Is this any implication into the worsening of financial markets as a whole? (It went broke because when a margin call came up, they had no funds as they had bought mortgage securities)
I would say there are two main effects, (1) contributing to the crisis of confidence at a macro level and (2) at a micro level, exacerbating the pricing pressure on RMBS (residential mortgage backed securities), contributing to the downward spiral of other RMBS investors.
On (1), whenever a large player who is thought to have powerful backing fails, market confidence surely takes a hit, lenders are less willing to lend, and so on, which contributes to the ongoing credit crunch. Particularly so because the underlying securities were considered safe because they were agency securities. High leverage is a dangerous tool, like a really sharp knife.
But (2) is more technical in nature – basically, there is $22 bil of RMBS securities thrust on to the market that have been siezed by their creditors, which puts downward pricing pressure on these and similar securities, which may cause other leveraged investment vehicles to have margin calls (their leverage increases as their investments do poorly), and have to sell securities to meet those margin calls, continuing a very nasty unwind cycle. (There is a caveat that some of the securities may have been simply borrowed against, rather than sold, due to the Fed's recent Securities Lending Facility creation.) This quite likely will lead to more hedge fund blowups, more losses and writedowns for investment banks, and so on.
There is a certain irony that their ticker was CCC…..
Hope this helps!
