The Well

From today's NYT Business Day. The papers by and large are worried about toys from China, and, oh, there is that war in the Middle East. But the most interesting story (assuming Bush is not going to call an end the war) is the credit crunch...

Turmoil in the subprime mortgage market spread again yesterday — this time to a type of short-term security held by money market mutual funds. These funds have become the investment of choice for many people seeking a safe haven...

The amount of commercial paper in the United States has grown to $2.2 trillion, according to Lehman Brothers, with about $1.2 trillion backed by residential mortgages, credit card receivables, car loans and other bonds. The major buyers include pension funds, insurance companies, hedge funds and short-term money market funds...

Until recently, the crisis in the credit markets has been limited to problems related to subprime mortgages, those given to borrowers with questionable credit histories. But as these troubles seep into other parts of the securities markets, fears of losses are rising in unexpected places...

“If the stigma of mortgage-related extendable-asset-backed commercial paper spreads to asset-backed commercial paper as a whole, you could see bailout events,” said Peter G. Crane, president of Crane Data, the publisher of a newsletter about money market mutual funds. But he added: “The stuff that the money funds are invested in are the highest quality, so it’s the last thing to have trouble.”

However, the investment strategies that once were considered conservative no longer are.

This could get a bit messier. "Bailout events".

Elsewhere in the same paper...

In a weary voice, Mr. Fanlo noted that executives from Kohlberg Kravis Roberts, including Henry Kravis and George Roberts, had been working closely with him to get through the “unprecedented” conditions the company faced.

He said he had been through numerous financial crises “and this is the most disturbing liquidity crisis, with real impact throughout the economy if it does not rectify.”...

Countrywide and most other mortgage lenders rely heavily on borrowing from banks, brokerage firms and bond investors to make loans that they quickly turn around and sell to investors through mortgage securities. In his report, Mr. Bruce said he had previously underestimated the risks to Countrywide.

“If enough financial pressure is placed on CFC or if the market loses confidence in its ability to function properly then the model can break, leading to an effective insolvency,” Mr. Bruce said in his note, referring to the company by its stock ticker symbol. “If liquidations do occur in a weak market, then it is possible for CFC to go bankrupt.”...

One analyst suggested that the market would not recover until more funds and banks detailed their exposures to mortgage securities and other debt acquired during the recent credit boom.

“The more funds that come to confession the better it is,” said Douglas M. Peta, chief market strategist at J. W. Seligman & Company. “Once all this stuff is out, all the analysts and the people with the sharp pencils can figure out how bad it is and they can put prices to it.”

Oh, right: people rushing to announce their rating is bad. We see that all the time.