Wednesday, April 8, 2009

FT analysis of Geithner's public private investment program

The scheme should help clarify the degree to which current depressed prices of traded securities reflects liquidity risk premium - absence of financing - as opposed to expected credit losses. The plan could reveal that the liquidity risk premium was large and the capital hole in the banks is not as great as feared. Or it could show that the liquidity risk premium was not that big and the capital hole is, indeed, great.

Public private investment programme

The Treasury will put $75bn to $100bn of troubled asset relief funds into a public private investment programme.

Foreign asset ownership

Foreign ownership of equity and bonds in the UK is 135% of the money supply, 57% in the U.S., 49% for the Eurozone, and 12% for Japan. (money supply measure not referenced)

Delevaraging leads repo market into mire

Volume in both Treasury bonds in repo and corporate bonds have fallen from $3000bn around the Bear Sterns failure to $1858bn, and $245bn in July 2007 to $86bn.
Banks have reduced leverage from 30 to 10 percent.