A brutal week for credit markets

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Problems in the banking and recognition marketplaces intensified last week, spreading to sectors that had been weathering the storm.

The hebdomad started with Thornburg Mortgage, which specialises in high-quality elephantine loans, saying it couldn't ran into border phone calls from lenders.

By week's end, investors were dumping the securities issued by Fannie Mae and Freddie Mac, considered the bedrocks of the lodging market.

It all adds up to large jobs for the recognition sector that, left unsolved, could ensue in tremendous jobs for the economy. Many norm people have got got no thought how bad things have gotten.

Unlike the stock market, whose rotations can be tracked by popular marketplace indexes, the recognition marketplace is extremely complex and difficult to follow, even for experts and policymakers. So far, the Federal Soldier Reserve's involvement charge per unit cuts have got done small to reconstruct assurance in the recognition marketplaces or excite lending. That's partly because so much loaning now takes topographic point outside of the regulated banking industry, where fearfulness is rampant.

Here's a expression at some of this week's events:
Thornburg's bad news

On Monday, Thornburg said it had failed to ran into border phone calls from lenders.

Thornburg had been holding up better than some mortgage companies because it specialises in making high-quality, adjustable-rate elephantine loans (bigger than $417,000) to borrowers with good to first-class credit. Although default rates on these premier loans are very low, Thornburg also held some securities backed by Alt-A mortgages, which fall somewhere between premier and subprime.

On Thursday, Polecat Ratings set a broad swath of securities backed by Alt-A mortgage on reappraisal for possible downgrade.

Thornburg is structured as a existent estate investing trust and is known as a mortgage REIT. Like most mortgage REITs, Thornburg borrows against its mortgage assets to do or purchase more than loans.

When the value of collateral falls, loaners can inquire borrowers to set up more than hard cash or sell the plus held as collateral. That's known as a border call. As the value of Alt-A loans have got got been called into question, many holders have been dumping them onto the marketplace - sometimes as a consequence of border phone calls - causing their value to fall farther.

Thornburg have been getting border calls, and for a piece it had enough hard cash to ran into them. But on Monday, Thornburg said it had failed to ran into border phone calls it had received over the former three days. To ran into them, Thornburg would have got to sell assets or raise capital. That set off a mob in Thornburg's shares, which distribute to other mortgage REITs.

On Friday, Thornburg said marketplace statuses had caused "substantial uncertainty about the company's ability to travel on as a going concern."

Thornburg's sufferings also caused rates on elephantine loans to go even higher last week, states Keith Gumbinger, a frailty president with HSH Associates. Bernanke's comments

On Tuesday, Federal Soldier Modesty President Ben Bernanke, speaking to a grouping of community bankers, suggested that Banks see reducing loan balances for some householders who owe more than than their places are worth.

"In this environment, principal decreases that reconstruct some equity for the householder may be a relatively more than effectual agency of avoiding delinquency and foreclosure," he said.

While that may sound appealing to struggling homeowners, some people were shocked to hear the nation's top banking regulator propose that capital-starved Banks take losings that would further gnaw their capital. Bernanke's address came just a few years after he told United States Congress that more than banks, primarily littler ones, would fail. Ambac's disappointment

On Wednesday, Ambac Financial Group, the troubled chemical bond insurer, defeated marketplaces when it said it would raise desperately needed working capital by merchandising $1.5 billion in stock and equity units. Many were hoping Ambac would procure a larger bailout from planetary banks.

Although it managed to sell the stock on Friday, the other shares will thin the company's net income per share. Ambac's shares lost almost 20 percentage for the week.

Ambac is one of respective big companies that started out insuring relatively safe state and local municipal chemical bonds but ventured off into guaranteeing mortgage and other asset-backed securities that went sour.

Problems with the chemical chemical bond insurance companies have got caused pandemonium in municipal bond markets, forcing many authorities to pay higher involvement rates on their debt.

Vallejo's narrowly avoided bankruptcy and a possible bankruptcy filing by Thomas Jefferson County, Ala., have got done nil to calm down the flustered muni markets. Thomas Thomas Carlyle concerns

Potentially more than worrisome, on Thursday hedgerow monetary fund Carlyle Capital said it had failed to ran into border phone calls on portion of its portfolio of AAA-rated securities issued by Fannie Mae and Freddie Mac. Thomas Thomas Carlyle is a publicly traded spin-off of Carlyle Group, the politically connected private equity firm.

Fannie and Freddie are publicly held companies (often called agencies) that buy, sell and warrant place mortgages.

Heretofore, their chemical bonds have got been considered nearly as safe and liquid as U.S. Treasurys. Although they are not explicitly backed by the federal government, there is a given that the authorities would not allow them neglect because of their importance in the lodging market.

Recently, however, there have got been growing concern about Fannie and Freddie's portfolios, specifically what are called private-label mortgage securities they have bought from others and make not guarantee, states Joshua Rosner, managing manager of research house Billy Graham Fisher.

Private-label securities do up almost one-third of Freddie Mac's retained loans. Although they are generally very high quality, investors today are leery of anything that is not guaranteed.

The larger job is that many hedgerow funds, REITs and other investors who have got got been getting border phone calls on their lesser-quality indirect have been raising hard cash by merchandising Fannie and Freddie securities. That is driving down their terms relation to Treasurys.

On Thursday, the U.S. Treasury Department denied a rumour that it is going to explicitly vouch Fannie and Freddie, which did nil to assist the Fannie/Freddie merchandising frenzy.

In a news release on Friday, Thomas Carlyle Capital said, "In the past respective days, there have been a rapid and terrible impairment in the marketplace for U.S. authorities federal agency AAA-rated residential mortgage-backed securities" such as as those issued by Fannie and Freddie.

In response, respective of Carlyle's loaners marked down the value of its collateral and said they would soon inquire for more. "The company believes these further border phone calls and increased collateral demands could quickly consume its liquidness and impair its capital," it said.

On Friday, the Dutch stock exchange where Thomas Carlyle Capital is listed halted trading in its shares.

Fannie and Freddie's shares drop almost 20 percentage last week. What it all means

Where the recognition crisis stops is anyone's guess. But it assists show why the Federal Soldier Reserve's involvement charge per unit cuts are doing small to excite the economy.

"The jobs that we confront cannot be fixed by pecuniary policy," Rosner said in a report.

Instead of focusing on cutting involvement rates and pumping liquidness into the banking system, he says, the Federal should be forcing Banks to let on and recognize losings and raise capital.

"The cardinal to whole job is allowing establishments to neglect that are fundamentally weak," and letting working capital flowing to the 1s that are strong, he says.

Good fortune with that.

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at .