dear henry paulson: please to read up on the "law of unintended consequences"...
Posted by
x (aka dmuck)
Nov 19 '08, 15:20
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"The prices of bonds and stocks with exposure to commercial real estate plunged on Wednesday on fears the weakening U.S. economy could lead to a wave of defaults on loans for office buildings, retail stores, and hotels.
The value of commercial mortgage-backed securities (CMBS) has tumbled this year amid fears that poor underwriting standards and slower economic growth will boost defaults from historically low rates.
Yield spreads on the CMBX-5 index of "AAA" CMBS surged more than 100 basis points for a second day to 714 basis points over the benchmark of interest rate swaps, dealers said. Spreads, which measure perceptions of risk, on the derivative index are up from 200 basis points in October.
Top-quality CMBS spreads are near 1,100 basis points, for junk bond-like yields of 15 percent or higher. Those spreads were around only 30 basis points before the global credit crisis began last year.
"There is a growing concern that (commercial real estate) is going to be another tripping point in the economy," said William Larkin, portfolio manager with Cabot Money Management in Salem, Massachusetts. "No one wants to touch anything to do with real estate."
Selling of CMBS accelerated last week after U.S. Treasury Secretary Henry Paulson said a $700 billion rescue plan would be geared toward providing banks with fresh capital, rather than used as a fund to take illiquid mortgage assets -- such as CMBS -- off bank balance sheets. Paulson reiterated that stance this week."
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