Carlyle Capital: Collateral Damage
by Jean-Claude Kommer
Lenders are likely to take possession of Carlyle's remaining assets after it was unable to reach a mutually beneficial agreement to stabilize its financing.
The Beeb is not normally my first stop for financial commentary, but Robert Peston has an interesting take on the Carlyle fund and the Fed plan to save the world [again…]:
Well, the point of Tuesday’s dramatic $200bn intervention by the Federal Reserve in mortgage-backed markets was to stabilize the price of US government agency AAA-rated residential mortgage-backed securities and – by implication – to encourage the big banks NOT to seize assets in the way they’ve been doing at Carlyle.
Right now, it’s not clear that the Fed’s medicine has worked.
In fact, it’s arguable that the banks’ seizure of Carlyle’s $20bn-odd in assets has actually been encouraged by the Fed’s mortgages-for-Treasuries offer. Because the Fed’s new lending emergency lending facility allows the banks to swap mortgage-backed debt for Treasury Bills in a way that Carlyle could not do.
So it would be rational for the banks to take Carlyle’s assets and exchange them for top-quality, liquid US government bonds, rather than leave loans in place to a business, Carlyle, whose assets remained highly illiquid.
If that’s the case, there will be some very scared people in hedge-fund land today. Hedge funds that have borrowed from banks against the security of mortgage-backed debt could be about to see their assets sucked into the banking system and their businesses vanish.
It’s a process known as de-leveraging the global financial economy, yet another manifestation of the puncturing of the debt bubble.
Collateral damage. It makes perfect sense.
AI
