoon. Why was the FBI investigating a common, albeit high priced, prostitution service? Because it crossed state lines? Give us a break. And why was the FBI's Public Corruption department involved? It was juicy gossip of course, but it just didn't make sense at first blush, and the facts were leaking out selectively with heavy detail on what Spitzer did and said, with names and dates and room numbers, but precious little else.

Was there a general investigation going on in Washington DC of public officials? Was the FBI investigating a terrorist link somehow? The news made it sound as though Spitzer stumbled into an ongoing investigation. Ok, but why was the FBI directly involved? Sleeper cells of hookers?

It didn't make sense... until we read this story from ABC News. This story says that Spitzer did not stumble into an ongoing Federal investigation of a prostitution ring. Rather, the Feds were investigating Spitzer and his personal financial transactions at his bank, with no evidence of any crime, other than suspicion of some transactions as reported to the IRS by his bank.

They followed his personal financial transactions at the bank for months until they tumbled to the prostitution ring. They were looking for evidence of bribery. This was no general investigation that happened to nab a governor who was in the wrong place at the wrong time. It appears that the FBI, under the office of the Attorney General was following Spitzer's personal finances, looking for some evidence of wrongdoing. And they definitely found it. What Spitzer did was wrong, especially because it was not all that long ago that he was indicting and sending people to jail for breaking similar laws, and for involvement with organized crime.

Now perhaps we'll see more, much more detail, about this story in coming days. We're not defending anyone here, not at all. And we're sure most citizens of the United States of Amnesia won't care about any of the legal details, but instead will rejoice that another celebrity has shown their sexual missteps. We are not personal fans of Governor Spitzer. We think he fell far short in the investigation and settlements he made with the Wall Street banks as NY Attorney General.

But in the rush to judgement, we'd like to see a full disclosure of all the facts, including the details of how the investigation started, and who started it. We were old enough to read the news during the Nixon administration, and remember well his 'enemies list' and his other abuses of office. We would hate to see that sort of thing coming back into the Justice Department. Its a step in a very, very wrong direction for our republic.

It Wasn't the Sex; Suspicious Dollar Transfers Led to Spitzer
By BRIAN ROSS
ABC News

The federal investigation of a New York prostitution ring was triggered by Gov. Eliot Spitzer's suspicious money transfers, initially leading agents to believe Spitzer was hiding bribes, according to federal officials.

It was only months later that the IRS and the FBI determined that Spitzer wasn't hiding bribes but payments to a company called QAT, what prosecutors say is a prostitution operation operating under the name of the Emperors Club.

As recently as this past Valentine's Day, Feb. 13, Spitzer, who officials say is identified in a federal complaint as "Client 9," arranged for a prostitute "Kristen" to meet him in Washington, D.C....

The suspicious financial activity was initially reported by a bank to the IRS which, under direction from the Justice Department, brought kin the FBI's Public Corruption Squad.

"We had no interest at all in the prostitution ring until the thing with Spitzer led us to learn about it," said one Justice Department official.

Spitzer, who made his name by bringing high-profile cases against many of New York's financial giants, is likely to be prosecuted under a relatively obscure statute called "structuring," according to a Justice Department official.

Structuring involves creating a series of financial movements designed to obscure the true purpose of the payments....

March 10, 2008 It Wasn't the Sex; Suspicious $$ Transfers Led to Spitzer

Is it outlandish to think that some group with a grudge against Spitzer might have some influence with the Administration and the Justice Department?

Are Bush's Big Bankers Fixing To BBQ Eliot Spitzer?
Carpetbagger 'Rangers' Could Be Gunning for Empire State Lawman.
Austin, TX

August 8, 2003 - As the East Coast bankers and financiers who dominate President Bush's 2004 elite fundraising team jet toward Crawford, some probably would rather chuck New York Attorney General Eliot Spitzer on the coals than the cattle that these Pioneers and Rangers will be served first.

Why would Big-Apple bankers travel 1,700 miles to nosh barbecue under a hot Texas sun? asked Texans for Public Justice Director Craig McDonald. Are they recruiting help for their showdown with New York's top cop? Are the New York bankers who dominate Bush's Pioneer and Ranger team paying tribute in hopes the Administration will help take Spitzer off the beat?

Hounded by Spitzer, top investment bankers--including new Bush Ranger Stanley O'Neal of Merrill Lynch and new Pioneer James Cayne of Bear Stearns--hosted Bush's most lucrative fundraiser in New York in June. Then 18 financiers made their industry Bush's No. 1 financial supporter last month when Bush disclosed the first 68 elite fundraisers of his reelection campaign. A Texans for Public Justice analysis reveals that the finance industry accounts for one-third of Bush's 32 all-new Pioneers and
Rangers who were not part of this elite team in 2000....

Are Bush's Big Bankers out to BBQ Eliot Spitzer?

Yen to 80 and Euro to 160 against Dollar in "Worst Crisis Since WWII" - Bank of Tokyo

Paul Chertkow, Global Head Foreign Exchange Strategy for the Bank of Tokyo Mitsubishi made these points in an interview on Bloomberg Television.

1. US is in a recession. There is a real risk of a protracted downturn because this is not a typical business slowdown.

2. Interest rates will be cut by more than expected, possibly to 1% by end of June.

3. There is real risk that Mideast Treasuries will trigger a dollar crisis if they break their dollar peg.

4. Larry Summers says 'current crisis worst since WWII' and Chertkow agrees.

5. Foreign ompanies are content to see stronger currencies to relieve high imported commodity prices.

6. Yen down to 90 is realistic with next stop to 80, and 160 for the Euro.

7. Risk is that dollar will fall "well beyond expectations" for most currencies but especially the asian currencies.

8. US "strong dollar policy" is nonsense.

9. US life insurance companies and pension funds have 'a lot of disclosure left' on bad debt.

10. Dollar crisis is 'not inevitable' but cannot see anything to stop it and does not see official intervention as a real possibility at these levels. Thinks the crisis will end if the US Government comes in and underpins the mortgage market directly.

Paul Chertkow - Bank of Tokyo-Mitsubishi on Bloomberg Television