Thursday, November 19, 2009

Sea Change: Lehman Redux?

President Obama shifted rhetoric from recovery to "possible double dip recession" this week. Today short-term Treasury bills went negative on yield. ZeroHedge noted this happened after the fall of Lehman Brothers. The big money boys were scared to loan to one another, to park money in failing institutions. They put their billions in safe haven T bills.

In early November CIT imploded, old news except for their credit default swap settlement. Ambac and CapRes/GMAC sit on the brink of collapse. Is it someone bigger? Maybe a shadow banker like Lehman or a sovereign country.

Credit bets on Greece rose in price, according to the WSJ. The Philippines borrowed heavily to finance a deficit budget. Goldman Sachs and CitiGroup Global Markets are advising the Philippine government. Will they implode Manila's version of Wall Street, before a second U.S. dip?

The same CitiGroup Global Markets Inc. (CGMI) had two negative news stories. The first was a possible Moody's downgrade: DeHavilland reported:

Moody's has announced that it has placed on review for possible downgrade its ratings of the credit default swap tranche of Citigroup Global Markets Limited -- Cayenne Court 2004-1 referencing a static portfolio of corporate entities.

The second dealt with CGMI's steering a charity, St. Anthony's, into risky auction rate securities. St. Anthony's wants its $2 million back.

Credit betting came up in today's House hearing on financial regulatory reform. Treasury Secretary Tim Geithner refused to answer a question on the kind of AIG credit default swaps Goldman held. Taxpayers funneled $12.9 billion to Goldman and Geithner won't say if Goldman held the underlying debt instruments? Reuters had Peter DeFazio's account:

Geithner would not answer my question when I said, “Were those naked credit default swaps by Goldman or were they a counter party?” He said, “I will not answer that question.”

I think they were naked credit default swaps. They were bets. They should not have gotten their money back.

What do negative T bills portend? What kind of financial boogeyman lurks? Is it domestic or foreign? Is it the ghost of Lehman? If so, who might he haunt?