The news in the financial markets continues to be quite grim. Over the past few business days, Washington Mutual was seized by its regulators and quickly sold to JPMorgan Chase bank. Today the regulators assisted in the forced sale of Wachovia to Citigroup. Then this afternoon the United States House of Representatives rejected the Troubled Asset Relief Program ("TARP") program that would have enabled the Federal government to purchase up to $700 billion in "toxic" mortgage assets. Once the news of the no vote spread, the equity markets quickly turned even further south, ending up with the largest ever loss in the Dow Jones Industrial Average. Ahead of Tuesday's end of the month and the third quarter, the market for commercial paper is virtually frozen and what trading there is for very short terms, often overnight and generally a week or less.

In light of all of the above, several clients and professional contacts have reached out to Lars Toomre for his perspective on where things might go from here. In short, I am quite pessimistic. There is an old saying that the markets have a tendency to extract maximum pain for many parties before a correction can start. I fear that the sell-off witnessed this afternoon in the equity markets will continue and get worse as investors wonder which institution might be next. Also, I sense that equity investors are beginning to adjust downward their expectations for future earnings as consensus begins to build that the United States and perhaps the world is entering a major recession.

As bad as the equity markets might be, I am even more worried about the debt markets. The bankruptcy filing of Lehman Brothers has had far more repercussions than the Federal regulators originally projected. If you have not read the front-page story from the September 29th 2008 Wall Street Journal entitled Lehman's Demise Triggered Cash Crunch Around Globe, go read it now!

Lehman Brothers was one of the two largest dealers in commercial paper plus it had quite a bit of its own commercial paper outstanding. Its absence as a market maker has hurt the commercial paper market. The breaking of the proverbial buck by Reserve Primary Fund (due to the amount of Lehman Brothers commercial paper it held) caused many larger investors, primarily corporations and institutions, to question whether money market funds were money good. Hence, more than $150 billion of the $1.7 trillion money market funds were redeemed and much of the cash apparently has been parked in Treasury bills driving such holdings down to yield just a few basis points.

All markets are driven by the marginal buyer and seller. With few buyers in the commercial paper market, the rates required to roll over outstanding commercial paper have risen quite a bit and could well go even higher if the financial panic stays constant or worsens even further. The coming year-end is going to be truly horrendous as almost all financial institutions want to hold as much cash as possible and make their all-important year-end balance sheets look as pristine as possible. Hence, I suspect that there will be limited funds available for commercial paper issuers who want to take out bank loans instead of rolling their paper. Also, with such uncertainty about financial credits, it is also will be likely that issuing longer term debt in the corporate bond market will be very difficult, if not impossible for all but the safest credits.

Finally, market participants do not seem to be focusing on what is going on in the hedge fund sector. Many hedge funds are suffering net losses for the year and as a result, many hedge fund investors are submitting redemption notices. Even though most hedge funds have substantially reduced their leverage, many still employ leverage in the range of 3:1 to 5:1. The redemptions and margin calls from the decline in the equity markets will cause yet more selling from hedge funds. Hence, I would expect that many markets will be under pressure from further hedge fund deleveraging.

Toomre Capital Markets LLC ("TCM") consults with clients who are involved with structured finance securities, derivatives and other "hairy" investment opportunities like weather derivative contracts and life settlement portfolios. Many of these investment alternatives are illiquid, even in the best of times. As a result, we have a keen appreciation of what is termed "liquidity risk". Two of the clients today independently asked that I highlight a past post entitled Can Wall Street be Trusted to Value Risky CDOs?. Both found it extremely helpful and useful in thinking about the value of liquidity and what may lay ahead for the rejected TARP program.

Reader comments and thoughts are welcome.

Back in one of the items tucked into the Toomre Capital Markets LLC ("TCM") post entitled March 27, 2008 TCM Observations, TCM noted that already 20,000 financial services sector jobs had been eliminated since the start of 2008. Lars Toomre wondered what the reader's over/under number might be for the total number of Wall Street jobs that might be shed in 2008 when all of the stealth layoffs are factored in. He personally was thinking that the total reduction might be close to 100,000 this year.

On Sunday, May 25^th 2008, The New York Times focused on the psychic toll the current round of layoffs is having on the many people affected in an article written by Sarah Kershaw entitled Wall Street Exodus: Fear, Panic and Anger. The article starts "The mind wraps itself around losing a job, one of life's great traumas, in jagged and swerving fits. When the call comes in, when rumor turns to reality, when it's not the broker in the next cubicle but you who is presented with a stack of severance papers, the psyche takes over. It goes numb. It goes into survival mode. Fear quickly turns into anger. For some, there may be relief in saying goodbye to what therapists call the "psychological terror" that has haunted the corridors of troubled financial institutions since last summer. But what follows — the unknown — may be no less frightening."

Apparently by the NYT's count, "Since August, banks worldwide have announced plans to eliminate as many as 65,000 jobs. Many losing their jobs now have lived through other crises on Wall Street — the 1987 market crash, the widespread layoffs of the early 1990s and the financial upheaval of 1998. But investment bankers, recruiters and psychologists say the current economic downturn, the cascade of layoffs and the steady beat of grim financial news have exacted an especially daunting psychic price."

According to the Triangle Business Journal, Bank of America has agreed to spend as much as $25 million over the next five years in a research partnership with the Massachusetts Institute of Technology ("M.I.T."). The Charlotte North Carolina-based BofA said it will "team with MIT's Media Laboratory to create the Center for Future Banking, which will be located on MIT's campus and seek to transform the ways banking is conducted. Researchers will address issues related to information technology, financial planning and customer service."

"Bank of America is investing in the future of banking," Anne Finucane, chief marketing officer at BofA, said in a statement "Working with the MIT Media Lab provides a unique opportunity to grow banking in innovative ways that respond to evolving customer behavior, preferences, and trends."

As a graduate of MIT professionally focused on financial services and technology, Lars Toomre is always intrigued by the amazing research that results from the M.I.T. academic experience and its research labs. It certainly will be interesting over the coming months to see what results from this research effort in the Media Lab.

This morning the Federal Reserve starts one of its regular meetings. The interest rate futures markets are predicting 100 percent probability of a 75 basis point cut and a very high probability of even a 100 basis point cut. Toomre Capital Markets LLC ("TCM") hopes that these market expectations are disappointed. Hopefully, the Federal Reserve only cuts its short-term rates by 50 basis points.

The Federal Funds rate is currently 3.00%. In the last week, the Federal Reserve has taken several major steps to get the needed liquidity to the financial market community. The new funding program that starts later this month allows the Wall Street dealers to fund $200 billion of mortgage-backed securities through Federal Reserve repurchase agreements. Further, the Federal Reserve has agreed to finance $30 billion of the least liquid securities from the Bear Stearns inventory. Finally, the Federal Reserve has opened up its discount window to the twenty or so primary dealers that for the first time includes all of the major investment banks. Some of the language from the Federal Reserve also suggests that the primary dealers are encouraged to use the discount window in the event that some of their large customers (like hedge funds or mortgage REITs holding agency MBS) have funding difficulties.

A cut of only 50 basis points is sure to disappoint both the bond and stock markets today. And no doubt there will be more calls that the Federal Reserve is "behind the curve." However, market participants forget (or do not appreciate) just how simulative the 225 basis points cuts already made truly are. Nor do they fully appreciate how stimulation is coming down the pike in the third quarter with the rebate checks passed by Congress and signed into law by President Bush. However, a cut of 50 basis points will allow the Federal Reserve to keep its powder dry for the impact of further rate cuts, if needed. And such a "small" cut is also likely to be a surprise to the foreign exchange and commodity markets. I might suggest that with the Federal Reserve having addressed the liquidity concerns of its primary dealers that the next major issue is getting the dollar stabilized and reducing some of the speculation that has become concentrated into the broad commodity markets.

Toomre Capital Markets LLC ("TCM") has long been concerned about the opaqueness of the Credit Default Swap market. As this market sector has exploded in size in the past decade, TCM has feared that some losses from these credit derivative instruments may be hidden from investors, regulators and counterparties. Hence, the soundness of the global financial system might well be less sound than what international regulators, rating agencies and large financial institutions might think.

Others have been concerned too. The Australian has started off the 2008 New Year with a rather ominously entitled article Forget CDOs, Is is Time for CDSs. The article starts with "If 2007 was the year of the CDO, the latest acronym to loom dark and large on the financial markets' horizon for 2008 is the CDS. And the CDS (credit default swap) is shaping up to be far more noxious than its little derivative brother, the CDO - a spliced and diced bundle of mortgages known as a collateralized debt obligation that sent Wall Street into a tailspin last August when the market for low-grade US mortgages froze over. At least Warren Buffett seems to think so. After the world's top two bond insurers were scolded with [the threat of] a ratings downgrade last month and told to go and raise some capital, the visionary Buffett revealed last Friday that he was to set up a bond insurance business." [emphasis added]

The key point of this article is that "the murmur among the cognoscenti is that an implosion in the CDS market could do serious damage to the international banking system." They have slightly misquoted Warren Buffett who did say "We felt that, in many cases, the prices that people were charging were inappropriate." What Mr. Buffett was referring to was the cost of credit enhancement insurance to ensure that a municipality's debt was paid on a timely and ultimate basis that is part and parcel of a AAA/Aaa rating. He was not referring to the prices of CDS transactions. However, the article authors were correct that the crux of the problem is that there is not only price transparency but there also are problems about reserving and regulation.

Back on March 1st 2007, Toomre Capital Markets LLC ("TCM") created a post entitled Where is Value in Sub-Prime Mortgage Market? In recent days, UBS has announced a further write-down of $10 billion in sub-prime mortgages and CDO securities; London-based HSBC, Paris-based Societe Generale and Germany's WestLB have all rescued their sponsored SIVs either by taking them on to the balance sheet or providing credit lines that ensure that all of the outstanding senior commercial paper will be repaid; and MBIA has announced a $1 billion investment by Warburg Pincus LLC that for at least for a few weeks will help ensured that MBIA maintains its AAA credit enhancement rating. Late on Monday December 10th 2007, Washington Mutual, the United States' largest savings and loan by market value, declared that it was exiting the subprime mortgage business, eliminating another 3,150 jobs and raising some $2.5 billion dollars in additional capital through the issuance of convertible shares.

Based on the recent TCM posts about the perils of reaching for yield and some the enormous losses various financial institutions are taking from their subprime and CDO security activities, a couple of investors have asked Lars Toomre to go back and update his thoughts on that Where is Value in Sub-Prime Mortgage Market? post. Hence, a few hours ahead of the release of Lehman Brothers 4th quarter 2007 earnings release, here goes:

Clearly, Lehman Brothers was wrong back in late February arguing that the sell-off in the ABX index was way overdone. From their historically very tight levels around the start of 2007, the risk premiums for all types of credit investments have dramatically increased. For all practical purposes, the mortgage sector has virtually stopped trading and those risk premiums are now more of a "pick 'em" variety.

So where is value from here? As Lars has preached in many different conversations and written comments, the trade-off from going from a liquid to an illiquid position requires a very significant yield pick-up and recognition that one must be able to live with the illiquid investment for five years or more. Given that criteria, most, if not all, mortgage investments are still not trading cheaply enough to justify going illiquid. Hence, Lars Toomre would recommend that interested institutions remain more in a seller mode than an acquisition mode when considering structured mortgage investments.

As The Wall Street Journal reminded investors, home prices will need to fall about 30 percent to restore their historic relationship to inflation, rents and incomes. Hence, Toomre Capital Markets LLC would urge that investors avoid the mortgage sector for at least another six months as housing prices continue to decline. Whether the popping of the housing bubble will take five or six years as Jim Rogers has argued remains to be seen.

However, clearly the full effects of cheap and easy mortgage credit are not fully reflected in mortgage security valuations. Make a point of following just how badly home equity loans, Pay Option ARMs, other intermediate and hybrid ARMs and the Alt-A security sector will decline in the coming months. While there no doubt will be periodic spikes as people perceive the housing market is bottoming, remember that a 30% price decline is going to turn almost all of these mortgage types into "upside down" positions with borrowers having negative equity in their homes.

An interesting question is just how prevalent the "jingle mail" phenomena will become. Also, remember that the housing price bubble is beginning to deflate during a period of relatively healthy employment. Just imagine how bad the delinquency and default statistics would be if the United States economy were to enter a "normal" recession.

As before, thoughts and comments are most welcome.

As frequent readers of this Insight section are keenly aware, Toomre Capital Markets LLC ("TCM") has long been worried by the irrationality of the United States and European fixed-income markets. (See, for example, the February 5th 2007 post It's All Fun and Games Until Someone Gets Hurt.) In recent days, more news has emerged of some of the perils from irrationally stretching for yield and return.

For instance, the Ahead of the Tape column written by Tom Lauricella in the December 3rd 2007 edition of The Wall Street Journal details some of the problems now facing one of the Florida state-run investment pools called Florida's Local Government Pool. This relatively short-term "safe" investment fund was the largest state sponsored co-mingled pool until recently. For instance, during 2006, it produced a yield of about 5.4% whereas the average money-market fund yielded 4.8%. Part of their success in delivering a higher yield was investments in the commercial paper issued by several Structured Investment Vehicles ("SIVs") including those issued by KKR Atlantic Funding Trust, KKR Pacific Funding Trust, Ottimo Funding and Axon Financial Funding. Apparently, the majority, if not all, of these SIV commercial paper positions were sold to the State of Florida State Board of Administration by Lehman Brothers.

The problem is that these SIV commercial paper investments have now gone into default. When this information was reported to the state administration officials in mid-November, certain municipalities withdrew large amounts of funds from the pool. As a result, the pool which was approximately $27 billion as of September 30th 2007, has shrunk to about $14 billion when redemptions were suspended on November 29th to prevent a further run on the fund. Last week, the state hired Blackrock to provide an independent financial review of the local government investment pool for the State Board of Administration.

According the Orlando Sentinel, "BlackRock executives flew into Tallahassee Monday morning and were scheduled to meet with the chiefs of staff for Gov. Charlie Crist, Attorney General Bill McCollum and CFO Alex Sink today. The firm will make its final recommendations at the SBA's regular meeting Tuesday."

Toomre Capital Markets LLC ("TCM") earlier in 2007 was quite worried about liquidity risk and the level of risk premiums that investors were assuming through their various investment strategies in the proverbial search of yield or return. Interested readers might perhaps want to reread the February 12th 2007 TCM post entitled Hedge Funds, Investment Banks and the Value of Liquidity? where we wrote:

Economic times presently are pretty good world-wide. When the inevitable turn in the vastly more inter-connected global economy next comes, credit spreads surely will widen and the valuation of various financial instruments will come under stress. Are hedge funds (and by proxy the investment banks) prepared for coming "Great Unwind" forecast by Mr. Stiamann and Knips? Some hedge funds inevitably will do very well then, while others will fail, perhaps as spectacularly as Amaranth Advisors did in September 2006.

The financial markets now are full of much liquidity. Are investors, speculators and their bankers appreciating and pricing in liquidity risk? Toomre Capital Markets LLC would suggest that liquidity risk presently is greatly under-valued in the search for "alpha", absolute return and portfolio yield. The stretch to get ten percent return (after fees) appears to be making rational people start to do irrational things.

Sadly, many institutional investors did not heed this warning about the then insane pricing of liquidity risk. Over the past week, Lars Toomre has had the chance to catch up some of his much neglected reading. Several stories in particular are noteworthy in the context of liquidity risk and the consequences of reaching for yield. Lars will try to complete write-ups in the next few days about several of these sad tales to remind future investors of the consequences of investing in something not well understood for the promise of that incremental return or enhanced yield.

Early in his career, Jim Rogers was a partner with George Soros and co-founded the legendary Quantum Fund. Mr. Rogers has subsequently "retired" and now is a college professor, author, world traveler, economic commentator, and creator of the Rogers International Commodities Index ("RICI"). A noted fan of commodity investing, Mr. Rogers recently was speaking at a conference in Hong Kong about the sub-prime crisis in the United States and his message was bleak: There likely will be six more hard years of subprime fallout. Sadly, Toomre Capital Markets LLC ("TCM") concurs with the general thrust of Mr. Rogers' recent statements. The Capital Markets, particularly in the structured finance areas, are going to be in for some very bleak times (and people should not be at all surprised to see New York City real estate prices decline significantly).

The Standard newspaper in Hong Kong in a story written by Benjamin Scent for publication on Monday, November 19th 2007 entitled Six More Hard Years Tipped for Subprime Fallout has more details. Apparently Mr. Rogers said the subprime crisis will continue for years to come and America may be facing a permanent decline as an economic power. "The [subprime] situation is going to continue to deteriorate. When you have a bubble, it normally takes years to work out all the ramifications."

Later at the conference he said "I think that we have a long way to go before it's finished. When you have a bubble like this, it usually takes five to six years to clean it up." Rogers said not many people have lost their houses yet despite a credit bubble that allowed Americans to buy a house with no down payment - a situation unprecedented in US history. But he said many will lose their homes before the crisis is over. "Inflation's going to get much worse. You are going to have more people losing money. You're going to have more bankruptcies," he said.

As many readers of the Toomre Capital Markets LLC ("TCM") blog may already be aware, the next Hedge Fund Executive Forum Series event entitled Real-Time Decisions & Risk Reduction: Technologies that Reduce Latency and Sharpen Business Intelligence to Drive Results will be held in New York City on Thursday November 29th 2007 and then repeated in Stamford, CT on Tuesday December 4th. Lars Toomre will be one of the speakers at this event. Both Aldon Hynes and Lars Toomre hope that you will be able to join the Incremax and Toomre Capital Markets team at either of these venues.

These Hedge Fund Executive Forum Series events are designed to help key investment decision makers quickly get beyond buzz words and learn which strategic technologies and solutions will help drive the best results from every aspect of their organization -- the front, middle and back-offices as well as client service functions. Designed for investment managers with more than $500 million in assets under management ("AUM"), the focus of this particular event will be on data, input/output ("I/O") and how "push vs. pull" can be implemented.

The key challenge this forum event will address is how to create better real-time decision opportunities that result from first transforming fast-moving data into information and then into knowledge that ultimately adds to economic value. Some of the key solutions and technologies from Advent Software, AMD, Cisco, Microsoft, Reuters and Streambase Systems will be highlighted for further discussion.

Please circle the appropriate date on your calendar and plan on attending. Advanced registration is required and can be completed at this web link. Aldon Hynes and Lars Toomre look forward to speaking with you directly on the 29th or 4th. Hopefully, we will see you then. Please feel free to contact TCM directly if you have any questions or comments.

On Thursday November 8th 2007 at 12:40 EST, Bloomberg News ran this little story by Cecile Gutscher: Insured CDOs May Have AAA Ratings Cut Four Levels, Fitch Says. Toomre Capital Markets LLC just three hours earlier posted a note entitled Incestuous Mix: Structured Credit, Financial Guarantors and Rating Agencies that was focusing on what might happen if the financial guarantors were downgraded.

Apparently, if you were an investor in collateralized debt obligations that were rated AAA because of guarantees issued by bond insurers including MBIA Inc. and Ambac Financial Group, Fitch Ratings has now decided that the credit ratings may be cut in one swell swoop by as much as four rating levels. According to this Bloomberg article, Fitch rating analyst Thomas Abruzzo said in an interview today that "We expect there could be situations that could lead to downgrades of three to four notches on insured structured-finance CDO transactions."

New York-based Fitch said Nov. 5 it may lower the top ratings of bond insurers after a review that takes into account the CDOs they guarantee. Any bond insurer that fails the new test may be downgraded within a month unless the company is able to raise more capital. ``The bond insurers themselves remain AAA but there is the potential that companies could fall short of capital and also be downgraded, but we don't expect below the AA category,'' Abruzzo said. AA is the third-highest investment grade.

Oh well… There goes another linchpin under the high-grade bond market. No longer can one buy an insured bond and assume that the bond will remain in its original rating category throughout its life cycle. Perhaps someone can now suggest what credit enhanced bonds are really worth??? Does a AAA credit rating really mean anything??? Shouldn't AAA-rated structured finance transactions trade more cheaply than AA-rated corporate debt, or maybe even A-rated corporate debt? Or maybe it really is worth JUNK???

After all, one has to use one of those modern computers to calculate the value of the structured finance security? There is no absolutely transparency like there is in whether a company might be able to pay back its debts! The structured finance market used to have some degree of trust. With these dramatic ratings downgrades in portfolios that traditionally have seen small changes in principal value, is there any question about why there is a complete breakdown in reputation and trust? Widows and orphans bought high-grade bonds because of their high quality and predictable cash flows. What is a rating worth if it can go from AAA to BB on one Friday afternoon? What the heck good is bond insurance if a rating agency can suddenly bring down the rating of the insurer and all of the insured bonds that it backs? In short, What good is a credit rating?

While listening to the November 8th 2007 testimony of Federal Reserve Chairman Ben Bernanke and the follow-on questions from members of the United States Senate and House of Representatives, Toomre Capital Markets LLC ("TCM") was very struck by a looming and incredibly important effect of the on-going sub-prime mortgage credit crisis. From the remarks of the Senators and Representatives, it is clear that the financial services industry is about to undergo one of its periodic periods of unpredictable political change driven by populist outrage.

It is virtually impossible to predict what might result from the messiness of the political process. However, with potentially millions (yes, millions!!!) of constituents losing their homes to the foreclosure process so that the eventual sale proceeds can be passed through to structured finance security interests, there will be changes. Perhaps the personal bankruptcy code might be changed again? Perhaps Congress might change after-the-fact some significant terms of the securitization process which depends either on timely payment of principal and interest or some cure of the underlying delinquency/default to make the security holders near whole? Perhaps the populist outcry may lead the political process to get into another of the Have's vis-à-vis Have not's battles?

Toomre Capital Markets LLC has no idea of where the populist outrage will lead. However, one thing is very clear: major change is afoot. The key implication for investors in the coming months is that liquidity and being able to be nimble will be key. Also, no doubt there will be sharp and dramatic moves as investors react to one or another political proposal, both in America and from overseas, particularly in the Far East. Hence, another key theme will be a pick-up in volatility and a need to perform enterprise risk management on a real time basis. The value of embedded options in securities and derivative contracts are going to take on increased importance and no doubt another generation of portfolio managers and investors are going to be surprised by how quickly things can change.

Toomre Capital Markets LLC would suggest that a period of greater uncertainty lies ahead. How one manages money in such an environment or produce absolute return will change from how return has been created in the recent past. Just what those changes will be remains to be seen. However, there will be significant change. Reader thoughts and comments are welcome.

Before heading down to ad:tech yesterday, I paused to wonder if it was worth it. All the conferences tend to look and sound the same. Rarely does a panel ever live up to the ‘tell me something I don’t know’ request that so many writers seek. Tales from the Bleeding Edge was different. It was the best panel I’ve been to in ages and Lori H. Schwartz, SVP and Director of Emerging Media at IPG Media Lab deserves kudos for putting together such a panel. The write-up alluded to all kinds of cool technologies, many of which were not touched upon, but the ones that were, were wonderful.

Bill Capodanno, Director of Digital Marcom Planning and Effectiveness, Microsoft led off with a brief discussion of Microsoft Surface. He asked how many people in the audience had heard of it and a majority had. He spoke about a brief video they did about Microsoft Surface as well as the parody that was produced. It is a very funny parody, well worth the watch.

Toomre Capital Markets LLC ("TCM") has been extremely concerned about the Structured Investment Vehicle ("SIVs") and their large holdings in supposedly safe collateral such as Super Senior, AAA-rated and AA-rated Collateralized Debt Obligations ("CDOs"). On Wednesday November 7th 2007, Moody's started the final crash of the SIV market with ratings action on $33 billion in SIVs, including several SIVs affiliated with Citigroup.

According to this news article, "'SIV senior note ratings continue to be vulnerable to the unprecedented large and sustained declines in portfolio value combined with a prolonged inability to refinance maturing debt,' Moody's said. … SIVs would be hurt by 'further deterioration in the market value of the portfolio,' resulting in losses on capital and senior notes if they have to sell holdings in an unfavorable market."

Specifically, Moody's downgraded the SIV called Victoria Finance Ltd. Further, Moody's placed on review for possible downgrade several other SIVs including:

• Harrier Finance Funding Ltd.
• Orion Finance Corp.
• Carrera Capital Finance Ltd.
• Beta Finance Corp.
• Centauri Corp.
• Dorada Corp.
• Tango Finance Ltd.
• Asscher Finance Ltd.
• Cullinan Finance Ltd.
• White Pine Corp.
• Hudson-Thames Capital Ltd.
• Nightingale Finance Ltd.
• Links Finance Corp. and
• Premier Asset Collateralized Entity Ltd.

The SIVs Beta, Centauri and Dorada are three of the seven SIVs that Citigroup manages and were placed on credit watch for possible (and likely probable) downgrade. The reader should remember that Citigroup had pledged that it would provide up to $10 billion in credit support to its SIVs. According to this Bloomberg article, Citigroup already has drawn down $7.6 billion of this credit support facility as of month-end October.

Toomre Capital Markets LLC is a specialist in structured finance and risk management. Any potential clients or service providers (like fiduciaries, accountants and/or legal advisors) are welcome to contact TCM at the information below for how Lars Toomre or Aldon Hynes can help your organization in these times of extreme stress. Please feel free to contact us or leave any thoughts or comments.

Reuters is reporting the obvious on Monday, November 5th, 2007: Cantor CEO says big CDO market has shut down. Apparently Cantor Fitzgerald LP Chairman and Chief Executive Howard Lutnick publicly has stated what Toomre Capital Markets LLC ("TCM") and many others have been saying for several weeks now: There are effectively no buyers and what people and organizations own on their books in CDO format, sub-prime mortgage format or just as general collateral has one place to go: DOWN.

The complete CDO market seizure means that there still are tremendous losses to come for those financial intermediaries that retained CDO bond classes, those investment portfolios that invested in them and, perhaps most importantly, all of those organizations that put on CDO "arbitrage" strategies. Perhaps people have not fully appreciated the full impact of this credit crisis? Maybe $25 Billion of the originally estimated $100 Billion dollars in losses have been reported by investment banks and global banking institutions. Where is that $75 Billion in other losses lurking? And assumes that the original $100 Billion number was even conservative enough… Some are already speculating that the total losses from CDO investments may total more than $250 Billion.

"The big CDO market is gone," Lutnick told the Reuters Finance Summit. "You'll see all the banks step out of it because they just can't do (the deals anymore) because they won't be able to churn them out to the buyers because the buyers are gone." Lutnick, whose firm controls one of the world's largest bond brokerages, said the easy buyers of CDOs have left the market. That leaves what he described as sophisticated buyers, who are willing to do their own math and find their own value for distressed CDOs. That will spawn a market for packaging the securities in a way that appeals to those investors, Lutnick said.

"The (CDO) repackaging business will be there, and it will grow enormously," Lutnick said. "No one is going to believe anybody anymore (about CDOs)," Lutnick said. "It's not just about the rating. You have to run your own math and come to your own view."