Sachsen falls victim to credit crisis

[antigop]

Source: Financial Times ( ft.com)

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Sachsen LB, the German publicly-owned bank, on Friday night became the latest victim of the current credit crisis when the Landesbank had to be bailed out because of its exposure to the US asset-backed securities market.

The bank, which is based in and owned by the German state of Saxony, said the German savings banks association had stepped in and taken over a €17.3bn credit facility to a special investment fund, or conduit, that Sachsen LB had funded and managed.

The conduit, called Ormond Quay borrowed in the short-term commercial paper market and invested in longer-term structured credit instruments. It was supported by a credit line from Sachsen LB.

The rescue was triggered when commercial paper investors refused to refinance Ormond Quay and Sachsen LB was unable to provide the credit facility it had pledged.
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Read more: http://www.ft.com/cms/s/67b09a1c-4d0b-11dc-a51d-0000779fd2ac.html

[Kagemusha]

1. Question about what Saschen LB was doing here.

The fund borrowed short-term bonds and invested in long-term credit instruments.

Is this something considered a safe activity that banks do all the time and no one bats an eye or anything? Or is this on the edge of managed risk here?

[nadinbrzezinski]

2. What everybody else is doing

the effects of this mess are global and will lead to a crisis of confidence in the US economy

The consequences will be interesting

[cliss]

3. "They hate us for our debt"

I suddenly had a flashback to good ole George Bush who said, "They hate us for our freedoms". I wonder.

======================

As if other countries didn't hate us enough. Now we've just poured oil on the flames.

Oh well, 'Caveat Emptor'. Or maybe it should be 'Caveat Empty'.