Here is a bit of background info on CDOs ...
1) link to a September presentation by S&P that gives some statistics on CDOs and the contents thereof...
http:// www2.standardandpoors.com...asf_19sep07.pdf
Notice that even the high grade CDOs have about 10% in mezanine CDOs (very likely to default IMHO) - see pages 8 & 9.
2) A now somewhat dated set of presentations with historical issuance data on page 23.
http:// www2.standardandpoors.com...Market32907.pdf
Very brutal downgrades. Well, now how does the mark to model model handle a change in ratings?
Or do we just assume all the houses are filled with workers gladly sending in their payments?
Yet another round of financial instability coming this week with the Fed handing out candy on Wednesday.
If they didn't lower rates I think Wall Street would enter a catatonic state.
I can hardly wait to see how this turns out. Bad news just keeps on coming for the folks holding mortgage paper, yet I almost never seem to hear that anyone has gone broke beyond a few small hedge funds.
Someday this war's gonna end...wanna bet ABX crawled lower today?
Yep, ac, I'm guessing there is a lot of speculative fluff in oil and gold, and that both will come tumbling down in the upcoming equities/bond correction.
Of the $23.9 billion of AAA rated securities on Rating Watch Negative, approximately two-thirds ($16 billion) represent 'AAA' rated tranches of mezzanine subprime deals, and CDO-squareds containing these tranches. The ratings from these deals are expected to suffer the most severe downgrades. While a full analysis remains to be completed, preliminary indications are that a three-to-four rating category average downgrade is to be expected for most of this group, with the revised ratings in the range of 'BBB' to 'BB-'.
Going from AAA to BB- in one fell swoop. I guess the AAA's are starting to feel it too. MBIA and AMBAC must be sweating these kind of announcements.
The Review Journal from Nevada. Southern Nevadas sluggish housing market is spilling over into its commercial market, as ailing companies in the housing sector retrench amid rising foreclosures and a real estate credit crunch. Local office brokers say home builders, real estate brokerages, title companies and mortgage businesses are scrapping expansion plans, chucking office space and subleasing empty suites.
All of a sudden, were noticing softening in the housing-related office market, said Brad Peterson, a VP with commercial real estate brokerage CB Richard Ellis in Las Vegas.
All of a sudden, were noticing softening in the housing-related office market, said Brad Peterson, a VP with commercial real estate brokerage CB Richard Ellis in Las Vegas.
How many downgrades do the rating agencies get to make before no one considers them credible anymore? It just amazes me they can admit they were wrong on an epic number of bonds and still consider themselves valid designators of the NEW rating.
It was my general understanding that only governments could be wrong this often and still continue to function.
A snarkless question, really borne of ignorance: how many AAA-to-BB- downgrades can a ratings agency make before they go out of business?
Seems to me one important function of these agencies is to allow executives of other companies to say, "Really, we were being very responsible with shareholder value, who could have imagined the ratings agencies would be so wrong?"
I would think that at some point, the sheer volume of downgrades would render such a lack of imagination legally actionable. When do the executives start worrying that such a defense wouldn't fly in a shareholder lawsuit?
After reading Tanta's UberNerd entries on "MBS III" and "Leverage, Ratings, and Forced Unwind" I don;lt understand how any "AAA" CDO can stand un-notched, now that the default rates on this crap are known to be high enough to completely blow thru the so-called "credit enhancements".
This CDO stuff is all crap - the rating agencies are still holding back if theys only marked down 12% of it.
and speaking of that, I am doing my best to get safe and sane investments OUT of the US ASAP.
Me too...just opened an account in a German bank that financial adviser recommended. It's name is IKB. Is that a safe one? Does anyone here know more about it?
Very brutal downgrades. Well, now how does the mark to model model handle a change in ratings?
In as much as any of the models work, they probably work OK with a downgrade from AAA to AA. Dropping from AAA to BBB- on the other hand probably forces them to divide the square root of negative one by zero.
If anything is going to give the lawsuits ammunition, it's the fact that the downgrades are making such large jumps downwards. From the outside looking in, it looks similar to the .com stock analyst problems.
All of the IKB bad news has been factored in. And in any case someone or other will stand behind them with the full faith and credit of Deutschland's government (after the lines start to queue up).
the trouble is as i understand it, only aaa bonds have any value. because they are paid out of series first, anything lower gets paid later in the loan.
and if the aaa are down to .83 today. all tranches below aaa are worthless.
Another day, another downgrade...another non-event. You know, eventually, all these zeros are going to add up to something.
CR,
Here is a bit of background info on CDOs ...
1) link to a September presentation by S&P that gives some statistics on CDOs and the contents thereof...
http:// www2.standardandpoors.com...asf_19sep07.pdf
Notice that even the high grade CDOs have about 10% in mezanine CDOs (very likely to default IMHO) - see pages 8 & 9.
2) A now somewhat dated set of presentations with historical issuance data on page 23.
http:// www2.standardandpoors.com...Market32907.pdf
3) A reasonable defense of S&Ps Structured Finance (SF) ratings work.
http:// www2.standardandpoors.com...n_op_ed_brt.pdf
Pat_in_OH | 10.28.07 - 7:25 pm | #
ABX indices completely tanking again.
And since I barely understand them, I'd appreciate your discussion. The high quality stuff is tanking too.
New high again today:
Dec 2007 Crude
Casino Globál just keeps cranking out new records.
We love ya Ben!
Very brutal downgrades. Well, now how does the mark to model model handle a change in ratings?
Or do we just assume all the houses are filled with workers gladly sending in their payments?
Yet another round of financial instability coming this week with the Fed handing out candy on Wednesday.
If they didn't lower rates I think Wall Street would enter a catatonic state.
I can hardly wait to see how this turns out. Bad news just keeps on coming for the folks holding mortgage paper, yet I almost never seem to hear that anyone has gone broke beyond a few small hedge funds.
Someday this war's gonna end...wanna bet ABX crawled lower today?
Following Maternal Merrill and Brian's rendering (loved that):
In these times of trouble, the ratings agents come to me,
There will be a downgrade:
Double B, Double B
Links correction ...
1)
http://www2.standardandpoors.com/spf/pdf/media/subprime_revised_sp_asf_19sep07.pdf
2)
http://www2.standardandpoors.com/spf/pdf/events/SubprimeMortgageMarket32907.pdf
3)
http://www2.standardandpoors.com/spf/pdf/media/082307_ian_op_ed_brt.pdf
Howse ABX holding up today?
BTW, even OPEC is now saying that the rise in oil is due to speculation, not legitimate supply/demand concerns.
Very informative links, Pat; thanks for sharing.
Yep, ac, I'm guessing there is a lot of speculative fluff in oil and gold, and that both will come tumbling down in the upcoming equities/bond correction.
Of the $23.9 billion of AAA rated securities on Rating Watch Negative, approximately two-thirds ($16 billion) represent 'AAA' rated tranches of mezzanine subprime deals, and CDO-squareds containing these tranches. The ratings from these deals are expected to suffer the most severe downgrades. While a full analysis remains to be completed, preliminary indications are that a three-to-four rating category average downgrade is to be expected for most of this group, with the revised ratings in the range of 'BBB' to 'BB-'.
Going from AAA to BB- in one fell swoop. I guess the AAA's are starting to feel it too. MBIA and AMBAC must be sweating these kind of announcements.
Hawk Girl
where do u view the intraday ABX indices?
oops...
oh well, not my money.
and speaking of that, I am doing my best to get safe and sane investments OUT of the US ASAP.
Case-Shiller Index is out tmw at 9am EST
CRE in LV not doing well:
The Review Journal from Nevada. Southern Nevadas sluggish housing market is spilling over into its commercial market, as ailing companies in the housing sector retrench amid rising foreclosures and a real estate credit crunch. Local office brokers say home builders, real estate brokerages, title companies and mortgage businesses are scrapping expansion plans, chucking office space and subleasing empty suites.
All of a sudden, were noticing softening in the housing-related office market, said Brad Peterson, a VP with commercial real estate brokerage CB Richard Ellis in Las Vegas.
Con-tained!!!
All of a sudden, were noticing softening in the housing-related office market, said Brad Peterson, a VP with commercial real estate brokerage CB Richard Ellis in Las Vegas.
As if he couldn't see it coming?
How many downgrades do the rating agencies get to make before no one considers them credible anymore? It just amazes me they can admit they were wrong on an epic number of bonds and still consider themselves valid designators of the NEW rating.
It was my general understanding that only governments could be wrong this often and still continue to function.
Lyon - Remember the mantra "NO ONE could have seen this coming!"
MOM - that is a black swan.
A snarkless question, really borne of ignorance: how many AAA-to-BB- downgrades can a ratings agency make before they go out of business?
Seems to me one important function of these agencies is to allow executives of other companies to say, "Really, we were being very responsible with shareholder value, who could have imagined the ratings agencies would be so wrong?"
I would think that at some point, the sheer volume of downgrades would render such a lack of imagination legally actionable. When do the executives start worrying that such a defense wouldn't fly in a shareholder lawsuit?
Apparently Metrics Wonk types faster than I do
"Lyon - Remember the mantra "NO ONE could have seen this coming!"
MaxedOutMama | Homepage | 10.29.07 - 4:04 pm | #
And it's a "six sigma event" LOL.
After reading Tanta's UberNerd
entries on "MBS III" and "Leverage, Ratings, and Forced Unwind" I don;lt understand how any "AAA" CDO can stand un-notched, now that the default rates on this crap are known to be high enough to completely blow thru the so-called "credit enhancements".
This CDO stuff is all crap - the rating agencies are still holding back if theys only marked down 12% of it.
and speaking of that, I am doing my best to get safe and sane investments OUT of the US ASAP.
Me too...just opened an account in a German bank that financial adviser recommended. It's name is IKB. Is that a safe one? Does anyone here know more about it?
Every time I read about CDO^2 I flash back to Joseph Tainter ("for given technological levels there are implicit declining returns to complexity").
Very brutal downgrades. Well, now how does the mark to model model handle a change in ratings?
In as much as any of the models work, they probably work OK with a downgrade from AAA to AA. Dropping from AAA to BBB- on the other hand probably forces them to divide the square root of negative one by zero.
If anything is going to give the lawsuits ammunition, it's the fact that the downgrades are making such large jumps downwards. From the outside looking in, it looks similar to the .com stock analyst problems.
Troll Brothers - well played.
Troll Bros -
All of the IKB bad news has been factored in. And in any case someone or other will stand behind them with the full faith and credit of Deutschland's government (after the lines start to queue up).
I love these downgrades. Let's see the real prices on these "things".
the trouble is as i understand it, only aaa bonds have any value. because they are paid out of series first, anything lower gets paid later in the loan.
and if the aaa are down to .83 today. all tranches below aaa are worthless.