Governator freezes ARM interest rates, now Europe freezes trading in assets. IMO both of those 'solutions' will have severe unintended consequences. Yikes, what's next?
Oh, lovely. The carnage has spread from bonds backed only by mortgage loans to bonds backed by mortgage loans plus the issuer's balance sheet from here to eternity.
When you think about it, this is nothing but pure desperation. Shutting down a $T market is going to what...Inspire confidence when it unfreezes.
This can only mean ugly closed door meetings where these uber rich thieves will gather to figure out how to use the public purse to bail themselves out. For the good of the robbed, of course.
It appears that the market is creating an absurd situation with regards to CDO pricing. So the rational solution is to shut down the market entirely! Amazing.
The banks and hedge funds that own this crap wanted the market shut down so they can continue to pretend the assets they hold are worth what theyve claimed. Ah yes hear no lower prices, see lower prices, quote no lower prices!
Banks designed the notes to offer more protection to bondholders than asset-backed debt by making the borrower liable for repayments if the assets underlying the securities aren't sufficient.
I did not understand the above statement. Who is the 'borrower' here? The homeowner?
um, great idea... this should really help the market regain confidence in the financial sector...
From the same article:
The ECBC established an ``8-to-8 committee'' of eight banks that arrange sales of covered bonds and eight representatives for issuers of the debt in September to set recommendations in deteriorating markets.
So the only people without a vote seems to be the bondholders. Seems fair enough.
``Without market making between banks, investors will shun the sales of new covered bonds,'' said Santiago Rubio, who oversees 14 billion euros ($21 billion) of assets as head of fixed income at La Caixa's asset management arm in Madrid.
What?! Why wouldn't they join in the spirit of things?
It's starting to look like Roubini is once again right on the money.
It appears that the market is creating an absurd situation with regards to CDO pricing. So the rational solution is to shut down the market entirely! Amazing.
People shorting the market should also request the same thing, when their put options do not trade at a price they thing would be legitimate
This financial three-ringed circus is the Greatest Show on Earth. Unbelievable high wire acts and fierce wild beasts and let's not forget the clowns! P.T. Barnum would be proud.
These covered bonds are financing debts within Europe, aren't they?
Is this panic about the originator's potential insolvency(due to U.S. subprime exposure) or the borrower's ability to pay (that's will be an European problem), or both?
This is an interesting corollary to Paulson and Swartzenegger. I suggest a new post label: unintended consequences.
Looks like Bernanke's going to need a new speech.
Unintended Consequences: Making Sure "It" Doesn't Happen Here But the U.S. government has a technology, called an intended consquences press (or, today, its electronic equivalent), that allows it to produce as many intended consequencees as it wishes at essentially no cost.
We do have one of those machines, right? Good heavens man! Tell me we didn't get to this point without one!!
"This bank holiday, while resulting in many cases in great inconvenience, is affording us the opportunity to supply the currency necessary to meet the situation. Remember that no sound bank is a dollar worse off than it was when it closed its doors last week. Neither is any bank which may turn out not to be in a position for immediate opening. The new law allows the twelve federal reserve banks to issue additional currency on good assets and thus banks that reopen will be able to meet every legitimate call. The new currency is being sent out by the Bureau of Engraving and Printing in large volume to every part of the country. It is sound currency because it is backed by actual, good assets."
as some of us have said, Europe is NO BETTER than the US.
It has just hidden the cancer growing in it's financial belly better thus far.
I often read the economist with humor as they talk about "trailer trash" Americans, and poor black Americans buying homes they can't afford.
Then they speak about "the City" (London) as though all was on the up and up there.
They have their subprime as well... I think it's called "buy to let". and it's just as nasty as ours. If I recall, some of the European DTI ratios are even worse than California/Florida...
I'm anticipating the European markets in general to get their bloodbath.
Then we can have a race to the bottom of interest rates... BoJ, BoE, Fed, Eurozone all flying as fast as they can to near-ZIRP
this is why I am personally MEDIUM term bullish on the USD... we'll get a "rally" in the dollar... not that ours will increase its worth much... but that their currencies will fall to our level...
This year, I am thankful to rent and be 100% FDIC insured in my financial assets.
I was explaining a lot of this debacle to my wife last night on the long drive to Thanksgiving dinner in MA. It's even more disconcerting when you paint a whole picture for someone else . . . makes you appreciate just how big the "shitpile" really is.
Gary-
Did she believe you? When you mentioned level 3 accounting to her, didn't she say,"But what keeps them from just stating what ever they want?" And no-doc loans? Did she believe that?
I suspect we are about to learn once again one of my rules of thumb:
German/Swiss financiers are the most conservative people in the world 99.5% of the time and completely batshit insane in regard to risk the other 0.5% of the time.
"This can only mean ugly closed door meetings where these uber rich thieves will gather to figure out how to use the public purse to bail themselves out."
What I find most amazing about this story is that a $2.8 trillion market is teetering and seemingly at risk of meltdown, and it seems like no one visiting this blog seems to know what the market is or even heard of it. Moreover, no one in the "financial press" seems to have noticed this was happening until the annoncement that the market is "closed until further notice." What other things are out there?
It feels like a Star Trek episode where there are large unseen objects in space that keep crashing into the Enterprise. I guess we should all throw ourselves to one side, then the other, and tilt the camera back and forth. AFter all, we may be abou to boldly go where no economic system has gone before...
It's my ball and I'm going home. 2. Don't like the game? Change the rules!
I swear you couldn't make up this stuff if you were paid to do so. So, the markets are now absurd b/c things aren't going as planned? Did someone fail to remind him that he IS the market?
I imagine they're trying to set up a new game: We all get together and set some price on these things. Then we just trade them back and forth between ourselves so that no one else knows what's going on. The important thing is to keep these things moving fast so they can't be seen. Or maybe they're going to adopt the American Thanksgiving holiday.
They are panicking because the spread is 38 basis points over government debt? This is a crisis that demands suspending trade? Egad!
Having read it my impression is that the "borrowers" in question are financial institutions, which then on-lend for mortgages or to public institutions, rather than the home buyers themselves
cerberus owns gmac, 51%
can't buy norther rock, now wants to sell rescap
Among possible transactions under consideration is GMAC acquiring a large non-U.S. mortgage-lending institution and merging ResCap's local mortgage business with the acquired institution, the companies said
As per label 'Unintended Consequences'... it'd be pointless to label them as such since every topic covered here on CR nowadays is pregnant to the belly button popping point with unintended consequences.
STRASSERYou see what I mean? If Laszlos presence in a cafe can inspire this unfortunate demonstration, what more will his presence in Casablanca bring on? I advise that this place be shut up at once.
RENAULT (innocently)But everybodys having such a good time.
STRASSERYes, much too good a time. The place is to be closed.
RENAULTBut I have no excuse to close it.
STRASSER (snapping)Find one.
RENAULT (loudly)Everybody is to leave here immediately! This cafe is closed until further notice! Clear the room at once!
Excerpt:
Covered bonds are bonds that are issued by a firm and collateralised by commercial and/or residential mortgages and/or public sector assets that are intended to combine safety and liquidity with yield.
In principle three key features reflect the basic mechanics of covered bonds:
covered bonds are issued by banks with a dynamic pool of earmarked assets on the balance sheet of the issuer collateralising the bonds;
covered bonds are legally and economically isolated from the issuing firm, ie segregated from the usual bankruptcy procedure of the issuer should it become insolvent and bankrupt; and
covered bond holders have a preferential claim on the proceeds of the collateral in case of an insolvency of the issuer
Investors in covered bonds get double protection from default. This protection is provided by:
a claim against the issuer; and
a preferential claim over the cover pool in the event of an issuer insolvency.
Covered bonds offer (among other things):
high liquidity due to the large issue sizes and market maker commitments; and
a relatively attractive yield pick-up compared to some other bonds.
Wrong move. This can cause a selling cascade: owners of covered bonds can't sell them, so to access liquidity they sell something else, then the owners of that asset do the same, and so on down the chain. The idea is that once you close a market down the desire for cash (true liquidity) goes up exponentially.
This financial three-ringed circus is the Greatest Show on Earth. Unbelievable high wire acts and fierce wild beasts and let's not forget the clowns! P.T. Barnum would be proud.
and the poltergeists hiding in the containment facility. hope they don't have a power failure over the long holiday weekend.
sdtfs, a nearly 7 hour drive provided time to discuss even the difference between level 1,2 & 3 assets. and the ratio of those assets to equity at major banks/i-banks . . .
but, when CT DOT can decide to close I-95 down to 1 lane in not one, not two, but three separate places on the Tuesday night before Thanksgiving, one realizes there is no limit to stupidity in this world.
IIRC, about every major EU corporation is stuffed to the gills with these. Maybe someone with more knowledge can elaborate, but I remember reading about the automakers/chemical firms/steel etc. keeping their short term cash in these. If that's true, how do they run operations? Will the banks be lending them operations funds at par?
are they suspending trading on these bonds because they do not want the real value of the bonds being revealed or what?
It's because they don't want the market price of the bonds to be revealed. Obviously the real value of the bonds is much higher, so it's better for everyone this way.
Can I get an address on the bankerdome? I'll bring a month's supply of soup...
This is a horrible move... How will trading be restarted? What confidence with buyers have when trading reopens.
It makes the pricing worse. These instruments are opaque enough already. If the markets are open, at least buyer can know the price and sell if they can find a buyer.
wild, no? I was just looking at 52 week hi/lo and it was 490 for lo so 14.4% of the NYSE was hitting a 52 week low at that moment...hi was 25 for 0.7% of NYSE issues - even if we get another green tape yen fueled jam up at the end, that and the three handle we had this morning tells ya all is not well!
It was a long time ago but i wish to reiterate my claim that de-leveraging is not a symmetrical event mirroring leveraging. The simplest analogy is pouring sand in a pile. the sand builds, builds, builds rationally and then collapses chaotic fashion. Then when you need to reduce the pile you cannot take the sand away the way you poured it there. You pull a chunk and perforce cause more chaos. Just stopping adding more sand doesn't help reduce the chaos of reducing the size of the pile.
I like how Freddie went to Goldman for a mark to market pricing. I am sure Goldman shorted both Freddie and Fannie as soon as Freddie's CFO got off the phone call - Nice return over the last couple of weeks. Oh scratch that, Paulson probably brokered that call w/Freddie, and got the Goldman boys loading up on shorts before the call with Freddie was over.
Got to stay ahead of the big moves in the market..
Thanks for the info/quote. But unless I'm missing something, that all just seems to be a complicated way of saying that the bonds are secured (by a floating pool of collateral) and recourse against the issure as well. I guess what I don't understand is who is the "issuer"? The banks? If that's the case, then the "absurd" credit spread seems to reflect the market perception that the credit support by the issue/bank ain't so great. Not sure how taking a powder for a week changes that.
That's basically my understanding as well - although my understanding of this market is minimal.
Seems to reflect some serious concern about balance sheets of issuers - landbanks in Germany or one of bigger Euro banks? My guess one or multiple Landbanks
SAN FRANCISCO (Dow Jones) -- Countrywide Financial Corp.'s shares fell more than 10% Wednesday, weakening further as investors discounted the company's argument that it has sufficient capital to run its business in the face of turmoil in the U.S. mortgage market.
The Calabasas, Calif.-based company's shares fell lately by 11.6%, to $9.09, and were off more than 13% at their intraday low. Since last Friday's close alone, the shares are off 25% from last Friday's close, and they've fallen 80% so far this year.
UPDATE:Covered Bond Council Halts Market-Making Until Nov 26
Dow Jones International News
LONDON (Dow Jones)--The European Covered Bond Council said Wednesday that it had suspended inter-bank market-making in covered bonds until Monday, Nov. 26.
"In light of the current market situation and in order to avoid undue over-acceleration in the widening of spreads, the 8-to-8 Market-Makers & Issuers Committee recommends that inter-bank market-making be suspended," it said in a statement.
"As the recommendation relates only to inter-bank trading, market-maker obligations will remain unaffected," the council added.
ECBC is a platform for covered bond market participants which brings together covered bond issuers, analysts, investment bankers, rating agencies and a wide range of market participants.
According to European analysts, heightened risk aversion and low levels of liquidity in the covered bond market is behind the inflated spread levels.
"Tension in the market is pretty high and liquidity tension and risk aversion are likely to persist over the coming weeks," said Annegret Hasler, credit analyst at Dresdner Kleinwort. "This puts spread products like covered bonds under pressure and the associated flight to quality leads to an outperformance of government bonds."
Such risk aversion is now casting a shadow over the immediate future of the covered bond market. The ECBC now faces a tough decision on what to do after Monday's deadline passes.
"I wouldn't be surprised if the market is not resumed by Monday," said one covered bond analyst. "In fact, I wouldn't be surprised if it is not resumed for the rest of the year. There's no realistic expectation that there will be a dramatic improvement in market conditions before the deadline."
Covered bonds are backed by pools of high-quality assets, like mortgages and public-sector loans, that remain on an issuer's balance sheet. The bonds are rated triple-A by ratings agencies, which helps reduce funding costs for the borrower, and are normally very liquid.
Covered bond Market-makers have an obligation to quote tradable two-way prices, or bid-offer spreads to their competitors on a bilateral basis.
Earlier Wednesday, Abbey National Treasury Services postponed its planned euro-denominated, benchmark covered bond due to unfavorable market conditions.
The bank joins Norwegian specialized export credit agency Eksportfinans and AIB Mortgage Bank, both of which suspended covered bond issues on Tuesday blaming "current volatility in primary and secondary bond markets" for the postponements.
The covered bond market was suspended in mid-September after Northern Rock Plc applied for emergency funding from the Bank of England
Fitch Mgmt Ratings:In light of adverse credit developments in the residential mortgage-backed securities (RMBS) sector and their consequences for structured finance (SF) collateralized debt obligations (CDOs), Fitch has completed a focused CDO Performance review of all SF CDO asset managers to which it has assigned a CDO Asset Manager (CAM) rating.
E-Trade Global Asset Management
--'CAM4' remains on Rating Watch Negative.
GE Asset Management
--SF CAM rating downgraded to 'CAM3+' from 'CAM2-'.
Just askin' here. Isn't one implication of this decision that the covered bond market is now more like the low-grade CDO market? Liquidity has been intentionally reduced, and price discovery has been intentionally impaired, but other than the intentional quality, this is the junk CDO market. We know some of the results in the CDO market, though not yet all. None of the results we know about have been good.
It isn't the halt to interbank trade that will shut down funding for the collateral markets. Rather it is the failure to sell the stuff in the primary market. Even so, we know what happened in our freaky mortgage market when nobody wanted to buy securitized freaky mortgages anymore. Mortgages had to conform or die. If the halt to interbank trade puts a bigger dent in demand for covered bonds, don't the collateral markets (mortgages and government debt) run into a worse credit squeeze?
Uncle Festus,
You are mostly right. There was some mention on wire services of the failed sales of covered bonds which led to the halt in interbank trade. However, the covered bond that AIB cancelled yesterday was carrying guidance at mid-swap plus ten basis points the day before. Ten bps. Whatever went wrong seems to have happened pretty fast. Or become obvious pretty recently, after rotting away under the stairs for longer than we may ever know.
GM Says It Has `No Further Obligation' to Fund GMAC (Update1)
By Jeff Green
Nov. 21 (Bloomberg) -- General Motors Corp., whose shares are trading at a 17-month low, has ``no further obligation'' to inject capital into former finance unit GMAC LLC after a $1 billion infusion earlier this year.
The November 2006 agreement to sell 51 percent of GMAC to a group led by Cerberus Capital Management LP ended any need to fund GMAC beyond the $1 billion, said Randy Arickx, GM's executive director of investor relations, in an interview today. GM has lost a third of its market value since Nov. 1, when GMAC reported a $1.6 billion loss from subprime mortgages at its Residential Capital subsidiary.
GM shares fell as much as 6.8 percent today amid increasing investor concern over the effect GMAC losses may have on GM and what future obligations the Detroit-based automaker may have, said Brian Johnson, a Chicago-based Lehman Brothers analyst.
``The whole GMAC deal was designed to protect GMAC and ResCap from a GM bankruptcy, and the same firewall should have the same benefit if it's ResCap that gets in trouble,'' Johnson said in an interview today from Chicago. He rates GM shares hold.
..."
So this would be Europe's version of "don't ask, don't sell." Has Paulson, riding the crest of all his success at home, been moonlighting for the boys in London??? Is there a EMLEC in the works? (that would be pronounced eem-lec to distinguish it from its highly successful American cousin m-lec)? Inquiring minds want to know!
Well it is good to see the global powers that be are all on the same page - whatever you do, don't provide any pricing transparency. The Plunge Protection Team goes global. Who says things aren't getting better?
This move makes no sense. It's just a blind denial of the true liquidity picture. The interest charge does need to rise, let it rise, let the market work dammit. This wont change when they reopen.
hehe.... if this is the headline of your press release, that you are efuting short arguments made on the most bullish network, that means you're in trouble
``The whole GMAC deal was designed to protect GMAC and ResCap from a GM bankruptcy, and the same firewall should have the same benefit if it's ResCap that gets in trouble,''
Wow...what IRONY. I remember at the time, they were talking about how GMAC is all stable and GM's troubles should not make things such that GMAC loses value and credibility. Well well... 2 years later, the auto industry crisis is behind us. Rather than the midwest suffering, it's the bubble states and the mortgage crisis that's scary...
Probert, I wouldn't say that the "auto industry crisis is behind us" or that the midwest states are not suffering still.
Right, but there is at least a good relationship between perception and reality as far as THAT sector is concerned. There still isn't a full understanding though of the FL CA NV AZ disaster
hehe.... if this is the headline of your press release, that you are efuting short arguments made on the most bullish network, that means you're in trouble
probert | 11.21.07 - 2:36 pm | #
probert,
Or it means your CEO scheduled stock sale has not closed yet.
Just a note...Buy now, before "the money" goes into the market in the last hour of trading so there isn't a negative for the day. Can't have a down market, you know...might affect confidence.
well maybe it will stop these fols from funding 100k usd mortgages on 30 years old socialist 630 square feet flats 70 miles from ukrainian border xD.
in my city one good part overstreched the prices and they are already stagnating while another part of the city which is not so noble has prices 20% higher
this will be very bad hard landing one day. and people i work with are already considering to buy something in prague because its cheaper after the prices corrected few months ago
the mkt is at an interesting place right now. does it bounce on technicals and "oversold" conditions or does it tank based on fundamentals? my view is that there is no way earnings are going to live up to expectations and that credit mkts are broken for several months if not yrs. in this environment along with inflating commodities, stocks will go down perhaps sharply. only then would i buy.
Is it Koice? The prices still does not look that crazy compared to Poland, where second-largest Polish city has at least twice higher prices than in your example.
Although Poland currently does not seem to be significantly affected by the credit crunch, banks did start tightening mortgage lending. Both the standards and rates got a bit tighter as the real estate prices stopped increasing. 2008 will be very interesting.
BTW, have you got any links for information about housing market and mortgage lending in Slovakia?
In the US when investor interest started to wane, the story was that the conforming market should still be OK since the GSEs were there as a "buyer of last resort." Does the european system have a similar safety valve? Or does any mortgage that a bank wants to sell have to go through this covered bond market?
yes its Koice. the best page is reality.sk but the overall sales volume is very low, not many sales. a colleagues wife works in RE agency and says there are not many transactions, so the market price is set by some rich guy buying second home or so well all the people i know buying these days are either politicians, owner of companies or successfull musicians
we had a runup this spring like 70% on 1 bedroom appartments. now its like 100% already, well i am hedged since i have one 1 bedroom flat myself. want to switch later to 3 bedroom considering the "quality" of the new appartments xD its safer and EU wants to fund the reconstruction so well an older is now better
the slovak banks owned buy mostly austrian and italian mother banks have rolled last year the entire 100%, without income doc, and 40year mortgage but it started to stagnate in the city part where the prices went up the most. now the part which were not so hot have overshot the noble part by 20%, so it costs there like 130k
"I wouldn't be surprised if the market is not resumed by Monday," said one covered bond analyst. "In fact, I wouldn't be surprised if it is not resumed for the rest of the year. There's no realistic expectation that there will be a dramatic improvement in market conditions before the deadline."
That's just insane. When you start shutting off markets, everyone rushes to the exits in other troubled markets to get out before the next closure is announced.
This thing looks like it just might get ugly......
Thanks Revro. I looked it the site and the prices in Bratislava seem to be about 30% lower than in Warsaw. It's still crazy.
In Poland, it was 2006 when the house price increases were the strongest, roughly 60-80%. In the first half of 2007 it slowed to a "mere" 10-20%. Starting this summer, it all stopped and in some places the prices are slowly dropping.
Stated income mortgages did not seem to be pushed by the banks but the lending standards were nevertheless very loose by American standards. Lending 10x annual income was quite typical. Of course all were ARM and mostly in CHF.
IIRC, the mortgage market in Poland is not that well developed and people still typically pay cash. Western Poland (e.g. Wroclaw) is drawing a lot of German and foreign money. The rise in real estate prices is a direct result of the increased prosperity. Is my perception of the situation in Poland wrong?
Hardly anybody nowadays pays cash unless it was from a sale of an old paid-off house. It was true in the 1990s when the mortgage market was not developed (it did not make sense to borrow when interest rates were 20-30%) but recently it has been almost exclusively borrowed money. And it was cheap money. Swiss franc carry trade
the rise in real estate prices is a direct result of the increased prosperity.
Partly, yes. But the prices are now absolutely crazy compared to the income. The prices are similar (and sometimes higher) to Germany with wages about 3 times lower. It was not German investors who bought houses, rather British and Spanish ones.
I know all about covered bonds because I has bought WaMu leap-puts and then they went and sold covered bonds (obviously not denominated in US$). Seemed like they thought it was a good source of inexpensive capital.
So there are at least a few US mortgages floating around in the covered bond market.
I wonder what WaMu thinks now that they have to pay off the interest in very expensive non-dollars.
if you've never seen Moscow prices you seen nothing. Pah! $100k for 630 sq. ft. Pah! We have $4k/sq.m. for absolute sh!t in the 'hoods and >$10k/sq.m. for really nicee places.
On the other hand, at least 10% down is still the rule.
hot potato?
I say baked--could be fried.
This gives me the creeps; kind of reminiscent of "bank holidays".
"...you end up with an absurd situation."
Truer words have not been spoken.
Good strategy for the winter I think. Save lots of money on heating costs trying to keep 'em thawed until spring.
Jolly good job. Spot on.
Move along. Nothing to see here mate.
Cheers,
Governator freezes ARM interest rates, now Europe freezes trading in assets. IMO both of those 'solutions' will have severe unintended consequences. Yikes, what's next?
If you think we're in the shithouse, just wait and see what happens in Europe.
In other news, some oily gov't official has just turned off power to the containment field.
Cheers,
Oh, lovely. The carnage has spread from bonds backed only by mortgage loans to bonds backed by mortgage loans plus the issuer's balance sheet from here to eternity.
CONTAINMENT!
Umpire suspends game.
Doesn't like score.
Play will resume when game is closer.
News at 11.
When you think about it, this is nothing but pure desperation. Shutting down a $T market is going to what...Inspire confidence when it unfreezes.
This can only mean ugly closed door meetings where these uber rich thieves will gather to figure out how to use the public purse to bail themselves out. For the good of the robbed, of course.
Cheers,
It appears that the market is creating an absurd situation with regards to CDO pricing. So the rational solution is to shut down the market entirely! Amazing.
The banks and hedge funds that own this crap wanted the market shut down so they can continue to pretend the assets they hold are worth what theyve claimed. Ah yes hear no lower prices, see lower prices, quote no lower prices!
Overpriced, check.
Underperforming, check.
Underinsured, check.
Illiquid, check.
Now how much would you pay? If I read this correctly they are shutting down a market because it is working correctly to reflect demand and risk.
This is an interesting corollary to Paulson and Swartzenegger. I suggest a new post label: unintended consequences.
Banks designed the notes to offer more protection to bondholders than asset-backed debt by making the borrower liable for repayments if the assets underlying the securities aren't sufficient.
I did not understand the above statement. Who is the 'borrower' here? The homeowner?
um, great idea... this should really help the market regain confidence in the financial sector...
From the same article:
The ECBC established an ``8-to-8 committee'' of eight banks that arrange sales of covered bonds and eight representatives for issuers of the debt in September to set recommendations in deteriorating markets.
So the only people without a vote seems to be the bondholders. Seems fair enough.
``Without market making between banks, investors will shun the sales of new covered bonds,'' said Santiago Rubio, who oversees 14 billion euros ($21 billion) of assets as head of fixed income at La Caixa's asset management arm in Madrid.
What?! Why wouldn't they join in the spirit of things?
It's starting to look like Roubini is once again right on the money.
Anonymous | 11.21.07 - 1:01 pm,
Exactly!
Cheers,
"Freedom" Potatoes on these shores ;_)
The buck passes and the worm turns.
It appears that the market is creating an absurd situation with regards to CDO pricing. So the rational solution is to shut down the market entirely! Amazing.
People shorting the market should also request the same thing, when their put options do not trade at a price they thing would be legitimate
If they really wanted to make this fair they should suspend the markets where the banks are now hedging the exposure.
"...you end up with an absurd situation."
Truer words have not been spoken.
Tank | 11.21.07 - 12:51 pm | #
Absurd in...Absurd out
This financial three-ringed circus is the Greatest Show on Earth. Unbelievable high wire acts and fierce wild beasts and let's not forget the clowns! P.T. Barnum would be proud.
wow 258 visitors in the afternoon before thanks giving.
I guess stupidity of financiers just keep surprising us
Why doesn't somebody freeze oil prices?
but but but...
The FREE MARKET is God. How can they do this?!?! They are making our God angry.
Someone please educate me.
These covered bonds are financing debts within Europe, aren't they?
Is this panic about the originator's potential insolvency(due to U.S. subprime exposure) or the borrower's ability to pay (that's will be an European problem), or both?
Contortionists, Debt defying acts!
The good news: we're seeing history being made.
The bad news: we get to live with the results.
Future generations will read about this and be awestruck by the immense stupidity/greed/corruption.
Robert Coté,
This is an interesting corollary to Paulson and Swartzenegger. I suggest a new post label: unintended consequences.
Looks like Bernanke's going to need a new speech.
Unintended Consequences: Making Sure "It" Doesn't Happen Here
But the U.S. government has a technology, called an intended consquences press (or, today, its electronic equivalent), that allows it to produce as many intended consequencees as it wishes at essentially no cost.
We do have one of those machines, right? Good heavens man! Tell me we didn't get to this point without one!!
"This bank holiday, while resulting in many cases in great inconvenience, is affording us the opportunity to supply the currency necessary to meet the situation. Remember that no sound bank is a dollar worse off than it was when it closed its doors last week. Neither is any bank which may turn out not to be in a position for immediate opening. The new law allows the twelve federal reserve banks to issue additional currency on good assets and thus banks that reopen will be able to meet every legitimate call. The new currency is being sent out by the Bureau of Engraving and Printing in large volume to every part of the country. It is sound currency because it is backed by actual, good assets."
...FDR
as some of us have said, Europe is NO BETTER than the US.
It has just hidden the cancer growing in it's financial belly better thus far.
I often read the economist with humor as they talk about "trailer trash" Americans, and poor black Americans buying homes they can't afford.
Then they speak about "the City" (London) as though all was on the up and up there.
They have their subprime as well... I think it's called "buy to let". and it's just as nasty as ours. If I recall, some of the European DTI ratios are even worse than California/Florida...
I'm anticipating the European markets in general to get their bloodbath.
Then we can have a race to the bottom of interest rates... BoJ, BoE, Fed, Eurozone all flying as fast as they can to near-ZIRP
this is why I am personally MEDIUM term bullish on the USD... we'll get a "rally" in the dollar... not that ours will increase its worth much... but that their currencies will fall to our level...
comparative value...
This year, I am thankful to rent and be 100% FDIC insured in my financial assets.
I was explaining a lot of this debacle to my wife last night on the long drive to Thanksgiving dinner in MA. It's even more disconcerting when you paint a whole picture for someone else . . . makes you appreciate just how big the "shitpile" really is.
Yearning to Learn,
Decoupling: Making Sure "It" Doesn't Happen Here
Whew! Bernanke now has a speech he can deliver.
This year, I am thankful to rent and be 100% FDIC insured in my financial assets.
Me too! Although I own a home free and clear - and in an area where property values are not plunging - rather than renting.
Gary-
Did she believe you? When you mentioned level 3 accounting to her, didn't she say,"But what keeps them from just stating what ever they want?" And no-doc loans? Did she believe that?
Can someone in simple language explain to me what it all means.
are they suspending trading on these bonds because they do not want the real value of the bonds being revealed or what?
I suspect we are about to learn once again one of my rules of thumb:
German/Swiss financiers are the most conservative people in the world 99.5% of the time and completely batshit insane in regard to risk the other 0.5% of the time.
Is it just so people dont have an open market trade at a low price that would cause people to mark-to-market securities they own?
I think Roubini's phrase stand by for generalised systemic financial meltdown is on the money !
"This can only mean ugly closed door meetings where these uber rich thieves will gather to figure out how to use the public purse to bail themselves out."
But, eez zis not what ze government it is for?
"are they suspending trading on these bonds because they do not want the real value of the bonds being revealed or what?"
I can think of two reasons:
1. they think a "holiday" could let participants calm down.
2. they are trying to prop up prices.
I find it suspicious, to say the least, that the banks are expected to price the assets, yet not trade them.
Don't like the way the game is going? Let the air out of the football.
I find it suspicious, to say the least, that the banks are expected to price the assets, yet not trade them.
"Market prices? We don't need no market prices! We don't got to show you no stinkin' market prices!!"
Europe Suspends Mortgage Bond Trading Between Banks (Update3) - Bloomberg.com
I am trying to udnerstand what all that means ? there were no buyers so the MM had to absorb the sell order and they could not set a price ?
Or are they themself the sellers and just agreed with each other - let's not sell for a while until "prices are better"
In any case this does not sound like free market economy to me and I really don't understand what is going on.
What I find most amazing about this story is that a $2.8 trillion market is teetering and seemingly at risk of meltdown, and it seems like no one visiting this blog seems to know what the market is or even heard of it. Moreover, no one in the "financial press" seems to have noticed this was happening until the annoncement that the market is "closed until further notice." What other things are out there?
It feels like a Star Trek episode where there are large unseen objects in space that keep crashing into the Enterprise. I guess we should all throw ourselves to one side, then the other, and tilt the camera back and forth. AFter all, we may be abou to boldly go where no economic system has gone before...
Any bets on when the US Treasury suspends trading in CDO, ABX, and CMBX securities?
A couple of sayings come to mind...
I swear you couldn't make up this stuff if you were paid to do so. So, the markets are now absurd b/c things aren't going as planned? Did someone fail to remind him that he IS the market?
I imagine they're trying to set up a new game: We all get together and set some price on these things. Then we just trade them back and forth between ourselves so that no one else knows what's going on. The important thing is to keep these things moving fast so they can't be seen. Or maybe they're going to adopt the American Thanksgiving holiday.
They are panicking because the spread is 38 basis points over government debt? This is a crisis that demands suspending trade? Egad!
Having read it my impression is that the "borrowers" in question are financial institutions, which then on-lend for mortgages or to public institutions, rather than the home buyers themselves
RESCAP hot potato
cerberus owns gmac, 51%
can't buy norther rock, now wants to sell rescap
Among possible transactions under consideration is GMAC acquiring a large non-U.S. mortgage-lending institution and merging ResCap's local mortgage business with the acquired institution, the companies said
when will the insanity end
As per label 'Unintended Consequences'... it'd be pointless to label them as such since every topic covered here on CR nowadays is pregnant to the belly button popping point with unintended consequences.
STRASSERYou see what I mean? If Laszlos presence in a cafe can inspire this unfortunate demonstration, what more will his presence in Casablanca bring on? I advise that this place be shut up at once.
RENAULT (innocently)But everybodys having such a good time.
STRASSERYes, much too good a time. The place is to be closed.
RENAULTBut I have no excuse to close it.
STRASSER (snapping)Find one.
RENAULT (loudly)Everybody is to leave here immediately! This cafe is closed until further notice! Clear the room at once!
Festus-
This is the old Pfandbrief market:
basic idea:
http://www.fsa.gov.uk/pages/About/What/International/basel/csg/cbsg/questions/index.shtml
Excerpt:
Covered bonds are bonds that are issued by a firm and collateralised by commercial and/or residential mortgages and/or public sector assets that are intended to combine safety and liquidity with yield.
In principle three key features reflect the basic mechanics of covered bonds:
covered bonds are issued by banks with a dynamic pool of earmarked assets on the balance sheet of the issuer collateralising the bonds;
covered bonds are legally and economically isolated from the issuing firm, ie segregated from the usual bankruptcy procedure of the issuer should it become insolvent and bankrupt; and
covered bond holders have a preferential claim on the proceeds of the collateral in case of an insolvency of the issuer
Investors in covered bonds get double protection from default. This protection is provided by:
a claim against the issuer; and
a preferential claim over the cover pool in the event of an issuer insolvency.
Covered bonds offer (among other things):
high liquidity due to the large issue sizes and market maker commitments; and
a relatively attractive yield pick-up compared to some other bonds.
Wrong move. This can cause a selling cascade: owners of covered bonds can't sell them, so to access liquidity they sell something else, then the owners of that asset do the same, and so on down the chain. The idea is that once you close a market down the desire for cash (true liquidity) goes up exponentially.
RE:
Patrick Amat, chairman of the Brussels-based [European Covered Bond Council], said.... "and you end up with an absurd situation."
Idiot. Suspending trading to forestall( where the heck did I read THAT work recently) undesired market behavior is the absurd situation.
People are going nuts.
-K
BTW, Yal, its great to have you posting again. Your links were always the best.
RESCAP
They added that GMAC management intends to recommend a capital infusion to ResCap
i say ask Bofa, they like throwing money at failed lenders
Any bets on when the US Treasury suspends trading in CDO, ABX, and CMBX securities?
RThomas | 11.21.07 - 1:34 pm | #
As with the Eu decision, it could be more of a recognition of fact [that nothing is trading] than an actual decision to halt 'it'.
Absurd? Naw, they are just being 'observant'!
This financial three-ringed circus is the Greatest Show on Earth. Unbelievable high wire acts and fierce wild beasts and let's not forget the clowns! P.T. Barnum would be proud.
and the poltergeists hiding in the containment facility. hope they don't have a power failure over the long holiday weekend.
sdtfs, a nearly 7 hour drive provided time to discuss even the difference between level 1,2 & 3 assets. and the ratio of those assets to equity at major banks/i-banks . . .
but, when CT DOT can decide to close I-95 down to 1 lane in not one, not two, but three separate places on the Tuesday night before Thanksgiving, one realizes there is no limit to stupidity in this world.
IIRC, about every major EU corporation is stuffed to the gills with these. Maybe someone with more knowledge can elaborate, but I remember reading about the automakers/chemical firms/steel etc. keeping their short term cash in these. If that's true, how do they run operations? Will the banks be lending them operations funds at par?
are they suspending trading on these bonds because they do not want the real value of the bonds being revealed or what?
It's because they don't want the market price of the bonds to be revealed. Obviously the real value of the bonds is much higher, so it's better for everyone this way.
Can I get an address on the bankerdome? I'll bring a month's supply of soup...
OTS to announce loan mod proposal - US Thrift earnings sink
US Thrift Earnings Sink, OTS to Announce Loan Mod Proposal
This market feels like its ready for the wily coyote moment, now, before t-day
This is a horrible move... How will trading be restarted? What confidence with buyers have when trading reopens.
It makes the pricing worse. These instruments are opaque enough already. If the markets are open, at least buyer can know the price and sell if they can find a buyer.
This is a desperate mistake.
trading,
wild, no? I was just looking at 52 week hi/lo and it was 490 for lo so 14.4% of the NYSE was hitting a 52 week low at that moment...hi was 25 for 0.7% of NYSE issues - even if we get another green tape yen fueled jam up at the end, that and the three handle we had this morning tells ya all is not well!
but I remember reading about the automakers/chemical firms/steel etc. keeping their short term cash in these.
where do the big US firms (the ones with excess cash) keep their short term ?
I'm referring to the likes of MSFT, AAPL, INTC, CSCO, IBM, etc.
It was a long time ago but i wish to reiterate my claim that de-leveraging is not a symmetrical event mirroring leveraging. The simplest analogy is pouring sand in a pile. the sand builds, builds, builds rationally and then collapses chaotic fashion. Then when you need to reduce the pile you cannot take the sand away the way you poured it there. You pull a chunk and perforce cause more chaos. Just stopping adding more sand doesn't help reduce the chaos of reducing the size of the pile.
As I asked from the previous thread. Will this create calm or more uncertianty?
I like how Freddie went to Goldman for a mark to market pricing. I am sure Goldman shorted both Freddie and Fannie as soon as Freddie's CFO got off the phone call - Nice return over the last couple of weeks. Oh scratch that, Paulson probably brokered that call w/Freddie, and got the Goldman boys loading up on shorts before the call with Freddie was over.
Got to stay ahead of the big moves in the market..
RCRyan:
Thanks for the info/quote. But unless I'm missing something, that all just seems to be a complicated way of saying that the bonds are secured (by a floating pool of collateral) and recourse against the issure as well. I guess what I don't understand is who is the "issuer"? The banks? If that's the case, then the "absurd" credit spread seems to reflect the market perception that the credit support by the issue/bank ain't so great. Not sure how taking a powder for a week changes that.
Banks designed the notes to offer more protection
That's what happens when you trust the banks.
Banks are immoral institutions, case closed.
Festus-
That's basically my understanding as well - although my understanding of this market is minimal.
Seems to reflect some serious concern about balance sheets of issuers - landbanks in Germany or one of bigger Euro banks? My guess one or multiple Landbanks
can they really stop treading when we have so much instruments to syndicate it?
i mean trading
SAN FRANCISCO (Dow Jones) -- Countrywide Financial Corp.'s shares fell more than 10% Wednesday, weakening further as investors discounted the company's argument that it has sufficient capital to run its business in the face of turmoil in the U.S. mortgage market.
The Calabasas, Calif.-based company's shares fell lately by 11.6%, to $9.09, and were off more than 13% at their intraday low. Since last Friday's close alone, the shares are off 25% from last Friday's close, and they've fallen 80% so far this year.
on the way to zero
The suspension may run longer than Nov. 26
UPDATE:Covered Bond Council Halts Market-Making Until Nov 26
Dow Jones International News
LONDON (Dow Jones)--The European Covered Bond Council said Wednesday that it had suspended inter-bank market-making in covered bonds until Monday, Nov. 26.
"In light of the current market situation and in order to avoid undue over-acceleration in the widening of spreads, the 8-to-8 Market-Makers & Issuers Committee recommends that inter-bank market-making be suspended," it said in a statement.
"As the recommendation relates only to inter-bank trading, market-maker obligations will remain unaffected," the council added.
ECBC is a platform for covered bond market participants which brings together covered bond issuers, analysts, investment bankers, rating agencies and a wide range of market participants.
According to European analysts, heightened risk aversion and low levels of liquidity in the covered bond market is behind the inflated spread levels.
"Tension in the market is pretty high and liquidity tension and risk aversion are likely to persist over the coming weeks," said Annegret Hasler, credit analyst at Dresdner Kleinwort. "This puts spread products like covered bonds under pressure and the associated flight to quality leads to an outperformance of government bonds."
Such risk aversion is now casting a shadow over the immediate future of the covered bond market. The ECBC now faces a tough decision on what to do after Monday's deadline passes.
"I wouldn't be surprised if the market is not resumed by Monday," said one covered bond analyst. "In fact, I wouldn't be surprised if it is not resumed for the rest of the year. There's no realistic expectation that there will be a dramatic improvement in market conditions before the deadline."
Covered bonds are backed by pools of high-quality assets, like mortgages and public-sector loans, that remain on an issuer's balance sheet. The bonds are rated triple-A by ratings agencies, which helps reduce funding costs for the borrower, and are normally very liquid.
Covered bond Market-makers have an obligation to quote tradable two-way prices, or bid-offer spreads to their competitors on a bilateral basis.
Earlier Wednesday, Abbey National Treasury Services postponed its planned euro-denominated, benchmark covered bond due to unfavorable market conditions.
The bank joins Norwegian specialized export credit agency Eksportfinans and AIB Mortgage Bank, both of which suspended covered bond issues on Tuesday blaming "current volatility in primary and secondary bond markets" for the postponements.
The covered bond market was suspended in mid-September after Northern Rock Plc applied for emergency funding from the Bank of England
weakening further as investors discounted the company's argument that it has sufficient capital to run its business
Wow, what strange news. It's almost like the bullshit meters are functioning again.
Fitch Mgmt Ratings:In light of adverse credit developments in the residential mortgage-backed securities (RMBS) sector and their consequences for structured finance (SF) collateralized debt obligations (CDOs), Fitch has completed a focused CDO Performance review of all SF CDO asset managers to which it has assigned a CDO Asset Manager (CAM) rating.
E-Trade Global Asset Management
--'CAM4' remains on Rating Watch Negative.
GE Asset Management
--SF CAM rating downgraded to 'CAM3+' from 'CAM2-'.
Just askin' here. Isn't one implication of this decision that the covered bond market is now more like the low-grade CDO market? Liquidity has been intentionally reduced, and price discovery has been intentionally impaired, but other than the intentional quality, this is the junk CDO market. We know some of the results in the CDO market, though not yet all. None of the results we know about have been good.
It isn't the halt to interbank trade that will shut down funding for the collateral markets. Rather it is the failure to sell the stuff in the primary market. Even so, we know what happened in our freaky mortgage market when nobody wanted to buy securitized freaky mortgages anymore. Mortgages had to conform or die. If the halt to interbank trade puts a bigger dent in demand for covered bonds, don't the collateral markets (mortgages and government debt) run into a worse credit squeeze?
Uncle Festus,
You are mostly right. There was some mention on wire services of the failed sales of covered bonds which led to the halt in interbank trade. However, the covered bond that AIB cancelled yesterday was carrying guidance at mid-swap plus ten basis points the day before. Ten bps. Whatever went wrong seems to have happened pretty fast. Or become obvious pretty recently, after rotting away under the stairs for longer than we may ever know.
This looks ominous..
GM Says It Has `No Further Obligation' to Fund GMAC (Update5) - Bloomberg.com
GM Says It Has `No Further Obligation' to Fund GMAC (Update1)
By Jeff Green
Nov. 21 (Bloomberg) -- General Motors Corp., whose shares are trading at a 17-month low, has ``no further obligation'' to inject capital into former finance unit GMAC LLC after a $1 billion infusion earlier this year.
The November 2006 agreement to sell 51 percent of GMAC to a group led by Cerberus Capital Management LP ended any need to fund GMAC beyond the $1 billion, said Randy Arickx, GM's executive director of investor relations, in an interview today. GM has lost a third of its market value since Nov. 1, when GMAC reported a $1.6 billion loss from subprime mortgages at its Residential Capital subsidiary.
GM shares fell as much as 6.8 percent today amid increasing investor concern over the effect GMAC losses may have on GM and what future obligations the Detroit-based automaker may have, said Brian Johnson, a Chicago-based Lehman Brothers analyst.
``The whole GMAC deal was designed to protect GMAC and ResCap from a GM bankruptcy, and the same firewall should have the same benefit if it's ResCap that gets in trouble,'' Johnson said in an interview today from Chicago. He rates GM shares hold.
..."
We are not going to sell our poop until it is priced like diamonds instead of fertilizer.
So this would be Europe's version of "don't ask, don't sell." Has Paulson, riding the crest of all his success at home, been moonlighting for the boys in London??? Is there a EMLEC in the works? (that would be pronounced eem-lec to distinguish it from its highly successful American cousin m-lec)? Inquiring minds want to know!
Well it is good to see the global powers that be are all on the same page - whatever you do, don't provide any pricing transparency. The Plunge Protection Team goes global. Who says things aren't getting better?
How do we make money from this stupidity ? Who do I short ?
Foreign Money Center Banks Industry Leaders & Laggards: Industry Center - Yahoo! Finance
other such lists of banks ADR that you can find ?
"In fact, I wouldn't be surprised if it is not resumed for the rest of the year."
Is this possible? Not probable.
Journeyman, I like the way you described this fiasco.
Well, if no one else is buying them at the "right" prices, then why should other banks?
This move makes no sense. It's just a blind denial of the true liquidity picture. The interest charge does need to rise, let it rise, let the market work dammit. This wont change when they reopen.
Yal
short FHN; up a crazy 4.67% right now
does anyone have any experience with what happens to frozen markets immediately after they reopen in the past?
ACA Capital Responds to CNBC Commentary
hehe.... if this is the headline of your press release, that you are efuting short arguments made on the most bullish network, that means you're in trouble
``The whole GMAC deal was designed to protect GMAC and ResCap from a GM bankruptcy, and the same firewall should have the same benefit if it's ResCap that gets in trouble,''
Wow...what IRONY. I remember at the time, they were talking about how GMAC is all stable and GM's troubles should not make things such that GMAC loses value and credibility. Well well... 2 years later, the auto industry crisis is behind us. Rather than the midwest suffering, it's the bubble states and the mortgage crisis that's scary...
Probert, I wouldn't say that the "auto industry crisis is behind us" or that the midwest states are not suffering still.
Probert, I wouldn't say that the "auto industry crisis is behind us" or that the midwest states are not suffering still.
Right, but there is at least a good relationship between perception and reality as far as THAT sector is concerned. There still isn't a full understanding though of the FL CA NV AZ disaster
ACA Capital Responds to CNBC Commentary
hehe.... if this is the headline of your press release, that you are efuting short arguments made on the most bullish network, that means you're in trouble
probert | 11.21.07 - 2:36 pm | #
probert,
Or it means your CEO scheduled stock sale has not closed yet.
Just a note...Buy now, before "the money" goes into the market in the last hour of trading so there isn't a negative for the day. Can't have a down market, you know...might affect confidence.
yah I am expecting another yen fueled jam up at the end
well maybe it will stop these fols from funding 100k usd mortgages on 30 years old socialist 630 square feet flats 70 miles from ukrainian border xD.
in my city one good part overstreched the prices and they are already stagnating while another part of the city which is not so noble has prices 20% higher
this will be very bad hard landing one day. and people i work with are already considering to buy something in prague because its cheaper after the prices corrected few months ago
but if someone has 200k usd spare i can get him a newlybuild appartment just 70 miles from ukrainian border
cause you know RE only goes up xD
idoc,
Thanks. FHN was on my list (together with ZION) and I dod not notice it was up today so I got what I hope is a good entry point on the PUTs.
Yal
good to have u back. i still remember the day u bailed on CFC at 23!!!
the mkt is at an interesting place right now. does it bounce on technicals and "oversold" conditions or does it tank based on fundamentals? my view is that there is no way earnings are going to live up to expectations and that credit mkts are broken for several months if not yrs. in this environment along with inflating commodities, stocks will go down perhaps sharply. only then would i buy.
will we get the dreaded "Primary Dow Theory Bear Mkt Signal" last initiated 9/99? in 30 min we will find out.
Revro,
Is it Koice? The prices still does not look that crazy compared to Poland, where second-largest Polish city has at least twice higher prices than in your example.
Although Poland currently does not seem to be significantly affected by the credit crunch, banks did start tightening mortgage lending. Both the standards and rates got a bit tighter as the real estate prices stopped increasing. 2008 will be very interesting.
BTW, have you got any links for information about housing market and mortgage lending in Slovakia?
In the US when investor interest started to wane, the story was that the conforming market should still be OK since the GSEs were there as a "buyer of last resort." Does the european system have a similar safety valve? Or does any mortgage that a bank wants to sell have to go through this covered bond market?
yes its Koice. the best page is reality.sk but the overall sales volume is very low, not many sales. a colleagues wife works in RE agency and says there are not many transactions, so the market price is set by some rich guy buying second home or so
well all the people i know buying these days are either politicians, owner of companies or successfull musicians
we had a runup this spring like 70% on 1 bedroom appartments. now its like 100% already, well i am hedged since i have one 1 bedroom flat myself. want to switch later to 3 bedroom considering the "quality" of the new appartments xD its safer and EU wants to fund the reconstruction so well an older is now better
the slovak banks owned buy mostly austrian and italian mother banks have rolled last year the entire 100%, without income doc, and 40year mortgage but it started to stagnate in the city part where the prices went up the most. now the part which were not so hot have overshot the noble part by 20%, so it costs there like 130k
"Don't like the way the game is going? Let the air out of the football."
but but but Wally! We ARE the football.
"I wouldn't be surprised if the market is not resumed by Monday," said one covered bond analyst. "In fact, I wouldn't be surprised if it is not resumed for the rest of the year. There's no realistic expectation that there will be a dramatic improvement in market conditions before the deadline."
That's just insane. When you start shutting off markets, everyone rushes to the exits in other troubled markets to get out before the next closure is announced.
This thing looks like it just might get ugly......
Thanks Revro. I looked it the site and the prices in Bratislava seem to be about 30% lower than in Warsaw. It's still crazy.
In Poland, it was 2006 when the house price increases were the strongest, roughly 60-80%. In the first half of 2007 it slowed to a "mere" 10-20%. Starting this summer, it all stopped and in some places the prices are slowly dropping.
Stated income mortgages did not seem to be pushed by the banks but the lending standards were nevertheless very loose by American standards. Lending 10x annual income was quite typical. Of course all were ARM and mostly in CHF.
Poszi,
IIRC, the mortgage market in Poland is not that well developed and people still typically pay cash. Western Poland (e.g. Wroclaw) is drawing a lot of German and foreign money. The rise in real estate prices is a direct result of the increased prosperity. Is my perception of the situation in Poland wrong?
Screw you guys, I'm a-going home!
ACK!,
Hardly anybody nowadays pays cash unless it was from a sale of an old paid-off house. It was true in the 1990s when the mortgage market was not developed (it did not make sense to borrow when interest rates were 20-30%) but recently it has been almost exclusively borrowed money. And it was cheap money. Swiss franc carry trade
the rise in real estate prices is a direct result of the increased prosperity.
Partly, yes. But the prices are now absolutely crazy compared to the income. The prices are similar (and sometimes higher) to Germany with wages about 3 times lower. It was not German investors who bought houses, rather British and Spanish ones.
hot potato = LMX Spiral
Can you say WaMu (Washington Mutual)?
I know all about covered bonds because I has bought WaMu leap-puts and then they went and sold covered bonds (obviously not denominated in US$). Seemed like they thought it was a good source of inexpensive capital.
So there are at least a few US mortgages floating around in the covered bond market.
I wonder what WaMu thinks now that they have to pay off the interest in very expensive non-dollars.
Revro & poszi,
if you've never seen Moscow prices you seen nothing. Pah! $100k for 630 sq. ft. Pah! We have $4k/sq.m. for absolute sh!t in the 'hoods and >$10k/sq.m. for really nicee places.
On the other hand, at least 10% down is still the rule.