We were reminded by a Bloomberg reporter about the 10-year anniversary of the start of what we've called the "Subprime Liquidity Crisis," which for the money markets began almost exactly a decade ago with troubles in the "extendible" asset-backed commercial paper market. We wrote in our August 8, 2007 News, the two briefs -- "Extendible Commercial Paper Woes Make Rare WSJ Appearance" and "'Subprime 'Tsunami' Hits Asset-Backed CP Market' Says Bloomberg." The former story told us, "Today's Wall Street Journal features "Commercial Paper Shows Some Stress," one of only a handful of stories the Journal has ever run on the CP, or commercial paper, market. It discusses the recent extensions of ABCP, and estimates that "`Extendible asset-backed commercial paper makes up about 12% to 13%, or around $144 billion to $156 billion, of the $1.2 trillion asset-backed commercial-paper market." Fitch's AJ Santos told Dow Jones that ABCP "borrowings secured by bundles of home loans accounted for about 10% to 12% of the market in the first quarter." The latter piece explained, "Extendible asset-backed commercial paper yesterday carried yields of 5.75 percent to 5.95 percent, compared with 5.45 percent for asset-backed commercial paper that isn't extendible and 5.25 percent to 5.30 percent for corporate commercial paper," said the article, quoting Money Market One's Lee Epstein. Bloomberg says extendible notes "make up about 15 percent of the asset-backed" market of $1.15 trillion, "or about $172.5 billion, according to Moody's." The 10-year-old Journal piece commented, "A little-known corner of the commercial-paper market where companies commonly fund their short-term capital needs -- from inventories to mergers -- is showing signs of stress as faulty mortgages come home to roost. Investors are taking note of highly unusual moves in the extendible asset-backed commercial-paper market, where three issuers this week took advantage of the option to extend their short-term borrowings.... Long-time market participants say that is the first time they can remember this happening. Two of the three issuers -- American Home Mortgage Investment Corp., which has filed for bankruptcy protection, and real-estate investment trust Luminent Mortgage Capital Inc. -- are in distress because of their mortgage investments and are facing severe financial crunches. Both companies are extending loan maturities because of liquidity problems. The third commercial-paper program is run by asset manager Aladdin Capital." See Crane Data's News Archives from August 2007 for more stories, and watch for more 10-year anniversary crisis retrospectives in coming days and months. How time flies!
