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Brian Sack Engineers Big Moves at Fed - WSJ.com
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Under one program called "reverse repos," the Fed will put a large and growing portfolio of Treasury bonds, mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac into the market as collateral for loans, taking in cash in return.
In essence, it will switch the Fed from being a massive lender to being a massive borrower, draining the system of cash in the process.
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Fed Turns to Reverse Repos - WSJ.com
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The Federal Reserve is taking another small step toward withdrawing the extraordinary liquidity it has provided to the financial system with a plan to sell back small amounts of securities to the market in coming weeks via reverse repurchase transactions.
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FT.com / Comment / Analysis - Collateral damage
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When derivatives are traded on an exchange, a clearing house generally steps in if either side to a deal defaults, ensuring that the other party does not lose out. But with OTC derivatives, there is no one standing between the two parties. Not only can one side end up with big losses but the aftershocks in the financial system can be huge as other market participants start to fret about exposures to their counterparties – the entities on the other side of deals they too have struck.
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That was precisely the effect that the collapse of Lehman Brothers had on the financial system last year, as the demise of the Wall Street investment bank triggered a series of defaults with multiple counterparties.
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FT.com / Markets / On Wall Street - Reckless banks still to pay
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The first ruling involves Tousa, a Florida homebuilder, where a bankruptcy judge ruled that Citigroup and other banks made fraudulent transfers when they lent Tousa about $500m in 2007. The loan was made less than 6 months before Tousa’s bankruptcy protection filing in January, 2008. The loan went to refinance an earlier loan for a disastrous acquisition in 2005 and to repay some lenders on the 2005 loan.
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The judge, John Olson, found that the lenders “were grossly negligent” in extending the second loan and “should have known the company was insolvent or perilously close to it,” according to the ruling.
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FT.com / US / Economy & Fed - Treasury secretary challenges Goldman aid claims
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Tim Geithner on Friday rejected
Goldman Sachs’ claim that it could have withstood the financial crisis without government intervention, adding that all banks were at risk of being wiped out.
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FT.com / Capital Markets - Fears grow about overheated US debt market
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Some of the most controversial financing practices of the credit-bubble years – from cov lite loans to Pik toggle notes and dividend recap exercises – have returned to Wall Street, stoking fears that debt markets are growing overheated.
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FT.com / Comment - Credit markets left with unpleasant aftertaste
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Thus the risk is that in the aftermath of the Dubai saga, investors will rethink their exposure to a wide range of quasi-sovereign and sovereign entities. If that prompts them to demand a premium to offset their rising sense of uncertainty, borrowing costs will rise – at a time when many quasi-sovereign borrowers can ill afford it.
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FT.com / In depth - Banks face $10bn monolines charges
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Ambac and MBIA, which guarantee more than $1,000bn of bonds, raised cash earlier this year to prop up their capital bases, damaged by exposure to mortgage-backed bonds.
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Judge to Question SEC on Inside-Trader Settlement - WSJ.com
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The Securities and Exchange Commission will face questions from a U.S. judge Tuesday over its proposed settlement with an alleged inside trader, the latest sign of judicial resistance to how the agency handles probes of wrongdoing.
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Last month's ruling came two days after the judge approved the SEC's proposed settlement. Without admitting or denying wrongdoing, Mr. Hashemi agreed to pay a total of $875,000, including allegedly improper gains he made on shares of Nova Chemicals Corp. plus a penalty.
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U.A.E. Leaders Try to Ease Concerns Over Dubai - WSJ.com
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Stocks in Dubai and Abu Dhabi fell sharply for a second day. The Dubai Financial Market's main index closed down 5.6% Tuesday, after falling 7.3% the previous day. Abu Dhabi shares closed 3.6% lower. Shares in Qatar and Kuwait were also hit, with benchmark measures down 8.3% and 2.7% respectively.
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Investors are recoiling after Dubai's government said Monday that it isn't responsible for the debts of its wholly state-owned conglomerate Dubai World, which is seeking a standstill with creditors on $26 billion of debt.
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Double dip warning - Paul Krugman Blog - NYTimes.com
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But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.
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Technicals Look Like '03 All Over Again - WSJ.com
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But the extent of federal involvement back then pales in comparison to the Obama administration's massive stimulus programs.
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"Fundamentals are far worse today," he added. "Back in 2002-2003, excluding tech, most segments of the market were doing fairly well."
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In Dubai Debt Crisis, a Test of Law and Islamic Banking - NYTimes.com
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Bankers and analysts estimate that approximately 10 percent of Dubai’s total $80 billion debt load complies with Shariah, which prohibits lenders from earning interest.
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The Nakheel bond’s prospectus does not provide much clarity. In the case of a bankruptcy by Dubai World or Nakheel, bondholders have no guarantee of “repayment of their claims in full or at all,” the 237-page prospectus says in its section on risks. Under Dubai law, it says, no debt owed by the ruler or government can be recovered by taking possession of the government’s assets.
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Fed Begins Testing Strategy to Exit Securities Program - NYTimes.com
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The Federal Reserve said Monday that it would begin testing its strategy to shrink its trillion-dollar portfolio of mortgage-backed securities and eventually unwind its biggest program to prop up financial markets.
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The central bank emphasized that the move was strictly an exercise in operational preparedness and did not signal a tightening of monetary policy or an effort to begin raising interest rates.
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