Now raising intellectual capital

Get the bazooka ready



(Corrects paragraph 9 to read “$1.25 trillion of mortgage bonds” instead of “$1.25 billion”.)

It has been almost a year since Hank Paulson asked Congress to give him a bazooka so he could show markets who’s boss. Instead, it was the markets that put the former Treasury Secretary in his place, and they still look very much in control.

That’s going to make an exit from one of the most distorted corners of the U.S. credit markets extremely difficult, if not impossible, when much of the government’s support built into mortgage-backed securities and agency debt is set to expire at the end of the year. Maybe that’s why no one is talking about it and bond investors are left to guess what the next step may be.

And it’s a cautionary tale for the Obama Administration about the perils of throwing buckets of money at a problem without a long-term plan as it considers what to do over the next few months.

Just say no to CDOs


Enough of tinkering around the edges, it’s time for tough reform. The Obama Administration’s plan to overhaul the regulation of the financial system doesn’t go far enough when it comes to the securitization market — a source of credit that both it and Wall Street see as vital to the future of consumer and commercial lending.

If the administration wants to ensure that the excesses seen during the credit boom don’t happen again, it should ban the repackaging of these securities into even more complicated debt structures like collateralized debt obligations.

Commercial real estate still looking for a lift


Chalk up another stumble for TALF, the Fed’s program to revitalize the securitization market. After expanding the program to include commercial mortgage-backed securities, the Federal Reserve on Tuesday reported that no one showed up to take advantage of the central bank’s attractive financing.  Granted this was the inaugural round for loans to investors with eligible CMBS collateral, so it may take some time to take off.

But it certainly sends a worrying signal about how much this program will help unclog the frozen CMBS market – essential if developers and commercial real estate owners hope to refinance loans coming due.