De-leveraging rolls across markets, hitting safer mortgages

[RedEarth]

Source: MarketWatch

De-leveraging rolls across markets, hitting safer mortgages


Safer 'agency' mortgage securities hit as investors sell to meet margin calls

By Alistair Barr, MarketWatch
Last Update: 2:34 PM ET Mar 6, 2008

SAN FRANCISCO (MarketWatch) - The de-leveraging of the financial system picked up steam and entered new markets on Thursday as more big investors were hit by margin calls.

Carlyle Capital Corp. (86522: news)(CARYF: news), an affiliate of private-equity giant Carlyle Group that invests in mortgage-backed securities, said on Thursday that it failed to meet margin calls from four counterparties and has already received one notice of default. See full story.


De-leveraging refers generally to a reduction in the amount of money that's borrowed. More specifically, margin calls happen when securities bought with borrowed money lose value. If they drop too far, brokers require more cash be deposited in an investor's account to support the position or else sell some of the assets.

Last year's subprime mortgage crisis has triggered a global credit crunch in which a decade of increased leverage, or borrowing, is beginning to unwind with painful consequences. Investment banks, hobbled by their own mortgage-related write-downs, are lending less and calling in loans made to hedge funds, mortgage finance companies and other borrowers.

........

What's happening now in the markets is a rolling de-leveraging where individual asset classes de-lever one at a time," said Andrew Chow, portfolio manager at SCM Advisers, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets. "They won't de-leverage at the same time, but they all will in the end."


Read more: http://custom.marketwatch.com/custom/myway-com/news-story.asp?guid={17E8CFA4-66F4-4AC4-9FEF-CC6A0EAADF48}

[dixiegrrrrl]

1. Carlyle got hit, huh?

Couldn't happen to a more deserving collection of thugs.

:evilgrin:

[formercia]

2. I hope they enjoy the feeling of not being in control.

Just a hint of how us little people feel. The reverse Jesus effect: Making Mankind pay for the sins of a few.

[bluesmail]

3. I'm wondering what they will do

to counter this. After all they are Carlyle.