Just two days after a $200 billion Fed plan was announced to help home mortgage lenders liquidate their mortgage back securities, a huge mortgage bond fund is going down. Carlyle Capital mortgage bond fund is in default, and this is bringing the entire financial sector to its knees on the stock market.

The Carlyle mortgage bond fund isn’t the only slumping investment among home mortgage lenders. Countrywide continues its struggles (along with Bank of America), and Bear Stearns, an underwriting company is sliding rather dramatically. American International Group is dropping, and Citi is also struggling, even as it offers to fund some failing municipal bond investments.

Bloomberg reports on the huge spotlight Carlyle Capital is putting on mortgage market problems:

Carlyle’s default “puts a spotlight on the magnitude of the problem that exists right now in the credit markets,” Liam Dalton, chief executive officer of Axiom Capital Management in New York, which oversees $1.2 billion, said in an interview with Bloomberg Television. “The real economy is becoming very affected by what’s happening in the credit markets.”

What began with losses due to subprime writedowns on the stock market is quickly snowballing to all areas of the economy as mortgage back securities bloody venerable financial institutions. Top home mortgage lenders are finding themselves exposed to large amounts of risk, due greatly in part to their models (especially in the case of the Carlyle Capital mortgage bond fund) that include highly-leveraged investing.

Where do we go from here? I’m not sure there really are too many places to go. Economic stimulus is just a pipe dream at this point. The best you can do is cut back on your spending, hold on, and hope for the best. Between high oil prices and serious stock market issues (that will begin to affect the portfolios and retirement accounts of “regular folks”), a recession seems almost certain. If we’re not there already.

Tags: Carlyle Capital bond fund, mortgage bond fund, home mortgage loan, home mortgage lenders,
mortgage loan blog, subprime writedowns, mortgage market problems

The big story yesterday was the latest effort by the feds to fix the economy. A $200 billion Fed plan to lend money to home mortgage lenders and other financial institutions was announced. The plan was met with initial optimism in the financial markets. However, the few last times “economic stimulus” plans have been announced, they have been greeted with optimism. And after a while that optimism fizzles. Will the latest Fed “economic stimulus” plan meet a similar fate?

That question is the subject of an interesting American Public Media report this morning:

Banks that have found themselves in trouble due to shoddy lending practices and subprime mortgage lenders are getting a little more help from the Fed. The latest is a $200 billion plan designed to offer better rates to financial institutions that find themselves in tough spots. The Wall Street economic blog offers this, from a statement issued by the Federal Reserve this morning:

Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS.

The statement goes on to say that this entire setup is meant to “promote liquidity in the financing markets.” Additionally, the Fed hopes that this $200 billion plan will instill “confidence” in the stock market and in the economy. The idea is to help people feel better about the way things are going. People who feel better about the way things are going are more likely to spend money. And that is supposed to stimulate the economy further.

Unfortunately, like so many other moves precipitated by the government at this time, the latest Fed $200 billion plan doesn’t actually address the fundamental practices that resulted in this mess in the first place.

I’m not sure we need this constant economic stimulus anyway. What happened to accepting the natural economic cycle? The natural real estate market cycle? We have become so dependent on things always growing, growing, growing that we have forgotten that economies are usually cyclical. Unfortunately, our current economy is based so much on debt that a down cycle is disproportionately devastating when all those debts are called in.

Tags: subprime mortgage lenders, Fed $200 billion plan, home mortgage loan, mortgage loan blog,
debt based economy, economic cycle, confidence market