Wednesday, November 26, 2008

Paulson: Covering All The Angles Like A Pool Hustler Playing Nine Ball

Record Drop In Mortgage Rates (not jumbo loans or corporate debt)

Rates on 30-year mortgages posted a record drop of 1-1/8 percentage point to 4-7/8 percent on Tuesday, after the Federal Reserve said it would implement a $600 billion plan to support the mortgage securities market. In what has been a frozen mortgage market, this move in rates is a great sign, although a borrower will still require a pristine credit profile.

The Definition Of Insanity

If the definition of insanity is to do the same thing many times and expect a different outcome, then nobody could label Henry Paulson insane because he is doing a wide variety of things. Almost a new thing a day.

In yet another new tentacle of the monster that is designed to rescue the economy, a facility will be created to provide loans to investors that want to buy credit card, auto and student loan backed securities. It's name: TALF or Term-Asset-backed Securities Loan Facility. This program, if successful, is designed to make credit available to consumers again. It is also open ended to the extent that it might be able to be used on other products as well, such as mortgages.

Courtesy of, these are the details point by point:

Following are details of the plan, called the Term Asset-backed Securities Loan Facility (TALF):

-Federal Reserve Bank of New York will lend up to $200 billion on non-recourse basis to holders of certain triple-A rated asset backed securities backed by newly originated and recently originated consumer and small business loans.
-ABS issuance in consumer categories such as auto loans, student loans and credit cards were roughly $240 billion in 2007 but essentially ground to a halt in October, according to the U.S. Treasury Department.
-The new Fed facility is intended to assist credit markets by facilitating issuance of ABS and improving ABS market conditions.
-The Treasury will provide $20 billion in credit protection to the New York Fed for the program. The Treasury will purchase subordinated debt issued by a New York Fed special purpose vehicle to finance the first $20 billion of asset purchases. The New York Fed will fund any purchases above that amount by lending additional funds to the vehicle up to $200 billion.
-The Treasury funds will come from the unallocated portion of the first tranche of its $700 billion financial rescue fund, known as the Troubled Asset Relief Program (TARP). The action leaves the Treasury just $20 billion in unallocated funds before it must seek Congressional approval to access the TARP's second $350 billion.
-All cash flows from assets in the program will be used to first repay principal and interest to the New York Fed, and second, to repay principal and interest on the $20 billion from the Treasury TARP fund. Any residual returns will be shared between the New York Fed and the Treasury.
-The New York Fed will apply a "haircut" to the value of the securities used as collateral for loans under the program, based on the price volatility of each class of eligible collateral.
-The New York Fed will offer a fixed amount of loans from the facility on a monthly basis.

Time will tell if this one will work.

More Tough Economic News

In continuing indications of what we all already know, the economy really doesn't look very healthy. Tuesday morning the release of the GDP revision showed a decline of .5% in the 3rd quarter. The release of the Case-Shiller index showed a decline in the price of single family homes of 17.4% from the same time last year.

Trivia To Take Our Minds Off The Economy

Sometimes we all need something to be used as a diversion. Something that makes us say wow, besides the magnitutde of the numbers being thrown around in Washington. This is something that I found interesting.

Where is the worlds fastest supercomputer that is used for science? It is at the Department of Energy's Oak Ridge National Laboratory. Let's look at the tale of the tape, although most of us have no idea about what it all means, as long as our pocket calculators still work:

- Cray XT

- Top500 rank: 2 + 8

- 1.64-petaflops peak theoretical performance

- 1.059 + 0.205-petaflops actual performance on HPL benchmark program

- 182,000 processing cores

- AMD quad-core OpteronTM 2.3 gigahertz processors

- InfiniBand network

- Cray SeaStar network interface and router

- 362 terabytes of memory

- 578 terabytes per second of memory bandwidth

- 284 gigabytes per second of input/output bandwidth

- 10-gigabyte-per-second connections to ESnet and Internet 2 networks

- High-Performance Storage System scales to store increasing amounts of simulation data

- Spider, a 10-petabyte Lustre-based shared file system, connects to every system in the ORNL computing complex

- Disk subsystem transfers data at greater than 200 gigabytes per second


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