Monday, March 23, 2009

CDS Market Reaction to Geithner Plan

The Geithner plan gets rave reviews from the CDS market, with serious spread tightening across the board. The CDX IG12 index closed 14bps lower, at 185bps. Here are today's CDS spread changes for the major U.S. banks: BofA: 21 bps tighter Citi: 27 bps tighter Goldman: 16 bps tighter JPMorgan: 5 bps tighter Merrill: 18 bps tighter Morgan Stanley: 16 bps tighter Wachovia: 13 bps tighter Wells Fargo: 10 bps tighter Other U.S. financials: Berkshire Hathaway: 28 bps tighter AMEX: 13 bps tighter Capital One: 16 bps tighter Clearly the CDS market thinks the banks will be willing to sell their troubled assets under the Geithner plan. I probably agree.


Don said...

The TAs will be become liquid, priced, and sold, now that the government has entered the TA business.

Going forward, the problems will be:
1) Large losses to taxpayers
2) A GAO report of some kind saying that the government's actions caused the price of the TAs to rise
3) The subsidies turning out to be very large ( even if some of it is recovered )
4) Pimco et al making good money, but taxpayers not so much
5) The appearance of collusion or favoritism of some kind
6) Complaints that congress was circumvented ( whether fair or not )

I hope it works.

Don the libertarian Democrat

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