The Oil Drum: Australia/New Zealand

Banks Delay Sale Of Chrysler Debt As Market Stalls

Wall Street's corporate-debt machine has helped to finance the increasingly exotic takeover deals of the buyout boom and to shore up some of the nation's ailing industries with cheap loans and bonds. Now, that machine is sputtering.

Yesterday, Chrysler Group became a signpost for the high-yield-debt market's strain as bankers for the ailing auto giant postponed a $12 billion sale of debt to investors as part of a buyout severing Chrysler from German parent DaimlerChrysler AG.

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"For all practical purposes the markets are closed right now," said Chad Leat, co-head of Global Credit Markets at Citigroup.

While you've certainly heard of the big drop in the Dow Jones in the past two days, and probably heard that the housing market keeps on getting worse, the most ominous news are actually coming from a distinct part of the financial markets - leveraged debt.

The following applies not just to housing, but in many ways to credit bubbles in general. IMO we should expect to see graphs like the one below across a wide range of asset classes in the not too distant future.

Houses Should Not Be a Commodity

There are technical reasons for a market crash (foreclosures, credit tightening, etc.) and I have discussed those in great detail in earlier analysis posts; however, market psychology plays a large roll in how and why it all plays out. The technical factors cause shifts in psychology among the market participants which exacerbate market moves. Today I will examine the psychology of market bubbles drawing parallels between the commodity futures market and the real estate market. In this post want to clearly illustrate how and why the psychology of market participants will facilitate the ongoing price crash.