Examining “Liquidity Puts”
An article published by Financial Times gives some more detail on the current examination of the mysterious “liquidity puts” that have been troubling banks. According to the article:
- Doing the rounds is talk of a CDO “liquidity put” that has troubled Citi with billions in extra subprime exposure.
- Speculation about the “liquidity put” kicked-off after an interview with Citi president Robert Rubin in Fortune magazine last week.
- FT Alphaville noted Citi’s massive growth in CDO exposure - bizarrely through the commercial paper market - when the bank reported its Q3s… In a nutshell, this is the mystery “liquidity put”.
- Back in early November, we didn’t know them as “liquidity puts” - just “agreements” in the structuring of Citi’s CDO deals.
- To mitigate any CP rollover risk, Citi entered into a series of “agreements” which forced it to buy the CDO CP if no one else would. As Mr Rubin calls them, “liquidity puts”.
- And those CDO commercial paper “liquidity puts” forced a staggering $25bn increase in Citi’s CDO exposure - at a time when the market was falling apart. Like Salmon, we’re bemused as to why that notion hasn’t been more widely reported.
- And it may not just be a Citi problem.
- It seems that Bank of America had similarly structured CDO deals in place.
As this new term floats around people are starting to have questions. Why hasn’t this been covered by more news groups? Who else has these “liquidity puts”? It seems that every day the credit crisis is becoming more and more complex as things like these “liquidity puts” are unearthed and exposed to the public. It just makes you wonder how much longer this will all go on while everyone else struggles to get out of debts.
November 27, 2007 | Filed Under Get Out of Debt
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