MarkS, I think BRK has all the good news they need. They (and other new entrants with clean balance sheets) will be the muni-bond insurers of choice. If you're the finance manager for Podunk City and you want your bonds insured, who are you going to want to work with - BRK or one of the moronlines (sorry, I mean monolines)? The answer's the same whether or not Ambac and MBIA hold their "AAA" ratings.
I thought AAA meant no possibility of loss short of nuclear war or bubonic plague. That is why it is the best possible rating.
How is it even conceivable that these things could be AAA? Once you entertain the possibility of loss, it's not AAA. It makes no sense to little old me.
Buried in Countrywides $831 million fourth quarter write-down of residual interests, Moodys said, was a $704 million charge related to rapid amortization on home equity line securitizations.
...
For home equity line securitizations, Countrywide, as the servicer, makes advances to borrowers when they request a draw on their line of credit. In normal circumstances Countrywides reimbursement for these advances would have a higher priority to securitization cashflows than payments made to securitization trust note holders.
However, in those situations where losses on the loans in the securitization result in claims on the insurance policies supporting the securitization above a certain threshold or duration, the priority of payment shifts. In this situation Countrywide is reimbursed after the trust note holders, insurance providers and other parties to the securitization receive the cashflows to which they are entitled. This is referred to as rapid amortization.
I admit to being uninformed about these guys, but was this a cash loss or a mark to market loss? Did they pay that out or mark their securities to market?
MBIA just needs some creative accounting help from the SEC.
Incredible! Now the SEC is aiding and abetting bank fraud and cover-up of bank losses.
Excerpts from Jan 30 Bloomberg article by Jonathan Weil.
"Just when it seemed as if the mortgage mess had hit a new low, now comes this: The Securities and Exchange Commission's staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.
In effect, the move will let home lenders keep their balance sheets looking much smaller and less leveraged, even while the off-the-books loans they made get a makeover." Subprime Lenders Get Big Accounting Break at SEC: Jonathan Weil - Bloomberg.com
This is a must read article, but please, lay down and take your blood pressure medication before reading the article. Your blood will boil.
Jan. 30 (Bloomberg) -- Just when it seemed as if the mortgage mess had hit a new low, now comes this: The Securities and Exchange Commission's staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.
By following new guidelines issued last month by a banking- industry group called the American Securitization Forum, Hewitt said servicers will be allowed to modify subprime mortgages where defaults are reasonably foreseeable,'' without jeopardizing the trusts' off-balance-sheet treatment.
Hewitt's letter came in response to requests by the ASF, as well as the Treasury Department and others. On Dec. 6, the ASF published astreamlined'' framework for evaluating subprime mortgages issued from January 2005 to July 2007, where the initial rates are scheduled to reset before August 2010.
I find it interesting that everyone is talking about the likes of BRK entering the Bond Insurance field, and yet no-one (or at least no-one I have seen) has suggested there might be a business opportunity in setting up a new, untainted-by-current-events, Ratings Service.
And not necessarily US-controlled, at that. Consider the implications if this newcomer was set up with its head office in London or Frankfurt (or Dubai, for that matter).
Since Chuck Prince (he is called "Chuck" is he not? not Chump or something like that) said everybody had to "dance" I wonder how BRK managed to sit out all the waltzing around when everybody else was on the dance floor. Warren a wall flower, as it were?
Re: I suspect we'll see a Tantablast about that Weil article before too long.
That just blows my mind into a state of shock and dumbfounded awe; I often use the word retarded to insult the on-going fraud related to people, activities and corporations, but this is well beyond the realm of possibilities.
When did the SEC gain the power to grant exemptions for false and misleading information? Was it during The Patriot Act or perhaps The Pension Reform Act, or was The Sec granted power to ignore traditional accounting reality just recently in between puffs on a bong or was it after they drank more koolaid...I really dont get it!
I swear, this process of blogging and trying to rant and rave about corrupt government is like writing a grievance on about three inches of toilet paper, because no one cares, and if your comment is read, its about as important as some crap that just floated down the sewer, which I have to suggest, is the same place this blog goes, the same place where the reposted, re-pasted story goes...it doesnt matter and I dont know how many people are going to get it, but it doesnt matter what anyone thinks in relation to The SEC making up rules on the fly.
This is a quantum leap into the darkest hour of America, but I seriously dont think people give a shit and I imagine if Im not censored here or deleted or liked, this little blog will not connect to anyone that does give a shit and its amazing that people are not pissed by this retarded government that has destroyed America. Im so ashamed and the only reason im going on and on is because Im deleting Calculated Risk and every blog sight, every financial page and walking away from this insanity....this is fucking nuts and you people can sort outthe new era nazi rule machine....
Jan. 30 (Bloomberg) -- Just when it seemed as if the mortgage mess had hit a new low, now comes this: The Securities and Exchange Commission's staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.
By following new guidelines issued last month by a banking- industry group called the American Securitization Forum, Hewitt said servicers will be allowed to modify subprime mortgages where defaults are reasonably foreseeable,'' without jeopardizing the trusts' off-balance-sheet treatment.
Hewitt's letter came in response to requests by the ASF, as well as the Treasury Department and others. On Dec. 6, the ASF published astreamlined'' framework for evaluating subprime mortgages issued from January 2005 to July 2007, where the initial rates are scheduled to reset before August 2010.
NioRio writes:
I admit to being uninformed about these guys, but was this a cash loss or a mark to market loss? Did they pay that out or mark their securities to market?
--
Wilbur Ross commented, "Losing AAA rating is like losing one's virginity."
Looks like we wouldn't have any virgins left among Bankrupters and Fraudsters, turned whores, before the Credit Bubble fully bursts. These whores would have given VD to tens of millions.
Predictable outcome from a bad system in the jaws of NYC sharks.
I think I get it now
The SEC change appears to permit the lenders to bail out underwater homeowners without having to take the derivative onto their books which the existing rules demanded
Without this Bush's intent to bailout people can't be enacted.. of course the lenders can be expected to be halfhearted about actually contacting the homeowners.. they sold the CDO why should they care?
They didn't care before when, although they couldn't fiddle the interest rates, they could have sat them down and tried to sort through their finances. Nope, the CDO was sold so they didn't care, hell they didn't care when they MADE the loan, why care now?
We can be sure banks will never have to take what they sold onto their books, and not only that can alter the contract at will
Just think what the foreign buyers of the crap are thinking now?
The same foreigners who buy up treasuries for the US buy their oil
Hmmmmm
About time we made our own products again cause no money to be made in financial alchemy any more
--
Romero:" About time we made our own products again"
Too late. US corporations have built too much capacity in China.
"cause no money to be made in financial alchemy any more"
But, Bankrupters and Fraudsters have already made all the money they could. Now, their victims, including the US taxpayers, must pay for years to come.
"As Keynes theorized and then Krugman affirmed, when private demand falters, it becomes the responsibility of government to fill the breach. Because it likely will not do so effectively until after a new Administration is elected in late 2008, the U.S. economy and its somewhat coupled global companion will sleep walk for some time and a resumption of prosperity as we knew it will be dependent on reforms of monetary and fiscal policy resembling the 1930s more than our past decade. Better late than never."
The message is clear as cited above, you absolutely, cannot, repeat, cannot, have across the board tightening of credit and NOT expect significant future slowing in a levered economy. The fed knows this, has reacted accordingly, and will likely go much lower over time. This cycle will be long, require more stimulus other than just monetary easing, and expectations need to come down for future growth.
"LONDON, Jan 31 (Reuters) - Asia-focused bank Standard Chartered (STAN.L: Quote, Profile, Research) will back an outstanding $7 billion of debt at its structured investment vehicle (SIV) to provide it with operating flexibility, it said on Thursday."
I have always respected your analysis and you have been one of the first to be ahead of the curve in the way you have described what to expect and so forth.
However a couple of weeks ago you were saying that people were over reacting and did not understand capital markets.
And now we have all of this which is as bad as i could have ever imagined and you are quoting this and that to bring it to me.
I admit i dont understand capital markets but dont see that i was unreasonably concerned about what is happening.
You are now saying it is manageable. I think you need to clarify what you mean.
What would you compare the current crisis too? 1987 70's or worse or better? What?
All situations in history have so far been managed for us to get here.
I have been saying tough period, but, manageable for quite sometime.
I think if you "only" concentrate on what is "bad" you become consumed in a fantasy and become like many participants here calling for the second Great Depression. There is much that is very good that has taken place, we don't hear people talking significantly about the improvements that have taken place in the credit markets in particular, there are always worries & fears, history has shown us this.
Everywhere you look, there is risk, different types of risk, the most difficult thing is not to be consumed by fear and attempt to remain objective. The repricing of risks is a good thing in and of itself, excesses will be worked off and we will move forward.
Does that mean that this won't be a tough period, of course not, it likely will, but, an plausible argument can be presented that this is exactly what we need.
The MSM has a tendency to scare the complete shit out of people and creating an aura that Armegeddon looms, my feeling all along has been, we get through this just like every other tough period, that said, it ain't going to be pain-free.
Good info on the immoveable inventory of buyout debt cooling its heels on WS balance sheets rather than being traded. I talked to senior lending officer at a big foreign bank last week who told me the problem was even worse than the $150 billion stated in the article.
According to him, that number doesn't account for revolvers which can run the UPB up an additional 20%. These things were apparently structured to leave the additional draws at the discretion of the borrower.
But what's another $30 billion of highly illiquid paper these days? Yawn.
I took the liberty of downloading the spreadsheets to see the assumptions and the models. Now I am not very good with excel, in fact i am a complete neophyte, but i could not find the model which drove the loss calculations. perhaps someone who is more facile than i can dig it up.
No doubt I am in error, but when i look at the spreadsheets some of the loss numbers seem over the top. There are some things that completely dont make sense as if one looks at sheet 11, which is ambac alt-a exposure, there are pools (line 29) for which the loss is expected to be more than the value of the entire pool at start.
in general if i am reading it correctly, the alt-a writedowns for this set of pools is about 18% of the current outstanding balance. the current default rate is under 3%. i dont know what the ltv numbers are for the pool, but if you guess 80 percent, then these numbers make absolutely no sense. to generate 18% losses, requires 36% default rate with a 50% loss, which if the ltv is 80% requires the actual price declines of the underlying assets on the order of 70%.
hopefully someone with better excel skills can explain my mistake to me. if they can't, then ackerman ought to be embarrassed.
FYI - I looked at available munis this morning. You can definitely see the impact of the problems with the insurers - but only in issues with low underlying ratings. An example is Central Texas Turnpike Systems Revenue Bonds. Why a turnpike bond would have a low underlying rating - I don't know - but it does. Roby
What would make me extremely happy is to see Ambac and MBIA fall to bankruptcy and see a couple Trillion in assets worthless. The financial system is crooked. The longer the system stays afloat the deeper the corruption takes over. Death to our financial system. To see it crash and see brokers jumping out of windows would be a most enjoyable sight. They deserve to suffer and I have no sympathy for the system. I want death, destruction and bodies in the streets. I'm sick and tired of this system, the politicians and this whole damn socialist country.
To all foreign investors:
Do not invest in anything American, let us starve. Why buy at these high prices when you control the market, the US is a sad group of broke thieves. Don't loan us any money and don't bail us out. Let us starve and let this warped empire called the US die the death it deserves. Then when were finished you can buy everything at a quarter of the price. Hopefully Wall Street will be yours for the taking....
"No doubt I am in error, but when i look at the spreadsheets some of the loss numbers seem over the top. There are some things that completely dont make sense as if one looks at sheet 11, which is ambac alt-a exposure, there are pools (line 29) for which the loss is expected to be more than the value of the entire pool at start.
in general if i am reading it correctly, the alt-a writedowns for this set of pools is about 18% of the current outstanding balance. the current default rate is under 3%. i dont know what the ltv numbers are for the pool, but if you guess 80 percent, then these numbers make absolutely no sense. to generate 18% losses, requires 36% default rate with a 50% loss, which if the ltv is 80% requires the actual price declines of the underlying assets on the order of 70%.
hopefully someone with better excel skills can explain my mistake to me. if they can't, then ackerman ought to be embarrassed.
david_in_ct | 01.31.08 - 9:06 am | #"
Dave:
I looked at the spreadsheet and indeed there is an error in the cell.
It is a 'spreadsheet from hell'
There is also no formula in the cell, so you can't see how they got a loss greater then par.
The writedown column just has values.
Overall, people have to realize that he is hardly a disinterested party and in any calculations involving judgment might have his thumb on the scale.
With regard to MBI, the $3b is mark to market on CDO's. It was also preannounced. There is an Ackman story about a $100,000 photo copying bill, etc.
Why would a quarterly loss greater than the company's market cap possibly trigger the removal of the HIGHEST POSSIBLE CREDIT RATING? Yeesh.
And did they really release their earnings at midnight eastern time? Double yeesh.
Maybe they hoped no one would notice?
Its not like theres trillions of dollars at stake or anything.
Gracious.
Is this good news for BRK?
Any thoughts on Rubin's speech at the Cooper Union?
Check bloomberg video.
Analyst Estimates: -$2.98/share
Actual: -$18.61/share
Wow. Nice miss!
Yeh, but still AAA. Just goes to show you what a farce our innovative financial system is.
MarkS, I think BRK has all the good news they need. They (and other new entrants with clean balance sheets) will be the muni-bond insurers of choice. If you're the finance manager for Podunk City and you want your bonds insured, who are you going to want to work with - BRK or one of the moronlines (sorry, I mean monolines)? The answer's the same whether or not Ambac and MBIA hold their "AAA" ratings.
forgive me, I'm illiterate. No A's, B's, C's in my jargon. They get an extra gold star in my book, just for trying.
I thought AAA meant no possibility of loss short of nuclear war or bubonic plague. That is why it is the best possible rating.
How is it even conceivable that these things could be AAA? Once you entertain the possibility of loss, it's not AAA. It makes no sense to little old me.
OT, and perhaps old news on an earlier thread, but I'd love the CR and/or Tanta take on this phenomenon:
Moody’s: Rapid Amortization on HELOCs a Concern : HousingWire || financial news for the mortgage market
Buried in Countrywides $831 million fourth quarter write-down of residual interests, Moodys said, was a $704 million charge related to rapid amortization on home equity line securitizations.
...
For home equity line securitizations, Countrywide, as the servicer, makes advances to borrowers when they request a draw on their line of credit. In normal circumstances Countrywides reimbursement for these advances would have a higher priority to securitization cashflows than payments made to securitization trust note holders.
However, in those situations where losses on the loans in the securitization result in claims on the insurance policies supporting the securitization above a certain threshold or duration, the priority of payment shifts. In this situation Countrywide is reimbursed after the trust note holders, insurance providers and other parties to the securitization receive the cashflows to which they are entitled. This is referred to as rapid amortization.
Wall Street Blocked By Buyout Debt -Banks Find Few Takers for Loans Funding Deals
Wall Street Blocked By Buyout Debt - washingtonpost.com
Thread music: Rosemary Clooney - Blues In The Night (goodnight all)
YouTube
- Broadcast Yourself.
I admit to being uninformed about these guys, but was this a cash loss or a mark to market loss? Did they pay that out or mark their securities to market?
MBIA just needs some creative accounting help from the SEC.
Incredible! Now the SEC is aiding and abetting bank fraud and cover-up of bank losses.
Excerpts from Jan 30 Bloomberg article by Jonathan Weil.
"Just when it seemed as if the mortgage mess had hit a new low, now comes this: The Securities and Exchange Commission's staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.
In effect, the move will let home lenders keep their balance sheets looking much smaller and less leveraged, even while the off-the-books loans they made get a makeover."
Subprime Lenders Get Big Accounting Break at SEC: Jonathan Weil - Bloomberg.com
This is a must read article, but please, lay down and take your blood pressure medication before reading the article. Your blood will boil.
The Great Credit Unwind of 2008
The great credit unwind of '08
A summary of information known to the regulars here. New readers may want to use this link to get a background.
Big Japan banks' subprime losses seen at $4.7 bln
Big Japanese banks' subprime losses seen at $4.7 bln: report - MarketWatch
The Bond Transformers
The Bond 'Transformers' - WSJ.com
This article has a useful description of credit-default swaps.
What a joke the rating companies are, not even trying to keep any credibility. They must be expecting to go out of business too.
Subprime Lenders Get Big Accounting Break at SEC: Jonathan Weil
Commentary by Jonathan Weil
Subprime Lenders Get Big Accounting Break at SEC: Jonathan Weil - Bloomberg.com
Jan. 30 (Bloomberg) -- Just when it seemed as if the mortgage mess had hit a new low, now comes this: The Securities and Exchange Commission's staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.
By following new guidelines issued last month by a banking- industry group called the American Securitization Forum, Hewitt said servicers will be allowed to modify subprime mortgages where defaults are reasonably foreseeable,'' without jeopardizing the trusts' off-balance-sheet treatment.
Hewitt's letter came in response to requests by the ASF, as well as the Treasury Department and others. On Dec. 6, the ASF published astreamlined'' framework for evaluating subprime mortgages issued from January 2005 to July 2007, where the initial rates are scheduled to reset before August 2010.
I find it interesting that everyone is talking about the likes of BRK entering the Bond Insurance field, and yet no-one (or at least no-one I have seen) has suggested there might be a business opportunity in setting up a new, untainted-by-current-events, Ratings Service.
And not necessarily US-controlled, at that. Consider the implications if this newcomer was set up with its head office in London or Frankfurt (or Dubai, for that matter).
Hmmmm, I suspect we'll see a Tantablast about that Weil article before too long.
Seems to me those new guidelines could actually be a good idea rather than any sort of scam.
Since Chuck Prince (he is called "Chuck" is he not? not Chump or something like that) said everybody had to "dance" I wonder how BRK managed to sit out all the waltzing around when everybody else was on the dance floor. Warren a wall flower, as it were?
Zigurrat, you out there? Still think MBIA will survive?
Excellent run-down from FT Alphaville, including impact on muni bonds:
FT Alphaville » Blog Archive » MBIA: Another morning, another monoline crisis…
Re: I suspect we'll see a Tantablast about that Weil article before too long.
That just blows my mind into a state of shock and dumbfounded awe; I often use the word retarded to insult the on-going fraud related to people, activities and corporations, but this is well beyond the realm of possibilities.
When did the SEC gain the power to grant exemptions for false and misleading information? Was it during The Patriot Act or perhaps The Pension Reform Act, or was The Sec granted power to ignore traditional accounting reality just recently in between puffs on a bong or was it after they drank more koolaid...I really dont get it!
I swear, this process of blogging and trying to rant and rave about corrupt government is like writing a grievance on about three inches of toilet paper, because no one cares, and if your comment is read, its about as important as some crap that just floated down the sewer, which I have to suggest, is the same place this blog goes, the same place where the reposted, re-pasted story goes...it doesnt matter and I dont know how many people are going to get it, but it doesnt matter what anyone thinks in relation to The SEC making up rules on the fly.
This is a quantum leap into the darkest hour of America, but I seriously dont think people give a shit and I imagine if Im not censored here or deleted or liked, this little blog will not connect to anyone that does give a shit and its amazing that people are not pissed by this retarded government that has destroyed America. Im so ashamed and the only reason im going on and on is because Im deleting Calculated Risk and every blog sight, every financial page and walking away from this insanity....this is fucking nuts and you people can sort outthe new era nazi rule machine....
Jan. 30 (Bloomberg) -- Just when it seemed as if the mortgage mess had hit a new low, now comes this: The Securities and Exchange Commission's staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.
By following new guidelines issued last month by a banking- industry group called the American Securitization Forum, Hewitt said servicers will be allowed to modify subprime mortgages where defaults are reasonably foreseeable,'' without jeopardizing the trusts' off-balance-sheet treatment.
Hewitt's letter came in response to requests by the ASF, as well as the Treasury Department and others. On Dec. 6, the ASF published astreamlined'' framework for evaluating subprime mortgages issued from January 2005 to July 2007, where the initial rates are scheduled to reset before August 2010.
for the love of god and all that is holy...
how many people can these folks make loans to to lose this much money?!?
Aren't we near $500B in losses? Isn't that over $1600 per person in America?
NioRio writes:
I admit to being uninformed about these guys, but was this a cash loss or a mark to market loss? Did they pay that out or mark their securities to market?
It's a mark, for now.
--
Wilbur Ross commented, "Losing AAA rating is like losing one's virginity."
Looks like we wouldn't have any virgins left among Bankrupters and Fraudsters, turned whores, before the Credit Bubble fully bursts. These whores would have given VD to tens of millions.
Predictable outcome from a bad system in the jaws of NYC sharks.
Jas
--
"When did the SEC gain the power to grant exemptions for false and misleading information?"
Do you know what SEC stands for?
Securing Entitlements for Crooks!
And Fed is there to help Bankrupters and Fraudsters of NYC.
It is important to know the true nature of our institutions.
Jas
I think I get it now
The SEC change appears to permit the lenders to bail out underwater homeowners without having to take the derivative onto their books which the existing rules demanded
Without this Bush's intent to bailout people can't be enacted.. of course the lenders can be expected to be halfhearted about actually contacting the homeowners.. they sold the CDO why should they care?
They didn't care before when, although they couldn't fiddle the interest rates, they could have sat them down and tried to sort through their finances. Nope, the CDO was sold so they didn't care, hell they didn't care when they MADE the loan, why care now?
We can be sure banks will never have to take what they sold onto their books, and not only that can alter the contract at will
Just think what the foreign buyers of the crap are thinking now?
The same foreigners who buy up treasuries for the US buy their oil
Hmmmmm
About time we made our own products again cause no money to be made in financial alchemy any more
--
Romero:" About time we made our own products again"
Too late. US corporations have built too much capacity in China.
"cause no money to be made in financial alchemy any more"
But, Bankrupters and Fraudsters have already made all the money they could. Now, their victims, including the US taxpayers, must pay for years to come.
Bad system = bad outcome. The dye is cast.
Jas
"As Keynes theorized and then Krugman affirmed, when private demand falters, it becomes the responsibility of government to fill the breach. Because it likely will not do so effectively until after a new Administration is elected in late 2008, the U.S. economy and its somewhat coupled global companion will sleep walk for some time and a resumption of prosperity as we knew it will be dependent on reforms of monetary and fiscal policy resembling the 1930s more than our past decade. Better late than never."
PIMCO - Investment Outlook- February 2008 "Better Late Than Never"
The message is clear as cited above, you absolutely, cannot, repeat, cannot, have across the board tightening of credit and NOT expect significant future slowing in a levered economy. The fed knows this, has reacted accordingly, and will likely go much lower over time. This cycle will be long, require more stimulus other than just monetary easing, and expectations need to come down for future growth.
This will be a tough period, but, manageable.
"LONDON, Jan 31 (Reuters) - Asia-focused bank Standard Chartered (STAN.L: Quote, Profile, Research) will back an outstanding $7 billion of debt at its structured investment vehicle (SIV) to provide it with operating flexibility, it said on Thursday."
Standard Chartered Backs $7 Bln SIV
| Reuters
Enjoy Ackman's analysis:
YouSendIt: Online File Sharing and collaboration with FTP Replacement - Send Large Files and Email Attachments with Managed File Transfer Solution
Stupid idea to bail out HomeBuilders and Banks using Tax Payers money is back in the Senate.
Subprime Lenders Get Tax Breaks in U.S. Senate Stimulus Plan
Subprime Lenders Get Tax Breaks in U.S. Senate Stimulus Plan - Bloomberg.com
Risk Capital
I have always respected your analysis and you have been one of the first to be ahead of the curve in the way you have described what to expect and so forth.
However a couple of weeks ago you were saying that people were over reacting and did not understand capital markets.
And now we have all of this which is as bad as i could have ever imagined and you are quoting this and that to bring it to me.
I admit i dont understand capital markets but dont see that i was unreasonably concerned about what is happening.
You are now saying it is manageable. I think you need to clarify what you mean.
What would you compare the current crisis too? 1987 70's or worse or better? What?
All situations in history have so far been managed for us to get here.
Soon we are going to be talking about real money.
worried-
I have been saying tough period, but, manageable for quite sometime.
I think if you "only" concentrate on what is "bad" you become consumed in a fantasy and become like many participants here calling for the second Great Depression. There is much that is very good that has taken place, we don't hear people talking significantly about the improvements that have taken place in the credit markets in particular, there are always worries & fears, history has shown us this.
Everywhere you look, there is risk, different types of risk, the most difficult thing is not to be consumed by fear and attempt to remain objective. The repricing of risks is a good thing in and of itself, excesses will be worked off and we will move forward.
Does that mean that this won't be a tough period, of course not, it likely will, but, an plausible argument can be presented that this is exactly what we need.
The MSM has a tendency to scare the complete shit out of people and creating an aura that Armegeddon looms, my feeling all along has been, we get through this just like every other tough period, that said, it ain't going to be pain-free.
FFDIC,
Good info on the immoveable inventory of buyout debt cooling its heels on WS balance sheets rather than being traded. I talked to senior lending officer at a big foreign bank last week who told me the problem was even worse than the $150 billion stated in the article.
According to him, that number doesn't account for revolvers which can run the UPB up an additional 20%. These things were apparently structured to leave the additional draws at the discretion of the borrower.
But what's another $30 billion of highly illiquid paper these days? Yawn.
In a few years there's going to be an inquiry in the senate that will go something like this?
Senator to Rating Agencies: "How could you give a AAA rating to a company that was desperately seeking cash infusions to stave off bankruptcy?"
Rating Agency: "We felt that they were in a strong financial position. We had no way of knowing their actual position."
Senator: "Didn't the massive drop in their stock price or their attempts to borrow money at 20% indicate something might be wrong?"
Rating Agency: "It didn't stand out as anything unusual to us."
Senator to SEC: "Why didn't you do anything when it was clear that the AAA rating was not deserved?"
SEC: "We didn't see any reason for them not to have a AAA rating."
It will be a repeat of the Enron hearings. A lot of good those hearings did for us.
Another quick step coming, from ZIRP to NIRP.
Thanks Tom and others for the Weil article.
"Noble writes:
Enjoy Ackman's analysis:"
I took the liberty of downloading the spreadsheets to see the assumptions and the models. Now I am not very good with excel, in fact i am a complete neophyte, but i could not find the model which drove the loss calculations. perhaps someone who is more facile than i can dig it up.
No doubt I am in error, but when i look at the spreadsheets some of the loss numbers seem over the top. There are some things that completely dont make sense as if one looks at sheet 11, which is ambac alt-a exposure, there are pools (line 29) for which the loss is expected to be more than the value of the entire pool at start.
in general if i am reading it correctly, the alt-a writedowns for this set of pools is about 18% of the current outstanding balance. the current default rate is under 3%. i dont know what the ltv numbers are for the pool, but if you guess 80 percent, then these numbers make absolutely no sense. to generate 18% losses, requires 36% default rate with a 50% loss, which if the ltv is 80% requires the actual price declines of the underlying assets on the order of 70%.
hopefully someone with better excel skills can explain my mistake to me. if they can't, then ackerman ought to be embarrassed.
"Carlomagno writes:
Zigurrat, you out there? Still think MBIA will survive?
Carlomagno | 01.31.08 - 3:36 am | #"
You have the wrong person. I think it is highly likely that they will lose their rating and not be able to write new business.
I also think there is a lot of uninformed piling on and an lack of understanding regarding the implications of a downgrade.
As a former owner of Jan 10 puts (who was surprised to see them finish in the money), I would hardly consider myself a bull on the company prospects.
Bonds are just a trend for most investors since bonds have minimal returns.
Lively Money
back to the long side.
for people who want to start a business Lively Money: A true business takes money makes money!
Just an aside - Jonathan Weil does not comprehend what he writes about as well as he thinks he does.
Not necessarily to be ignored, but take him with a grain of salt.
Zigurrat | 01.31.08 - 9:09 am | #
Sorry Zigurrat, must have confused you with that chap who recently bought shares in one of the monolines.
FYI - I looked at available munis this morning. You can definitely see the impact of the problems with the insurers - but only in issues with low underlying ratings. An example is Central Texas Turnpike Systems Revenue Bonds. Why a turnpike bond would have a low underlying rating - I don't know - but it does. Roby
What would make me extremely happy is to see Ambac and MBIA fall to bankruptcy and see a couple Trillion in assets worthless. The financial system is crooked. The longer the system stays afloat the deeper the corruption takes over. Death to our financial system. To see it crash and see brokers jumping out of windows would be a most enjoyable sight. They deserve to suffer and I have no sympathy for the system. I want death, destruction and bodies in the streets. I'm sick and tired of this system, the politicians and this whole damn socialist country.
To all foreign investors:
Do not invest in anything American, let us starve. Why buy at these high prices when you control the market, the US is a sad group of broke thieves. Don't loan us any money and don't bail us out. Let us starve and let this warped empire called the US die the death it deserves. Then when were finished you can buy everything at a quarter of the price. Hopefully Wall Street will be yours for the taking....
"No doubt I am in error, but when i look at the spreadsheets some of the loss numbers seem over the top. There are some things that completely dont make sense as if one looks at sheet 11, which is ambac alt-a exposure, there are pools (line 29) for which the loss is expected to be more than the value of the entire pool at start.
in general if i am reading it correctly, the alt-a writedowns for this set of pools is about 18% of the current outstanding balance. the current default rate is under 3%. i dont know what the ltv numbers are for the pool, but if you guess 80 percent, then these numbers make absolutely no sense. to generate 18% losses, requires 36% default rate with a 50% loss, which if the ltv is 80% requires the actual price declines of the underlying assets on the order of 70%.
hopefully someone with better excel skills can explain my mistake to me. if they can't, then ackerman ought to be embarrassed.
david_in_ct | 01.31.08 - 9:06 am | #"
Dave:
I looked at the spreadsheet and indeed there is an error in the cell.
It is a 'spreadsheet from hell'
There is also no formula in the cell, so you can't see how they got a loss greater then par.
The writedown column just has values.
Overall, people have to realize that he is hardly a disinterested party and in any calculations involving judgment might have his thumb on the scale.
With regard to MBI, the $3b is mark to market on CDO's. It was also preannounced. There is an Ackman story about a $100,000 photo copying bill, etc.
Ackman Devoured 140,000 Pages Challenging MBIA Rating (Update2) - Bloomberg.com
By the way, you can miss a question of the sat verbal and still score an 800. Bet he missed more then one.