BNP Paribas Freezes Funds Due to Subprime Losses

August 9, 2007

What is roiling the market’s today?

**Subprime Problems go global >> Credit Crisis?
*Carry trades down sharply
*Euro down sharply
*US Equity futures signal lower open
*ECB ADDS LIQUIDITY
*FED ADDS $12 BILLION IN TEMPORARY RESERVES WITH 14-DAY REPOS

Why?

BNP Paribas freezed funds worth a total of 2bn euros (£1.35bn) due to losses in subprime
Read about on BBC and Bloomberg

As a result, the ECB was forced to step in as interest rates jumped

The European Central Bank loaned an unprecedented 94.8 billion euros ($130.2 billion) after demand for cash in the European money markets drove interest rates higher.

Read Bloomberg Article on this

Ramifications?

Not only Euro weakness but the potential for the ECB to not raise rates in Sept and even if they do, it will be the last

Expect further losses in Carry Trades and margin calls galore. The dollar will be rallying due to its “safe haven” status

How Bad Can Carry Trades Get and How Long Does it Take to Recover?