Fitch Downgrades $37.2 Billion of CDOs
Submitted by
CalculatedRisk on Mon, 11/12/2007 - 2:20pm (157 comments)
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Reverse alchemy!
Low eleven digit (tens of billions) downgrades? Why even waste the electrons to report this? Wake me up when the auto body shop gets to the really expensive parts that they didn't discover until after removing the sheet metal.
But, but, they said it was as good as US government bonds?! This is impossible! What am I supposed to tell the retirees?
So what do large pension plans do that are holding this junk?
So what do large pension plans do that are holding this junk?
crispy&cole | 11.12.07 - 5:43 pm | #
Sell it because they can't hold junk bonds
"it was as good as US government bonds?!"
giacutter - do you realize the delicious irony in that statement? Yes, I expect USG bonds go junk well before 2020.
Of course they do. Now who buys it?
And at what price (fire sale price). Pension SIV is needed ASAP!
Could we stop the glee-fest for a minute for a serious question? I think I understand conservative investing and I think I understand credit ratings. Are people here telling me that conservative investment vehicles such as retirement funds treat AAA CDOs the same as AAA MBSes or AAA munis? That cannot be correct. Triple A is not a universal metric but only a relative metric within a category. I will, for the moment, eschew the recent realization that they were also grossly inaccurate.
http://www.fitchratings.com/corporate/events/press_releases_detail.cfm?pr_id=382533
Link above. May require (free) registration.
what makes AAA munis that much better than AAA CDO for example.
Most state governments and cities are train wrecks waiting to happen, primarily due to the reliance on real estate income(gone),sales tax revenue(falling) and huge pension payments to city workers they can no longer afford.
During the 90's I did a lot of work with large pension funds (1-5 billion) and AAA was all they were looking for, no matter what the category of investment. If the rating agency said is was gold (AAA) then it was ok.
To paraphrase Lionel Hutz, there's AAA (nods head, smiles), and "AAA" (shakes head, frowns.) I think anybody with their head screwed on the right direction knew the difference. Unfortunately, over the last five years, I'm just not sure who would qualify for that category . . . including pension plans.
Pension plans do reportedly have requirements that restrict them to only holding investment-grade securities, but you have to know that they're working on exceptions to that. If the pension managers cry long enough and loud enough to the regulators, I suspect that requirement will get waived, and they'll keep some of the (now) junk on the books in the interest of avoiding the dreaded "fire sale." I could be wrong, though.
The pension plans are the ones I hate to see affected by this. Investment banks, meh, hedge funds, eh, rich investors, so what, foreigners, no big deal, but pension plans affect people like my mom. That's when it gets serious, at least for me, so you won't hear too much schadenfreude from me if the pension plans start running into trouble.
But Mr. Cote, I think the important point is the one CR made--from AAA to junk in one stroke of the pen. I doubt that can unwind very gracefully.
We all know what comes next. Update on ABX cliff diving!
Crispy & cole - having also worked with pension funds in the 90s (actually, much larger ones) I would wholeheartedly agree. Same goes for many large institutions (insurance companies included) that saw their internal investment staff progressively cut back as "cost centers", leading to a situation of over-worked internal staff leaning a little too trustingly on rating agencies to have done the due diligence. And, given the Legg Mason announcement today, I would say that pension funds were not the only ones...
OT - Markit has not updated the ABX and CMBX indices today. This is odd since they normally post within a half hour of market close.
ABX:
Products and Services Overview
CMBX:
Products and Services Overview
Anyone know why?
Wall Street and Manic depression
YouTube -
Some attempts at pullin' a Louganis
from the highest-rated AAA perch
are rather more like a cannonball -
Cannonballized Debt Obligations
(and we'll be feeling that splash for years)
RE: ABX - Anyone know why?
Bonds markets were closed today.
from AAA to junk in one stroke of the pen.
I understand the perception but the truth is that on a level playing field AAA CDOs from AAA to CC+ (?) is the same as a muni going from BBB to C. I think I got that roughly correct. Forgive any mistakes and see my point. AAA CDOs were never "investment grade" as people were fooled into thinking. Sure did make it easy for fund managers to say they were 100% AAA invested and also returning 14.78% annualized 5 yr averages. "Risk Bleach" made everything blindingly white for many washes. Now we find it also ate away all the material holding it together.
How far along the road to $500B are we now? $100-125B?
Oh darn.
Fafnir...?
I am trying to think of puns on "AAA discount" or "AA 12-step program" but they're just not coming.
Man, when Fitch says "ratings watch negative", they ain't kidding!
My vision is that armed and hooded managing directors from the major banks will rappel down ropes and through the glass windows of Fitch/Moody's or S&P offices, take over the place, and shut the press release machines off.
A few more downgrades- especially if its of Countrywide/Wamu or one of the bond insurers- and the gig is really up.
I wonder when Cal Pers starts suing these rating agencies?
Uh, how can a rating agency do this and still keep some credibility? Imho this is a shocking confession of total failure to even remotely do the job the customers expected them to do.
What would you think of an art expert who has to admit that most of the paintings he enthusiastically praised in the last years have turned out to be fakes? He's dead, right? Out of the job for the rest of his life? Should be happy if he can get a job as a house painter?
Now, why should a rating agency be treated differently???
Did Bob Citron go to work for these rating agencies?
he is the former head in Orange County that "backed up the truck" on repos and reverse-repos...
What am I supposed to tell the retirees?
WalMart's on the phone! Better hurry on down there...
A downgrade to Countrywide would probably be the death blow to them. They are basically pleading now with the ratings agencies.
Most state governments and cities are train wrecks waiting to happen, primarily due to the reliance on real estate income(gone),sales tax revenue(falling) and huge pension payments to city workers they can no longer afford.
You people have no imagination... all the municipalities need to do is build casinos... skim off the profits to fund the retiree pensions... send the checks to the retirees... who then blow it all at the casino.
I'm telling ya - it works (having lived close to casinos & seen the demographics on your typical Tuesday afternoon).
Casinos are like economic fungus - they recycle everything.
What is the upside to downgrades for the rating agencies?
How far along the road to $500B are we now? $100-125B?
Ya I was wondering the same thing... we need one of those thermometer things they put outside the YMCA or a community project... with the red going up, up, up...week by week. The really cool ones have little arrows showing when an individual made a big contribution & how much...
'Our Goal $500B... We're On Our Way!'
Perhaps the moral hazard of the century was born when the ratings agencies were let off the hook for Enron.
Would any of this been possible without them?
HERE'S A MAJOR HOOT:
Blackstone chief talks of mortgage crisis 'black hole'
Mr James, also Blackstone's chief operating officer, said that deal flow was rebounding but the market for private equity buy-outs would be constrained by the reluctance of big banks to lend during the mortgage crisis.
"The mortgage black hole is, I think, worse than anyone saw. Deeper, darker, scarier. [The banks] are now looking at new reserves and my sense . . . is they don't have a clear picture of how this will play out and confidence is low."
Mr James also said that there were no signs of a slowing economy coming from Blackstone's portfolio companies.
Conjure says, "What a bunch of f*^&$ing geniuses."
For those of you who would like to walk in the footsteps of Mr. James as you savor the smell, use the link below. It's priceless!
Page not found- msnbc.com
I'm posting under a different name to remain incognito...like other commenters who have worked with pension funds, I've seen that they take AAA-rated "bonds" at face value. I'm finishing a paper to warn them that it ain't necessarily so, and that they need to do their own due diligence.
Back to the salt mines of crisis. Another day, another in a long series of posts of continuous bad news.
I bet we get a big lift this week with rumors of an emergency 50 point cut.
I further advocate that anyone who feels like total paranoia start drawing down their heretofore unused home equity line to start raising cash for this crisis. It may be along time until there will be any available credit, and I am beginning to believe that our elected officials are starting to climb under their desks.
Brought to you by your friendly predictor of American Buenas Aires.
Someday this war's gonna end...firmly in the inflation camp- but you have to have some liquidity to get to that massive moola!!!
Fitch downgraded a hell of a lot better than it upgraded.
About I week ago I was reviewing a Merrill Lynch investment statement for a client and noticed that Fannie and Freddy bonds were under the heading "Gov't Securities."
Wow. Sorry if I'm on the wrong thread with this, but I just took a look at two of Legg Mason's larger money markey funds (one Citi and one Western Asset), and one of them had more than $500M in paper from Cheyne, the poster child for bankrupt, hedge-fund sponsored SIVs. This is not to mention all of the billions in paper from [INSERT NAME YOU'VE NEVER HEARD OF] Financing LLC. This is a very big deal, given that Western Asset is one of the top three institutional bond managers in the world. Akin to finding such stuff in a BlackRock or PIMCO money market portfolio.
Somewhat OT, but it strikes me as a good reminder that all of these acquisitions have muddied the waters for investors trying to understand who is actually managing their funds. For example, the BNP cash plus funds that were temporarily closed for redemptions earlier this year weren't actually run by BNP, but by a sub that had significant problems with their US bond operations in the late 1990s, and had to withdraw from that business. But you would never have known that from the coverage of the "BNP funds",
Speaking of Countrywide. I have had 7 Google searches from around the country in the last 5 minutes with the following search "FBI Raids COuntrywide"...
Is this what prompted the 29.4% drop in ACA Capital today?
Not much about it on the newswires, but according to Business Week ACA is insuring $16 billion of CDOs with just $326 million of capital.
So will the rating agencies have the cojones to actually downgrade a company like countrywide that has already said a downgrade will kill them? How about downgrading a bond insurer?
As I see it, if they don't, it kills the rating agencies for looking so out of touch. If they do, it kills them poltically.
Would not want to be a rating agency today.
they just don't make AAA like they used to
I hate to defend the rating agencies - because they were clearly very, very wrong in their assessments - but I can't help thinking they get more than their share of the blame.
They publish an opinion. That's all it is. In the case of Asset Backed Securities over the past few years, that opinion has been disturbingly wrong. Fine.
Part of the problem with their assessment though has to do with mortgage originators who were clearly not concerned with lending money that would never be paid back - to the point where originators were clearly living with fraud in the application process.
Also, borrowers who were willing to bet huge on housing prices never falling. To the point of committing fraud on a fairly large scale through no doc and stated income loans.
Third, investment banks who are actually supposed to verify that the underlying mortgage origination process is healthy through their due diligence also clearly didn't care what was going on. Fees were clearly more important than litigation down the road.
Finally, institutional investors (who actually aren't "clients" of rating agencies), really didn't question the securities past the rating provided by the agencies. I find this inexcusable. Rating agencies aren't betting money, they are publishing an opinion. Why are we so ready to let actual investors off the hook?
Remember, rating agencies are paid by the issuer of the security, not the investor who buys the security. That's why it will be hard for pension funds sue the agencies - because the agencies don't really owe anything to the investors. The investors haven't paid the rating agencies for anything.
Unless someone can show the rating agencies knew they were publishing ridiculous assessments, but went ahead anyway... that would be another story. I haven't seen that allegation anywhere - although some articles have hinted its possible because of the obvious conflict of interest.
"FBI Raids COuntrywide"...
http://www.azcentral.com/community/chandler/articles/1106cr-powder1107.html
Lab: Mysterious substance found at Countrywide not hazardous
Sarah Muench
The Arizona Republic
Nov. 6, 2007 03:18 PM
A state Department of Public Safety laboratory has determined that brown powder found in an envelope at Countrywide last week in Chandler was not a hazardous substance, fire officials said Tuesday.
It is unknown if the investigation, taken over Friday by the FBI and normal for these types of cases, will continue...
http://www.nctimes.com/articles/2007/11/09/business/news/22_09_5411_8_07.txt
Countrywide director urged to resign
NEW YORK - A union investment group called Thursday for the resignation of Countrywide Financial Corp.'s lead director.
The same organization, CtW Investment Group, last month called for the resignation of Countrywide Chief Executive Officer Angelo Mozilo.
CtW is affiliated with the Change to Win federation of unions, including the International Brotherhood of Teamsters, Service Employees International Union and UNITE HERE.
The group said Countrywide's lead director Harley Snyder's divestment of 77 percent of his own Countrywide holdings beginning in 2006, and the recent extensions of stock options granted to eight senior company executives, "reinforces concerns that you are incapable of providing the independent leadership Countrywide so desperately needs."
A message seeking comment from Calabasas-based Countrywide representatives was not immediately returned.
In a letter addressed to Snyder, the group said he had a central role in creating compensation policies at Countrywide that "fail to align executive and shareholder interests," pointing to Wall Street Journal figures ranking Mozilo's $120 million 2006 compensation as the largest of any Standard & Poor's 500 financial company.
The group called the company's extension of options a "pay-for-failure scheme" and added that the company's director compensation, which they say ranged from $344,988 to $538,824, was both unjustified and "a likely source of the board's passivity in the face of the company's current crisis."
For Nemo: credit problems have been foreseen by lots of folks for a long time.
After my venture capital-backed company raised a large Series C financing in June 2006, I put all of our funds into a 'ladder' consisting solely of U.S. Treasury bills/notes. No agencies, no commercial paper.
I've seen this wreck coming since late '04, later than many, but early enough for me to protect my company's investments and my personal investments.
Don't be so smug, sir.
giacutter - do you realize the delicious irony in that statement? Yes, I expect USG bonds go junk well before 2020. BSR
I expect my grandchildrens' blood to be let fighting a war rooted in repudiation of our debt.
Buddy, too, I think there are lots of ugly things like that in our future.
The only good news is that we'll have pulled all of our troops out of Japan, Korea, Germany, Iraq and Afghanistan, etc. (due to hatred of Americans and no ability for our government to afford such), and we'll be defending the homeland. We'll win that one, no problem.
This is from an legit company and deals with "real" money market funds.
Legg Mason Gives $100 Million, Credit to Money Funds (Update2) - Bloomberg.com
Does anyone else think that the time for hoping this would all go away has really ended? The FED cannot bail out both the banks AND the holders of worthless paper. If you think teachers union pension plans are not going to demand to be made whole again, you are dreaming. Political muscle is going to be flexed. Who then gets the bailout? Everyone? The taxpayer should have this information BEFORE the next election I think.
"I should have sold my home and gone to being a renter but I couldn't convince my wife of that." - Joe Batipaglia Nov 12, 2007 :17:30 EST
From MarketWatch: Citi downgrades E-Trade to sell rating (title hat tip Herb Greenberg)
title hat tip?
he email that to you...
Is herb banker?
And Citigroup CIB is dow
"The mortgage black hole is, I think, worse than anyone saw. Deeper, darker, scarier. [The banks] are now looking at new reserves and my sense . . . is they don't have a clear picture of how this will play out and confidence is low."
The dark side clouds everything. Impossible to see the future is.
Lab: Mysterious substance found at Countrywide not hazardous
It's Mozilo's secret tanning powder!
MP - I worked for DLJ when Tony James was a senior investment banker there.
He's probably as close to a genius as I've seen on Wall Street, or anywhere else for that matter - great combination of math skills, marketing wizardry, common sense and a sense of humor to boot. And pls note - I did not buy the Blackstone IPO on the offering nor aftermarket . . . . . . . . but I would expect that James & Co will find a way to spin gold out of this mess, eventually.
for the guy who posted earlier about no updates for the abx today, it's because the bond market was closed. columbus day and veterans day are quazi-holidays with the bond market closed, equity market open, and (custodian) banks closed.
AllenM --
I bet we get a big lift this week with rumors of an emergency 50 point cut.
Well, Friday is options expiration... I do not buy the conspiracy theories about the PPT (yeah I know "it's in Wikpedia" but read the d*mn article) or the Fed trying to crush short sellers. Frankly, the equities market is just not that important.
But if they do announce an emergency cut Thursday night, I might start to change my mind.
Yes, we are in a recession here in California: October '07 sales taxes collections were 8.7% below October '06!
http://sco.ca.gov/ard/cash/0708/oct.pdf
(Hey, that's a near-depression level fall, with the common definition of 'depression' being a fall of 10% year-over-year.)
Fiscal year-to-date (July-October), sales tax collections are down 4.3% compared to one year ago.
Line of credit down to $2.5B available.
Hey, Governator, I think it's time to say 'Go!' on that 10% across-the-board budget cut plan!
Correction: July-October sales and use tax collections are down 2.6% compared to one year ago, not 4.3% (I used the wrong column).
No, Thursday night is when Bernanke calls the major investment banks and tips them off so they can get long at the bottom - 2:00 pm Friday is the announcement.
siv repurcussions-
Expired
Anarchus, Conjure and I are of the opinion that CEOs, like presidents, are administered "stupid pills" when they take office.
We are still researching the question of whether the "stupid pill theory" is actually a corollary to the Peter Principle: everyone rises to their level of incompetence.
risk capital: I like how in that link you gave about SEI it says:
SEI Investments Company provides investment processing, fund processing, and investment management business outsourcing solutions to corporations, financial institutions, financial advisors, and affluent families in the United States, Canada, the United Kingdom, and continental Europe
As risk is passed around the system (with every layer taking a "cut", of course), the sheer length of the chain becomes part of the risk.
Assume each "layer" has a 90% chance of surviving a crisis, independent of the rest. Now, take a simple example: my putting cash into a money market account at Bank of America.
We have a chain of eight entities; with (optimistic!) odds of 10% failure for each layer, we have a 57% (= 1 - .9^8) chance of failure just from the structure of the system.
The structure is not the only source of added risk: many of the steps are designed to explicitly strip away protections ("Banc" of America vs. FDIC-insured "Bank") and transparency (hedge funds, SIVs).
In short, it seems to me the effect of securitization on what should have been a simple debt operation has been to create new risk, offsetting much of the benefit of the reduction of risk via diversification. The driver for this process is not risk-reduction; it is funded by the haircut of fees each step charges, encouraging the evolution of longer and longer chains of fee-seeking entities.
While I don't disagree about the rumor of a cut, and the eventuality of the event, you might want to rethink how a 50bp emergency cut will be interpreted. Think about how slow the lag is before that gives any help in a typical environment, think about the issues we are dealing with now which basically make whatever effect such a cut might have normally had much less effective, and then look at it in the light of the fact that is an emergency. What's the emergency? Clearly we've been cutting steadily now and it's all about the financial crisis, since the risk of growth is balanced with inflation, and since we have no inflation, we cant have much growth risk, right? So, if we cut now, and we have a better financial situation, because the super SIV thingie was just announced, ya know, then what exactly is wrong with this picture? Yup. None of the answers to that are good because they all imply that someone isnt telling the truth about how bad things are getting. Or at least someone hasnt read the sales tax figures from CA. Ha.
Anyway, go back a few days and read what I said in the comments about another rate cut and see that this thing has done exactly what ive predicted over and over. I'll call it the panic-everything is ok-panic oscillator. (TM) Or something like that.
DCRogers - I think Tanta was making this same argument in her Saturday post "What's Wrong With Approved Appraiser Lists", or at least she led right up to this argument
Geoff -
So what are you saying? As long as the big banks get a timely tipoff, they can short on the way down, buy on the way up, then short on the way down again. I don't see how the fact that it won't accomplish anything is an obstacle to executing this plan.
DCRogers- "In short, it seems to me the effect of securitization on what should have been a simple debt operation has been to create new risk, offsetting much of the benefit of the reduction of risk via diversification."
Conjure and I are glad we chose to hang around CR's site tonight.
The Real Deal - Content Management System
A chill in the air for NYC commercial property market.. (finally)..
This looks interesting:
Lehman downgrades Fannie, Freddie
Im saying that, in case you havent noticed, we are sitting below 13,000, despite the constant jiggering of the market by interested parties. And each time we get a little boost, we eventually give it back and more. The next time, yes, they'll try and succeed a bit on the first day, but then the downward momentum is eventually going to be too much. We're coming close now with the yen at 110. Clearly Fukuda needed to come out and make a statement that would prevent a meltdown. So far, it's not clear whether it will work. But a lot of jawboning is under way in many places, plus some superSIV BS, plus whatever movements by the big players at the most opportune time. But the game is running out of time and the payoffs are looking weaker and weaker. Capitulation day is near. It's going to be one of those days when we drop 300, the machine goes in motion, but fails and we end down 30%.
Issuance of US commercial mortgage backed securities fell to $6.3bn in October, down 84 per cent from a record $38.5bn in March. The decline in CMBS issuance is crucial because such securities have provided an estimated 40 to 60 per cent of financing for new commercial property purchases in recent years.
Wow !
Ya, now it's starting to come to light why cap rates on Comm RE got to below ridiculous levels. No place to go but up, and if the cash flow is getting worse at the same time as the financing terms, well, let's just say this will be the other RE bubble popping.
"Frankly, the equities market is just not that important."
I laugh at that, you funny or maybe stoopid.
If I understand how the system works, a downgrade from AAA to junk means the bank capital requirement on the "asset" (and I use that term VERY loosely) goes from 20% to 200% in one fell swoop.
Citi better hope this doesn't become the next rating agency fad.
DCRogers,
An article I read oh, about a year or so ago stated much the same. In essence...
Securitization gave the impression of risk reduction, thus leading participants to take on much more risk. However, the risk in the market multiplied while the risk bearers did not. IOW, everyone got their own stick of dynamite.
Can we say systemic risk?
To throw more gas on the fire:
These downgrades are going to play havoc on banks' capital reserve requirements.
Check out: http://ftalphaville.ft.com/blog/2007/11/12/8822/meredith-whitneys-latest-ring-of-fire/
Under the current FDIC rules, asset tranches are assigned risk weightings. AAA and AA get 20 per cent, A gets 50 per cent, BBB 100 per cent and BB 200 per cent, for example. Very basically then, an AAA rated MBS security worth $1bn, would carry a risk weight of 20 per cent - translating as $200m in capital. Imagine then, downgrading that AAA asset to BBB. The risk weight shoots to 100 per cent, and the capital requirement rockets to par value - $1bn. Understandably, the capital adequacy ratio would take a big hit. Under Basel II rules, which the big commercial banks have to comply with, the risk weightings are even more stringent.
Although Whitney singles out Citi and Wachovia as the two most precarious, I think all the banks must be sweating right now.
Where are the hedge funds playing these games now ?
404 Not Found
404 Not Found
There is some discussion above about pension funds seeking AAA. This is not the case. If you look at the numbers most of the bond obligations in the following statement were not rated AAA.
From the State of Illinois' annual report on its retirement system read page 20 of this link where it shows that not rated to AAA are included in the portfolio.
This does not include the collateralized mortgage obligations which are a seperate category, see page 21.
http://www.state.il.us/srs/PDFILES/oldAnnuals/SERS06.pdf
This state below indicates how risk will be managed by diversification.
"Concentration of Credit Risk and Credit Risk for Investments
The ISBIs portfolio is managed by professional investment management firms. These investment management firms are required to maintain diversified portfolios. Each investment manager must comply with risk management guidelines individually assigned to them as part of their Investment Management Agreement. The ISBI did not have any single issuer investment that exceeded 5% of the total net assets of the fund as of June 30, 2006 and 2005. The table at left presents the quality ratings of debt securities held by the ISBI as of June 30, 2006 and 2005."
Investor delusion is very low right now. Markets must instill more delusion for investors to jump back in.
Awesome discussion of the systemic risk elements of securitization - though there are two assumptions that make it even scaaaaarier kids - I don't think they are independent, and some elements are not only have their own stick of dynamite, that stick is primed with a blasting cap (thinking SIV's founded on duration mismatch as their business model).
Investor delusion is very low right now. Markets must instill more delusion for investors to jump back in.
Get it down another 80% and I'll play.
Europe is going to save our housing market!
Foreign investment could lift housing market - Real estate- msnbc.com
Europe is going to save our housing market!
Why would they want to buy depreciating property?
The Japanese yen is rising "too fast" and currency speculators must be careful, the country's prime minister Yasuo Fukuda said in an interview published Tuesday.
Speaking to the Financial Times, Fukuda said that while he did not object to the long-term appreciation of the currency, "in the short term, yen appreciation would certainly be a problem."
"Any kind of sudden change in exchange rates would not be desirable."
"Speculative movements need to be kept in check. What I am saying is: 'Be careful, so that it (intervention in the currency markets) will not happen."
Fukuda insisted, however, that in the long term, "a rising yen should not be rejected, but I emphasise long-term."
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Note from the biggest currency manipulators in the world.
I don't trust the Japanese at all about currency. I'm bailing out of yen at 105. They seem to want a weak currency more than a strong economy.
Let the hedge funds have the rest of the carry unwind.
Fed time folks!!!
They are going to have to start monetizing this trash as fast as the blips can register!
I cna hardly wait- then they will start hunting down everybody who made obscene profits packaging sewage and feed it back to them.
Well, a man could hope for the second part- the first is going to be assured. The Fed must provide liquidity! And it shall....and it shall.
So Fitch just pitched $37 billion from 73 cents on the dollar to about 20 cents. Who was holding that $20 billion loss? Who insured it? I want to know to check their capitalization!!!
oingo boingo time:
Dead man's party!!!
YouTube - Oingo Boingo Dead Man's Party
Wait for an invitation to arrive!
Going to a party where no ones still alive!!!
I was struck by a SIV walking down the street!!!
Don't fall today!!!
It's only Lehman!!!
Fill in the rest yourselves!!!
Meanwhile start the party!!!
Buy booze, it holds its value better than anything else!!!
Someday this war's gonna end...
Allen - Crazy huh? I can't believe I'm watching this happen. I had doubts last year about not buying a house and taking my life savings off the table of a down payment. Brother... I'm so happy I did. SO HAPPY!
Sorry I've been too busy to be here much over the past few days but here are sonme thoughts
Oh the humanity.
"Because the sophisticated investors understand AAA's(or any other shared rating) vary significantly in credit quality, liquidity"
Excuse me aren't these the same assholes that got us in this mess.
Everyone of the sophisticated con-men need to be taken out and shot. I fixed your spelling too Mr. Sophisticated.
Looks like money-market mayhem tomorrow. This via WSJ on funds going to the SEC to get guidance on how to avoid breaking the buck:
SEI, Rival Money Funds Go on Offense to Avoid 'Breaking the Buck' - WSJ.com
One reason money-market funds are scrambling: S&P has said in recent weeks that such exposure to Cheyne isn't consistent with its criteria for receiving its highest ratings for money-market funds.
-Dollar resumes plunge, check.
-Carry trade unwinding, check.
-Boatload of CDOs spiked to junk from AAA, check
-E*trade on the ropes, check
-Fair Value Valuation this week, check
-CA sales tax down 8% y-o-y, check
And the week is so young.
Excuse me aren't these the same assholes that got us in this mess.
If you can't trust Fitch and Moodys, who can you trust? Oh, wait. What does that say on my dollar bill again...?
More garbage from Banker.
Buddy, get real. We're not comparing one downgrade to one downgrade. We're talking about hundreds. How many others like it were there in 1987?
Oh, I get it. You're talking about the Guinness Book of Downgrade Records, not reality.
Also from the WSJ online article:
The only time a money-market fund previously "broke the buck" was in 1994, after a fund had losses in investments tied to interest-rate movements. The current turmoil suggests that "2007 is beginning to rival 1994's derivative crisis as the most dangerous event" in money funds' history, says this month's Money Fund Intelligence, an industry newsletter.
Doesn't Grandma keep a lot of her savings in a money-market account?
"Speculative movements need to be kept in check. What I am saying is: 'Be careful, so that it (intervention in the currency markets) will not happen."
Can we expect a surprise 1/10bpt rate cut from the Japs, to weaken that currency? Naaaa, buy dollas sell yen from their CB... keep the game going a few maore quarters.
From FT via Infectious Greed: No help from commercial RE forthcoming...
"Issuance of US commercial-mortgage-backed securities fell to $6.3bn in October, down 84 per cent from a record $38.5bn in March... The decline in CMBS issuance is crucial because such securities have provided an estimated 40 to 60 per cent of financing for new commercial property purchases in recent years."
Paul Kedrosky: Commercial Mortgage-Backed Securities Going to Zero
Blackstone's chief operating officer: "The mortgage black hole is, I think, worse than anyone saw. Deeper, darker, scarier.
I beg to differ. My own comments on this blog (and others) warned of such and clearly laid out the reasons why. Also the early comments of the Grim Reaper on this blog (and others) was even more pessimistic.
whoa
Banker - You kill me dude. ssssphhhiisicated invvesstores! said like a drunken sailor...
A write down is a write down... Where are we again? $125 Billion give or take? Your comical at this point and its no wonder why we are in this mess to begin with.
So called "geniuses" on Wall St. My a$$.
worse than anyone (who might possibly ever be part of the mainstream financial press) saw (or were allowed to say, if they did.)
Dustdevil - it's you're. (just to be fair.) If it makes you feel better, I'm kind of on your side. Banker has lots of interesting things to say here, but his optimism is looking increasingly unwarranted.
see km4 | 11.12.07 - 9:07 pm | Clyde to save us from some repetition...if the thread cannot be read in its entirety try the "Find" to reduce the chances you are recovering old ground...merci
AP, today:
NEW YORK (AP) -- Punk Ziegel analyst Richard X. Bove upgraded Goldman Sachs Group Inc. on Monday, saying the investment bank has superior software and systems shielding the company from risk....Bove said Goldman is not immune to these losses. However, the bank's processes for sheltering itself from risk appear superior, he said....
(end quote)
...Henry Paulson, Stephen Friedman, Josh Bolton, Jeffrey Reuben, Robert Zoellick, Faryar Shirzad....
I'm not very smart... thanks for the correction Geoff.
I would like to see Banker bring that stuff over to the Ticker... lol! Karl would eat him for lunch.
Hey Banker - Come on over... we play real nice:
Top Level - MarketTicker Forums
Yen breaking 109.9250 tonight dollar hitting 76. most Asia markets Red
Jiji press, Japan
"Hedge funds placed large-lot sell orders in the morning session ahead of their book closings this month or in December, preventing the market from capitalizing on the rosy GDP data (in Japan)...."
Fitch just lowered the AAA rating on the ZZZBest Carpet Cleaning Corp.
Cnet News, re Cisco:
........The numbers were pretty good but Chambers, maybe the best CEO in the technology business, wasn't out to snow anybody.
Demand, he said, was likely to be "lumpy." Translation: the tech bloom is about to fade.
With the subprime mess spilling over into the financial sector, banks and brokerages aren't going to buy as much new hardware and software as they did a year earlier--not until the current crisis subsides. And depending upon which talking head you believe, this is rapidly shaping up into the mother of all financial crises. (A recent U.S. Senate report said the cost to the U.S. economy ultimately would be $2.3 trillion.)
And because Cisco's infrastructure plays so central a part in the global Internet economy, Chambers is in a particularly good position to make the call. Of course, he was ultracareful in his post-earnings interviews not to trigger a panic. And truth be told, it's too early to say with clarity whether this is the start of another huge drop in technology spending. Until now, in fact, the shares of many bellwether Nasdaq companies have weathered previous market corrections and gone on to set new highs. Google, Apple, Research In Motion, and Amazon--Jim Cramer's famous "Four Horsemen"--were on one of the most remarkable runs in recent stock history.
That all came to an abrupt end last Thursday. The big question on the lips of a lot of executives today is whether the frenzied selling since then is just another typical--albeit painful pullback--or a harbinger of another tech wreck. While I'm hoping it's the former, I've got a haunting feeling it easily could become the latter.........
http://finance.yahoo.com/charts#chart14:symbol=usdjpy=x;range=ytd;compare=^dji;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
riddle me this - I thought everyone here was talking how you can pretty much follow the yen/$ trade to know where stocks were going in the US. It seemed to hold on a daily directional basis, so I didnt bother to look it up.
Looking at this chart, one would think that the next leg for the US SP500 is not upward.
argh, try this one instead.
http://finance.yahoo.com/charts#chart15:symbol=usdjpy=x;range=ytd;compare=^dji+^gspc;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
I have learned a good deal from Bankers comments,and think he adds a thoughtful perspective to this Blog.I do not always agree with him,but his humor and intelligence would make him welcome in my home.ad hominem attacks should be posted on Yahoo,not here.
OK, figured it out. Yahoo charts for some reason dont post the entire US series comparison. Go figure.
WSJ, with Warren Buffet to the rescue of the insurers now
(quote)
Buffett is poised to pounce, again.
.....In recent weeks, every major bond insurer has reached out to Berkshire -- owner of a range of companies including reinsurer General Re Corp. and auto insurer Geico -- as a source of capital relief while their financial strength comes under scrutiny by ratings firms and investors, according to these people. In the process of pleading their cases with Berkshire, these companies provide Mr. Buffett with opportunities to size up their businesses.....
Another way Berkshire could help bond insurers is to provide "cut-through" policies to their customers. In the event of a default, owners of bonds insured by the guarantors could "cut through," or go directly to, Berkshire to collect payments. In exchange, Berkshire could receive fees from the bond insurers or the premiums directly.
Finally, Berkshire could enter the bond-insurance business, said people familiar with the matter. While it is unlikely Berkshire would acquire a bond insurer outright, it is possible Mr. Buffett could set up a financial guarantor that, like its reinsurance business, takes advantage of high prices and pulls back when prices become unfavorable.
(end quote)
What a hero!!!!
How many sectors has he rescued on rumor? How many sectors has he really rescued? Didn't he pull the ones he has out of the trash can after they were tossed, not before?
Alas, "sophisticated" investors may distinguish between AAA credits, but the capital requirements do not. 20% is 20%, which is a hell of a lot less than 200%.
I believe the phrase "regulatory forbearance" is one we're soon going to be hearing quite a lot.
Man, when Fitch says "ratings watch negative", they ain't kidding!
Word.
Wall Street playing with more funny money. The increase in Level 3 assets among big Wall Street banks is an ominous trend...
Wall Street firms increasingly relying on risky assets - Nov. 12, 2007
Geoff,
I think if you charted them, you would find that the inverse correlation is tighter with the yen and some smaller, more speculative markets like Asian emerging, U.S. REIT, U.S. small-caps. It makes sense, because the yen carry is basically a speculative, manipulative game and those markets are thinner and easier to manipulate than the S&P and Dow.
"Man, when Fitch says "ratings watch negative", they ain't kidding!"
It's like the Far Side cartoon of the horse hospital, where the doctors and nurses are all walking around with rifles under their arms.
money market funds having to be helped out bec of SIV losses!!
SEI, Rival Money Funds Go on Offense to Avoid 'Breaking the Buck' - WSJ.com
One phenomenon working in money-market funds' favor right now: The sizable inflows of new investments that many funds have received in recent months as investors tried to park their cash somewhere relatively safe. Money-market fund assets recently hit a record $3 trillion, and this year should mark the biggest asset increase in money-market funds' 35-year history, according to Money Fund Intelligence.
This has helped to cushion against possible redemptions and to direct cash to investments under less pressure than SIV-issued paper.
Neither S&P nor Moody's Investors Service has downgraded any money-market funds or placed them on watch for downgrade. "However, it is not unreasonable to expect that if there are problems with the underlying collateral" at some of these funds, it "could have a ratings implication," says Moody's Managing Director Gus Harris.
According to a filing, on Oct. 30 S&P told SEI that it would consider downgrading any AAA-rated money-market funds -- the highest rating the company provides -- if that fund owned securities issued by Cheyne, unless the funds are backed by a guarantee equal to 50% of the amount of Cheyne securities held in a portfolio. As of last Wednesday, SEI's Prime Fund held $252 million in Cheyne issued senior debt and the Money Market fund held $20 million.
Last Friday, amid continuing turmoil in the debt markets, SEI says that Columbia Management marked down the values of the Cheyne-issued securities in its portfolio. Based on current market conditions, SEI says that if the funds' Cheyne securities were sold during the current quarter it would result in a pretax cost to the firm of $7.2 million.
Banker,
"AAA" ratings gave far too many investment managers license to be morons while claiming with a straight face to their investment committees that they were being conservative. While there will be plenty of blame to go around, my top pick is the RA's, for using the same letters to mean different things, and profiting handsomely from the confusion.
This will be the worst failure of the RA's by many orders of magnitude. If you really think differently, you need to put down whatever you're smoking and come up out of the Bankerdome for some fresh air.
Homebuilders to "mothball" homes rather than sell at a loss.
Home Builders Opt for Mothballing - WSJ.com
Lennar's move in Orange County is unusual in that the company is mothballing homes. Builders typically mothball partially developed or undeveloped land because vacant homes require watching.
straight to junk, how lovely. better than a yard sale
Lumpeninvestor,
Thanks for the link... Wonder how long they can mothball those homes before negative cash-flow kills them?
someone help me out here...
if the entire global credit system is in the process of imploding, and by most accouts it's "too big to fail," who steps in to rescue it?
didn't Dick Cheney assure us that, "deficits don't matter anymore?" Maybe he'll write the check?
Major Kong Rides the Bomb from Dr. Strangelove: YouTube - Major Kong Rides the Bomb
and by unpopular request "We'll Meet Again..."
YouTube - Dr. Strangelove Final Scene
4. I have done biz with Tony James and the guy is really, really, really good.
Myron Scholes and others at Long-Term Capital Management were also "really really...really good."
The only time a money-market fund previously "broke the buck" was in 1994, after a fund had losses in investments tied to interest-rate movements.
The ratings agencies also failed then.
That article in the WSJ re: moth-balling of houses has me thinking... They are very publicly saying that they are drawing the line on their price reductions.
Could this be a huge bluff by the homebuilders to try to change the psychology of potential buyers, most of whom are now locked into a wait-till-they-drop-further strategy?
Everyone of the sophisticated con-men need to be taken out and shot.
I was thinking making them dishwahers...
4. I have done biz with Tony James and the guy is really, really, really good.
Banker | 11.12.07 - 10:45 pm |
Banker, you seem to have generated more than the usual amount of heat tonight, so I preface with a statement that that's not where I'm at with my question.
But I am wondering: what makes Mr. James really, really, really good? Steve J. brought this up with a snarky (and deserved!) call-out to Myron Scholes and LTCM; I then recalled a previous thread that talked about how many "safety" improvements merely led to the incorporation of riskier behaviors, to the same, sorry end. So, what makes James good? Don't the good people make the temptation to "leverage up" even stronger?
"The road to excess leads to the palace of wisdom...for we never know what is enough until we know what is more than enough" - William Blake, The Marriage of Heaven and Hell
does anyone know what time people can begin withdrawing their money from ETrade tomorrow?
Could this be a huge bluff by the homebuilders to try to change the psychology of potential buyers, most of whom are now locked into a wait-till-they-drop-further strategy?
Are there enough potential buyers to make this bluff worthwhile? And I mean AAA potential buyers, not your BB guys.
I think they're going to try to wholesale the lot to Japanese investors as a "Learn English Theme Park." Japanese (and other Asian visitors, or even European visitors) will be able to experience total language immersion in a real American suburb! They'll be able to live in a "typical" American community while being safely ensconced away from the more dangerous elements, which they'll monitor on broadcast networks.
i ended up with an e*trade account****love the asterik...
started back in the dot com boom with DLJ direct.com, got bought out and transfered to CSFBdirect, which got bought out and transfered to Harrisdirect.com, which got bought out by eTrade. once it got to etrade i called in and told them to fck off.
my trading fees went down then way up once etrade had my account. screw that
the end
Geoff - E*Trade's Dallas, TX brick & mortar office opens at 8:00am CST today and it will be busy.
Thx. Seems the California stores open at 8am as well. Which means, I have to be up at 5am probably to get my first view of the east coast stores with customers waiting - happily of course. Should be interesting.
ShortCourage-
FWIW - Median prices for new Orange County homes have dropped over 30% since the peak 4Q06. This was the cost of maintaining sales volume at levels that actually were pretty flat the past year (dropped only ~5%). In contrast, sales of existing homes dropped ~50% during this period, but didn't take nearly as big of a hit in price (in fact, less than 5% Y-Y).
Clearly there was a lot of headroom in the cost of the new houses, but apparently that headroom has disappeared and they're no longer willing to "lose money on every deal but make it up in volume."
The Mortgage Lender Implode-O-Meter News Pick-ups: Deutsche Bank Foreclosures Tossed Out of Ohio Federal Court - "They Own Nothing!"
Does this mean some SIV's and CDO's are literally worthless? And here I was thinking there wouldn't be enough work for all the lawyers the US is producing.
From AAA to Junk in one fell swoop!
Good thing a big chunk of our monetary system is based on this stuff. Innovation and sophistication indeed. Accuracy and accountability too!
Here's a new Buffett rumor:
I lost $500 at my weekly poker game, he's going to personally reimburse me.
Apologies if this is a duplicate: Moody's downgrades Alt-A RMBS. Lehman, IndyMac, Impac.
The link on home builders moth balling of completed (?) homes is very interesting. I wonder what they have estimated as a recovery time for prices. The article says that they are writing off 2008. But what if home prices don't get to today's levels until after 2010? IMO, we're still a year or two before the low and there is a good chance that prices will bump along the bottom for years after that.
"Mothballing" might work for a short time but if this market doesn't come back by next year I think it is just another idiotic ploy. Once they get a c/o (certificate of occupancy) the builders have to pay the county and state real estate taxes. If they try to delay by leaving a wall or two unfinished or some other trick, they will likely face fines depending on how aggressive the locals want to get.
Plus they are only as strong as the weakest link. Toll and Lennar can whine all they want, but if a hovnanian or beazer development down the road undercuts their prices, they're screwed.
MoM,
That was the first I had seen it - CR if you are up please consider posting MoM's link on first lien Alt-A RMBS downgrades.
Banker, this Tony James?
(quote)
"Tony James, after penning "Russian Roulette" for Stiv Bators and Lords of the New Church, and producing a Sex Gang Children album, formed glam punk band Sigue Sigue Sputnik with fashion designer cum singer Martin Degville in the 1980s as his follow-up to Generation X. His "space bass" became the "sput style" trademark. At this time he was in a relationship with prominent journalist Janet Street Porter.
In 1990 he became a member of The Sisters of Mercy, and played bass on their Vision Thing album, and the band's following live tours. James left the Sisters the following year.
He still tours today, and has reformed Sigue Sigue Sputnik, crediting the internet for letting him see fans were still interested, and has teamed up with Mick Jones of The Clash to form Carbon/Silicon, now playing guitar."
(end quote)
I never would have guessed...
I have done some research regarding the probability of failure for two of the big builders and three of the bond/mortgage insurers. The first mortgage insurer report is below. The downgrade of the the CDOs is quite pertinent to the blog post below.
MBIA - Reggie Middleton's Boom, Bust & Bling Blog - HAS MOVED TO REGGIEMIDDLETON.BOOMBUSTBLOG.COM!!!: A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton - levered over 100 to 1, net of reinsurance - with a significant portion of that reinsurance risk ceded owned by MBIA itself. This has significant ramifications, for if a monoline goes, or even gets downgraded, then all of the securities it insures gets downgraded as well. Not just mortgages, but municipalities, hospitals, utilities, public works, etc.
Lennar (sneak peek) - has 200% of its equity market capitalization in off balance sheet debt. When consolidating all aspects of the company, it is near insolvent. This is significant because lennar is one of the largest, if not the largest, home builder in the US. A fire sale of its assets will really devalue land, housing and mortgages (yes, morgtages, LEN was one of the largest writers of subprime mortgages, and wrote 45,000 mortgages in '06 worth $10 billion)http://reggiemiddleton.typepad.com/reggie_middletons_perpetu/2007/11/a-sneak-peek-at.html
Ryland - another large homebuilder - ramifications same as above. Reggie Middleton's Boom, Bust & Bling Blog - HAS MOVED TO REGGIEMIDDLETON.BOOMBUSTBLOG.COM!!!: Myths, Markets & Manipulators: The Real Deal on the Homebuilders
Home Depot lowered its full-year earnings forecast from continuing operations to a decline as much as 11 percent.
Home Depot said it will take a ``cautious stance'' on completing its $22.5 billion share buyback because of the volatility of credit markets and housing sales.
Home Depot Has Profit Decline on U.S. Housing Slump (Update7) - Bloomberg.com
"If adjustments in the U.S. housing market worsen and negatively affect private consumption and capital investment, the global economy would deteriorate," Fukui[BOJ Gov] told reporters at a news conference.
Expired
OT:
In the last 24 hours, I've received email from 7 different online stores telling me about special sales they're having. Not rinky dink little stores either...click & mortars....Macy's, gap, etc.
I'm pretty sure that's all the online stores I use that aren't mom & pop type stores.
If I had to take a guess, I'd say retail sales #'s aren't looking pretty, so they're trying to drive online sales.
Reggie,
Great links, great research.
It seems to me that MBIA is not the only outfit potentially in deep doo-doo. Aren't there other insurers holding CDO's and MBS that could potentially get sold off in a fire sale to meet claims obligations?
If these mortgage-backed assets prove to be near worthless, how will they meet payoff claims?
reggie, the way I see it is the mortgage insurers ARE too big to fail in this system, as their failure triggers an infinite feedback loop to oblivion, necessitating massive writedowns of debt - cascading defaults.
Bernanke and Paulson have a few sleepless nights ahead of them.