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To: Earlie who wrote (28335)	10/14/2000 6:47:37 PM
From: Terry Maloney	Read Replies (1) \| Respond to of 436258

Earlie, you mean I can't believe everything I read in the paper? I was pretty convinced, but if BGR says so ... <g> Regards, Terry PS: did he mention if he believed in miracles?

To: Earlie who wrote (28335)	10/14/2000 8:09:28 PM
From: patron_anejo_por_favor	Read Replies (5) \| Respond to of 436258

I urge all CFZ regulars and lurkers to read yesterday's Credit Bubble Bulletin by Doug Noland. He has some timely comments on the junk bond crisis, as well as some urgent warnings regarding money market assets... 216.46.231.211 Enthusiastic kudos to Christine Richard, a very talented journalist from Dow Jones, for her excellent article this week, “Lucent Sells Vendor Loans To Money Market As Risks Rise.” We will include excerpts: “Through the creation of an asset-backed commercial paper program, Lucent will transfer $1.1 billion in loans and trade receivables financing for the sale of telecommunications, data networking and other equipment products off its balance sheet and into the money market. The Lucent receivables will be credit enhanced by an insurance policy issued by National Union Fire Insurance Co. which is a subsidiary of American International Group. This credit enhancement will protect holders of the commercial paper - including the millions of small investors who keep a portion of their savings in money market funds - against losses. Additionally, Citibank N.A. will lead a group of banks in providing liquidity support for the paper. Should money market funds and other investors refuse to buy the paper, then, the banks will step in and purchase it. Asset-backed commercial paper conduits need continual access to funds as they must roll-over short-term paper to fund the purchase of longer-term obligations such as trade receivables. Many companies sell their trade receivables into the asset-backed commercial paper market. Typically, however, those companies sell their receivables to a bank which combines them with the receivables of hundreds of other companies to set up a multi-seller conduit. In this case, however, it is Lucent, rather than a bank, that is the sole sponsor of Insured Asset Funding. And only loans and trade receivables extended by Lucent and its affiliates are included as assets of the conduit. The lack of diversification might appear to increase the risk on the notes. But James McDonald, a vice president in the asset-backed commercial paper group at Moody's Investors Service which assigned the conduit it top rating of Prime-1, doesn't see it that way. "The rating is primarily based upon the insurance policy because it is a fully supported program," said McDonald. "The fact that the assets are all Lucent originated assets is not a factor in the rating." According to McDonald, AIG's National Union Fire Insurance Co. bears the risk that Lucent's customers won't pay their bills and the insurer has agreed to step in to make up any shortfall in the payments. Therefore, the credit risk on the notes is really the insurance company's top-rated risk, explained McDonald. Furthermore, should the market for some reason reject the Lucent notes even though payments are being made, Citibank, along with a syndicate of banks, would step in to buy the paper to assure that the conduit remains funded. The banks are required to fund the notes unless National Union and Lucent were bankrupt, McDonald said. The asset-backed commercial paper market has grown rapidly in recent years and now makes up around one third of the $1.5 trillion commercial paper market. The market is used mainly by banks and finance companies looking to take debt off their balance sheets. Whether the offloading of vendor financing risk into the super conservative money market raises questions of systematic risk to the insurance and banking system or even to money market investors is a subject of some disagreement. Bruce Bent, Chief Executive Officer of the Reserve Funds in New York and the creator of the first money market in early 70s says securitized debt has no place in the money market. "Sure the risk gets spread far and wide with asset-backed commercial paper but the risk is totally inappropriate to start with in a money market fund," said Bent. Bent says most people invest in the money market under the assumption that it is a reasonable alternative to a bank deposit but with a slightly better return, and they rarely question what is in the fund. For that reason, investors simply aren't compensated for the level of risk they take, he says. "People don't have the slightest idea what's in their money market fund," said Bent." Got T-Bills?<NG>