Now for extra credit, how much did Citibank pay for their last round of “hard money” to apply to their Tier Capital?
That’d be a double-digit coupon from Abu Dhabi, right?
So yes, the TAF is cheaper. A lot cheaper. But let’s talk a bit about that.
Was there a lot of demand for the TAF? Hmmmm.. what was the “Bid To Cover” on the last TAF? Pretty poor, right?
The premise of my blog entry isn’t that banks are insolvent (and if you read it, you’d know that.) Its that commercial credit demand is collapsing, which is why The Fed is following that collapse down in rate (and will, in fact, likely all the way to zero) and even “sub-market” rates aren’t stimulating credit demand.
Why?
Several reasons, with the most important being a lack of good collateral to post for the loans that people might WANT.
Evidence? How are the sales of all that LBO debt that’s clogging up the bank balance sheets going? Oh, you mean its not selling so well, with bids coming in – when you can find them at all – at 90 at best?
Well now that’s the point, isn’t it?
“No Mas!” – or Guido-style terms being demanded for hard money, The Fed trying to push on a string via the TAF, and yet credit demand continues to collapse, because all the good collateral has already been margined (pledged).
We’re witnessing the velocity of credit creation heading for the ditch – sure, if you practice selective reporting you can find “ramping” areas, but those are the acts of desperate people (e.g. homeowners whacking on their plastic to try to take the place of HELOCs which no longer can be drawn) – and won’t last long.
Bottom line: The Fed is attempting to “restart” the credit creation engine, the attempt is failing, the TAF has replaced the hard money (which has left or demanded extremely high rates of return to come play) and yet even that “artificially-stimulated” demand is anemic and falling quickly.
This is how a deflationary credit collapse gets legs…..
