*140 job cuts in latest wave of CMBS layoffs
*Rising CMBS spreads shut down lending
*B-piece buyers facing altered landscape
*Wachovia takes $600mm loss on CMBS portfolio in 4Q.
Dont woory about money, its ok, I got yah covered:
n November last year British Bank Dubai issued a Certificate of Deposit (CD) programme which was actually an MTN with Certificate of Deposit features. It was issued directly to major local investors and corporations for a minimum of Dhs 5 million (US$1.3 million) on a confidential electronic transfer register basis. A spokesman at HSBC Financial Services confirmed it was an MTN but said: We could not tell the investors because they are not yet familiar with MTNs.
No actual MTN certificates were issued for this programme, merely an account custodial receipt, as the UAE Central Bank must give approval before a bank or financial institution can issue a full MTN.
The beauty of an MTN programme is its swiftness, safety and secrecy. It can be tailor made to suit an investors demands, said Chambers.
Given the size of the MTN market in Europe and its continuing explosive growth, the chances of any investor losses from non-trades is probably limited to any very short-term differential between bank bid and offer interest rates, plus leveraging costs, if any.
I'm confused here. I have read everything from 15B to 400B. Are there analysts reviewing the situation? Kinda funny that nobody knows what the hech the exposure really is.
But I am assured this insurance thing is contained and will not spread. Oh on topic:
NEW YORK Credit rating agency Fitch Ratings downgraded the financial strength ratings of XL Capital Ltd.'s insurance and reinsurance subsidiaries to "A+" from "AA-."
Fitch cut the rating Thursday after XL Capital said it would take fourth-quarter charges ranging between $1.5 billion and $1.7 billion. Most of the charges are tied to XL Capital's investment in and relationship with Security Capital Assurance Ltd
I can never remember a time when so many companies that were about to go under had so much effort spent on trying to save them by a group of other companies.
When the nasdaq crashed, no one seemed to care outside of common shareholders.
It's kind of like all the mafia dons trying to keep each other from being indicted so they won't rat each other out.
Banks will lose money because bond insurers get downgraded from AAA to CCC?
That sounds wrong, if I put a sticker on my Saturn that says "I am really Mercedes" that should not make my Saturn cost more.
Or maybe, just maybe, banks will lose money because they mis-priced the credit risk associated with bonds they bought and sold? Then it seems logical that banks will lose 143B NO MATTER WHAT.
They can either spend these billions now propping up these bonds (via Ambac and Co) or they can spend them later writing off the losses.
Maybe real story should be on why would Barclay publish this meaningless piece?
And banks are THE core infrastructure of most modern nations' monetary operations. Yes, we can work around their failure - sorta, and with significant difficulty.
(Corrects to show Fitch is only applying new policy to municipals.)
NEW YORK, Jan 25 (Reuters) - Fitch Ratings on Friday said that when it downgrades a bond insurer, it will withdraw its ratings for the insured bonds if it has not done an underlying rating for them but its rivals have.
If Moody's Investors Service or Standard & Poor's Ratings Services have rated the underlying bonds, and those ratings are higher than the one Fitch has assigned to the bond insurer, "Fitch will use the lower of the two (credit agencies' ratings) in making this determination," it added in a statement.
If the underlying rating is the same as the bond insurer's then Fitch will rate the bond at the bond guarantor's rating. "We're only applying it to public finance, right now," said David Litvack, a Fitch analyst.
I love the last line:
"We're only applying it to public finance, right now"
http://financial-dictionary.thefreedictionary.com/Medium+Term+Note+-+MTN">Medium Term Note - MTN
The final numbers seem like they'll be a hell of a lot larger than $143 billion in the event of a downgrade - that's just the impact on the banks themselves, and doesn't take into account all the other implicit holders of these contracts (money market funds holding wrapped securities, hedge funds, pension funds, etc.).
Standard & Poor's analysts said bond insurers must resolve business viability and other issues in order to retain their "AAA" ratings, according to Reuters. Reuters also reports that a bond insurers group said the industry is "financially strong" and is intent on defending its top credit ratings.
(end quote)
How do the phrases "business viability issues" and "AAA" ratings find themselves in the same sentence?
looks like the Dow is going to close today amost exactly where ist stared last Friday (around 12200). Is this what 75 basis points emergency does to the markets? WOWWWWW
Banks will lose money because bond insurers get downgraded from AAA to CCC?
That sounds wrong, if I put a sticker on my Saturn that says "I am really Mercedes" that should not make my Saturn cost more.
The banks all bought Mercedes that were really just Saturns with the emblem swapped out.
The problem is that the banks have all these Saturns on the books valued as Mercedes and the only thing that's preventing them from acknowledging that they're not and writing the losses down is the insurers.
The insurers are basically hiding a huge financial fraud (nevermind who exactly was the perpetrator).
Brian Westbury of First Trust Advisors believes concerns over subprime's effect on the economy are overblown.
"I think people need to calm down and realize this whole subprime loan problem is at most two or 300 billion dollars, that's it," Westbury said. "This is just too small of a problem to cause all this panic."
See Illiquid Securities.
In accordance with a requirement imposed by the staff of the SEC, the Advisor will consider privately-issued fixed rate interest only classes of SMBS (IO) and principal only classes of SMBS (PO) to be illiquid securities for purposes of the Funds limitation on investments in illiquid securities. Unless the Advisor determines that a particular government-issued fixed rate IO or PO is liquid, it will also consider these IOs and POs to be illiquid.
Remember to NOT have chickens or other livestock in your fron tyard during an appraisal period; after you get the thumbs up, anything goes (do we have a video?)
Dang no wonder Pimco is so bitchy about getting rates lower, look at the mess Gross has engineered there! He does need more room to escape!
Mortgage-Related and Other Asset-Backed Securities
Each Fund may invest in mortgage- or other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations (CMOs), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities (SMBSs) and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property.
The value of some mortgage- or asset-backed securities may be particularly sensitive to changes in prevailing interest rates...
Re: . See Illiquid Securities.
In accordance with a requirement imposed by the staff of the SEC, the Advisor will consider privately-issued fixed rate interest only classes of SMBS (IO) and principal only classes of SMBS (PO) to be illiquid securities for purposes of the Funds limitation on investments in illiquid securities.
Does that infer that there are ARM classes of SMBS, if there are I sure love to see what they feel like......LOL
The comments by Bill Ackman really bear on this (see Big Picture): the bond company investment portfolios hold much, often a majority, of bonds insured by themselves or other insurers.
A bond insurer therefore may have a vested interest: if it downgrades bond held in its own portfolio, it has committed suicide.
Why don't they just change the rules so that the downgrades don't affect the banks or anyone else.
It's their game. They can make up new rules, can't they?
Yalt posted: "I think people need to calm down and realize this whole subprime loan problem is at most two or 300 billion dollars, that's it," Westbury said. "This is just too small of a problem to cause all this panic."
I'm no apologist for Westbury or any other analyst/guru/pundit, but if you look strictly at the economic indicators (GDP, CPI-U, ISM manufacturing and services indices, employment, etc.) he's absolutely right. SP500 dividends for the last 12 months were $246.58 billion, with earnings of course being much higher, so even $200-$300 billion simply isn't that big a number.
The Fed easings and other policy actions (tax rebates or whatever) are not responses to a weak economy, but to the stock market and banking system. The economy is strong enough to take care of itself.
On these threads I have seen occasional references to bank borrowing from the federal reserve, etc. Conjure recently linked to a chart that showed a big spike. Spikes on charts are always scary, but I for one would be grateful if someone would be kind enough to share some wisdom with us grasshoppers: What does this mean? What does it tell us? Thanks.
"For US banks, Level 3
assets rose in third quarter 2007 by a third to levels that ranged between 2.2%
and 8% of overall assets. On the face of it, these proportions do not look so
catastrophic, but readers should look further. As a proportion of tangible equity
(a definition that strips out some forms of capital as well as goodwill), Level 3
assets were about 71-245%."
This is from a research paper I am currently reading. Anybody else beginning to see the problem with massive downgrades/defaults. How many banks can take a hit on equity like that and survive...
Chris
P.S.- Did ya know private,nonfinancial debt rose from approx 10000B in 1995 to 25000B in 2005 ?? Yep thats also sustainable..
Back onto that conforming loan limit thing: Since raising the conforming loan limit will take loans away from other parts of the country (outside of California) we can probably get this stopped by writing our Senators (assuming you're outside of CA, that is). I just sent the following email to my Senators here in Oregon:
The recent economic "stimulus" package proposed by President Bush and House Democrats contains some questionable items. I would like to highlight one that I think is actually dangerous; that is the proposal to increase the conforming loan limit to $729,000 from the current $417,000.
First of all, OFHEO Director James B. Lockhart is opposed to increasing the limit. Today he said: "We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs regulator has all the necessary safety and soundness tools." As you know, the OFHEO is the regulator charged with ensuring the safety and soundness of Fannie Mae and Freddie Mac.
And secondly, raising the conforming loan limit will mean that less total loans are made since the GSEs have a finite amount of money to lend. For example, a $729,000 loan made for a house in California, could have been two (or possibly even 3) loans made in Oregon. This will be bad for Oregonians and for citizens of others states who have housing prices which are much less than California's home prices.
And finally, the GSEs (Fannie Mae and Freddie Mac) were created to help people of "modest means" to buy a home. A $729,000 limit seems to help people who are very well off.
Please oppose the raising of the conforming loan limit.
Yep. Appeal to their fear: fear that their constituents are going to lose out so that California will benefit. This is why we've got a Senate: the founding fathers were wise.
You can contact your Senators here: U.S. Senate: Senators Home
in the econbrowser article james hamilton makes a persuasive case...along the lines of Ella's opinion on a thread here last night...that the fed's 75 basis point move really looks like fear bordering on panic.
check out the link at econ b (to st L fed research) to the historical chart of fed moves.
First, and Im far from the first to note this, most CMOs are of the plain-vanilla REMIC variety that currently dominates the market for FNMA and FHLMC pass-throughs (read this to get some background on REMICS and CMOs, if you arent familiar).
Tanta over at Calculated Risk has said that the bond market is certainly going to change pretty radically if we declare that REMICsas suchare too toxic for retail investors. These are, after all and literally, your grandmothers securities.
Which is precisely why I dont think were talking about REMICs here, although neither the WSJ nor Bloomberg appear to have bothered with this important distinction.
Rather, I think were talking about IO strips here, part of whats known as the stripped mortgage-backed securities (SMBS) market by IO, I mean interest-only.
To put it lightly, IOs represent one of the riskiest fixed-income assets available. Allowing retail investors to dabble in this space would, IMHO, absolutely become an issue of suitability on behalf of any yahoo that actually went ahead and sold it to an investor (or even marketed it, put it into a PowerPoint you get the idea).
What the FINRA investigation suggests here is that more securities brokerages than just Brookstreet decided to get into this complex game. Which is absolutely stunning.
Re: Both the Wall Street Journal and Bloomberg reported Friday morning that the Financial Industry Regulatory Authority FINRA for short is investigating securities brokerage firms marketing and sale of collateralized mortgage obligations.
HW readers may recall coverage of Orange County, Calif.-based Brookstreet Securities Corp., which went belly-up in June over bad CMO bets.
In letters sent in mid-December, the Wall Street Journal reports that FINRA asked firms for marketing materials, a list of supervisory policies and procedures, and descriptions of how collateralized mortgage obligations were valued.
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States.
From the Journal:
The letters, dated Dec. 14, were sent from Finras enforcement division in what has been described as a sweep investigation, which is a broad look at industrywide practices that doesnt necessarily result in an enforcement action. The letter asks for PowerPoint presentations, sales scripts and detailed customer-account information from June 30, 2006, through July 31, 2007. Firms have until Tuesday to respond.
Bloomberg reports that FINRAs concern is over the suitability of CMOs, with one lawyer interviewed characterizing the securities as potentially risky and complicated products.
I have all sort of comments here, harking back to discussions over Brookstreets failing.
The banks need capitol if they are going to help another (call me Ms Obvious). Borrowing from the Fed will only do so much. They need to liquidate their REO holdings. The question is, how soon until the regulators make them do it?
mock turtle said: "in the econbrowser article james hamilton makes a persuasive case...along the lines of Ella's opinion on a thread here last night...that the fed's 75 basis point move really looks like fear bordering on panic."
I absolutely believe that's what it is. And what should one do when someone else is panicking?
Seriously, though, if the Fed follows its typical pattern it will ease at least one more time because that's what it does: Over-react, with a "lead foot" on both the gas and the brakes.
Why don't they just change the rules so that the downgrades don't affect the banks or anyone else.
Who is 'they' here? And there is a wee bit of danger in letting banks have any more leeway in setting the value of the assets on their books. Bank accounting can't become a genre of fiction - a modern economy is too dependent on people having a high level of confidence that they will get their money back when the make a deposit. Do you want to go through a rapid transition to a cash economy? I don't.
Now go to the reception office and tell that little sod No to any pay increase!
Vikram Pandit, six weeks into his new job as CEO of Citigroup, received stock worth nearly $30 million, as well as 3 million stock options, according to a document filed with the SEC last night.
Citi granted Mr. Pandit 1,094,949 shares outright, worth $29.9 million as of Thursdays closing stock price of $27.33. The grant was part of a company incentive plan developed in 1999. Mr. Pandits 3 million options vest over a four-year schedule, beginning a year from now.
Total bonds insured by mbi and abk are about $1.2 trillion. This includes everything.
Also, I know that analysts are supposed to be independent and all, but does anyone think it is a great career move for a bank employee to push the idea that large banks are essentially insolvent.
The idiot with the highest number gets quoted. And, I suppose with luck, a better job quickly somewhere else.
Mortgage derivatives are subject to the risks of price movements in response to changing interest rates and the level of prepayments made by borrowers. Depending on the class of CMO or SMBS that the Portfolio holds, these price movements may be significantly greater than those experienced by mortgage securities generally, depending on whether the payments are predominantly based on the principal or interest paid on the underlying mortgages. IOs, POs and inverse floaters may exhibit substantially greater price volatility than fixed rate obligations having similar credit quality, redemption provisions and maturities. IOs, POs and inverse floaters may exhibit greater price volatility than the majority of mortgage pass-through securities or CMOs. In addition, the yield to maturity of IOs, POs and inverse floaters is extremely sensitive to prepayment levels. As a result, higher or lower rates of prepayment than that anticipated can have a material effect on the Portfolios yield to maturity and could cause the Portfolio to suffer losses.
Morgan Stanley Institutional Fund Trust, et al. · 485APOS · On 11/16/07
SP500 dividends for the last 12 months were $246.58 billion, with earnings of course being much higher, so even $200-$300 billion simply isn't that big a number.
(1) For 2005 (the last year I could find stats for), free cash flow for the S&P 500 totaled $638.6B. Are you honestly implying that a figure equal to about 45 cents of every dollar of total cash generated by America's 500 largest companies for an entire year "isn't that big a number"?
(2) Regardless of that, apples-and-oranges comparisons (Ben Stein's fond of using the $12T size of the US economy to downplay the subprime price tag) are highly misleading in general, because most economic activity happens (or doesn't happen) at the margins. If I have a manufacturing business running on 5% net margins (say $200M of product sold and $10M of profit per month), and something shuts my line down for a day and a half, my profit for that month goes from $10M to ... zero. 5% of the top line becomes 100% of the bottom line.
So it is with subprime. The trillions in derivatives and "insurance" that this $300B is supposed to backstop are the Jenga pieces that all come tumbling down when someone pulls the wrong piece from the bottom of the tower.
The Fund may purchase securities on a when-issued or delayed delivery
basis, may purchase or sell securities on a forward commitment basis, may
purchase securities on a "when, as and if issued" basis, and may lend its
portfolio securities, as discussed under "Risk Considerations" below.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
value, determined daily, of the loaned securities. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to
firms deemed by the Investment Manager to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks.
Regardless of that, apples-and-oranges comparisons (Ben Stein's fond of using the $12T size of the US economy to downplay the subprime price tag) are highly misleading in general, because most economic activity happens (or doesn't happen) at the margins.
Nevermind the decline in real estate values which is probably already on the order of $1.5 trillion now. Then you can add in the recent decline in stock values.
Loss in RE "wealth" alone is likely greater than 10% of the yearly GDP.
Cuts both ways unfortunately - the wisdom of the crowd can end up with a Chavez - checks and balances and a prayer...and the Churchill quote on democracy!
So Barclay's panicked along with goldman's designing this mess, and now they get say- look who still has to confess!
This has gone insane.
The monolines are broke due to cdo insurance. Banks still have billions in piers and tier 3 that is something like garbage, jingle mail has entered the lexicon.
Panic is what wall street should continue to do. However, the Fed can do magic.
Yeah, sure, and I am going to get my pink pony with ribbons for an imaginary daughter.
Nice little margin call today that reversed as the homebuilders resumed their fall to earth.
Nothing left to do but sit and wait for the obvious to continue in housing.
No Seb, it isn't the end of the world, it is, however the end of housing finance as we knew it.
LBOs are pretty much dead too. Steve Schwartzman Blackstone CEO is complaining about tight credit.
No more eaaasy money. I don't care what the fed does.
Who is going to buy all these houses?
We have several years until the boomer retirement starts the great housing shuffle.
Sebastian -
9 times out of 10, people panic for good reason and in those cases when they panic you should do your best to beat them to the exit... True contrarians are the ones who can figure out that 1 out of 10 times when the panic or negative bias is overblown. I have been a contrarian with a pretty good track record for three decades and I dont believe we are in one of those "1 out of 10" times.
To quote the great front man for Spinal Tap, David St. Hubbins: "It's such a fine line between stupid, and clever..."
Or, conversely, if it is remotely accurate, it would be will worth it for the banks to put up $5 or $15 billion, just to buy time, if this is remotely close to being accurate.
I talked to a source today in a big organization that structures a lot of guarantees on equity products. He said: "We're having problems, too. Our hedges aren't working."
I think it's the insured equity derivatives sides of SocGen and Fortis that is having problems, and I think these problems are systematic around the world.
SocGen and Fortis are both very good risk-hedging organizations. But if their counterparty goes under, they are screwed.
Watch SocGen start to back-peddle on the rogue story. Nasty, lying stuff.
Off Topic for this post (but dead-on for the site)
Here's what I'm seeing in a "it's different here" part of the Bay Area:
Inventory is higher than last year at this time by about 50% and it started growing a week or two ago. Last year inventory didn't start to grow until March. (I've been tracking the area since 2005.)
Foreclosures and short sales have hit even this oh so special locale, and the sellers are starting to get more serious about price reductions (not that it has done much good).
My favorite anecdote. A local realtor had a Rolls Royce with his name emblazoned on the side. A couple of months ago I noticed it wasn't parked outside his office anymore. About 6 weeks ago a saw a "For Sale" sign on HIS office, along with a "Financing Available Through Wells Fargo" sign. Yep, my first sighting of a foreclosed realtor's office.
On the subject of bagholders... you've got to wonder when the Arabs and Chinese sovereign funds decide they don't want to be the last bagholders. So far they have been pumping in billions only to see their investments get clobbered. Pretty soon they'll be telling the grovelling begging CEOs to, run along.
The Barclays number seems reasonable. Remember that they are talking about deep downgrade of the monoline ratings. Recall that a rating simply indicates probability of payment. If the bond insurers are cut to, say, BB, then it likely means they are likely to default and might never pay.
I think any number between around $15 billion and $1 trillion makes sense for potential losses if all the monolines defaulted (if you count the losses by the non-banks then it can be more of course).
when, as and if issued" basis, and may lend its portfolio
Specific: As with any extensions of credit,
Many companies in trouble can rent securities or take loaned securities as these to boost earnings, by using these loans as credit enhancements, just as window dressing, as in obtaining a higher credit rating from say a rating agency which may accept temporary capital adjustments as being acceptable enough to allow for a higher rating than be realistic! How would you like to know your underlying collateral for a junior tranche is linked to borrowed or rented collateral which is not fully disclosed!
Also, in regard to stripped mortgage-backed securities, REMIC Certificates & Custodial Receipts, if these are being loand or rented to adjust books for SEC/GAAP, then how is it disclosed and does it transfer risk? This could be a false and misleading action that would impact shareholders.
Read that again: . As with any extensions of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower of the securities fail financially
Securities loans are typically arranged by an agent, usually a commercial bank, on behalf of pension or ERISA investment portfolios. Loanable securities include U.S. treasuries and agencies, actively traded stocks, new issue corporate bonds and non-U.S. securities
"I think any number between around $15 billion and $1 trillion makes sense for potential losses if all the monolines defaulted (if you count the losses by the non-banks then it can be more of course)."
There is no way that an estimate of both $15 billion and $1 trillion can make sense.
""We're only applying it to public finance, right now"
Doesn't matter. The insurance companies have to apply the same formula to ALL securities held. That's what the Insurance Industry Finance guy/thingy I read yesterday said.
Damn I GOTTA start saving good links.
It's all FFDIC's fault. All those great cardiac inducing links.
The banks need capitol if they are going to help another.... Borrowing from the Fed will only do so much. They need to liquidate their REO holdings. They need to liquidate their REO holdings.
I think you're confusing Liquidity with Capital. Selling REO (except in those heady days of 2006 when banks sold REO for a gain!) does not add to capital. In this market, its highly likely that REO sales are at a loss (even to the marked down value), and so sales reduce capital. FED or FHLB etc borrowing does not increase capital. Capital is basically shareholders' equity.
Liquidity is likely part of what did in a pseudo-bank like CFC (CP rolling with no refi available). Capital adequacy is the risk these universal banks -- and our banking system in general -- face.
That is the rub, no system is perfect particularly when it comes to government...and raising the GSE's is a recipe for turning a disaster into a catastrophe (or was that the other way around?).
Powerless? Can't completely go with you on that one, though the probability of you or I being able to change the course of this unwind is akin to the single chance MegaMillions lotto ticket paying off...
in the trenches said: "I have been a contrarian with a pretty good track record for three decades and I don't believe we are in one of those "1 out of 10" times."
Respectfully, I know we are not. Not a belief, not an opinion, not a subjective assessment, it's simply what the economic data says.
I hope no one listen to the 1375 bracket that ken lewis told me about, and that i shared with you all...
just to make amends , i'm going over to his house tonight, and i'll pee on his rose bushes...
that way you can all smile as he bends over to smell them.
in the trenches said: "I have been a contrarian with a pretty good track record for three decades and I don't believe we are in one of those "1 out of 10" times."
Respectfully, I know we are not. Not a belief, not an opinion, not a subjective assessment, it's simply what the economic data says.
Sebastian
To repeat,
I'm guessing that Bernanke has better and more recent data sets than you do.
I'm also now guessing he understands them better than you.
Copied from last derailed thread:
Commercial Mortgage Alert headlines today:
*140 job cuts in latest wave of CMBS layoffs
*Rising CMBS spreads shut down lending
*B-piece buyers facing altered landscape
*Wachovia takes $600mm loss on CMBS portfolio in 4Q.
What? First, second, or third?
OT news that could be a perfect symbol for our current financial situation...Casino Is Burning
LAS VEGAS, Nevada (CNN) -- Sections of the top four floors of the Monte Carlo Hotel and Casino in Las Vegas were on fire Friday.
Vegas resort casino fire fully contained - CNN.com
Only $143B? Optimists.
"regulators and banks will be strongly incentivised to reach a workable solution"
Like gun to the head incentivised?
hummm....
143B if downgraded.
200B to avoid downgrade.
That's a no brainer.
A workable solution? These are two entities fighting over the last, deflated life preserver on the ship. They can't help each other at this point.
Dont woory about money, its ok, I got yah covered:
n November last year British Bank Dubai issued a Certificate of Deposit (CD) programme which was actually an MTN with Certificate of Deposit features. It was issued directly to major local investors and corporations for a minimum of Dhs 5 million (US$1.3 million) on a confidential electronic transfer register basis. A spokesman at HSBC Financial Services confirmed it was an MTN but said: We could not tell the investors because they are not yet familiar with MTNs.
No actual MTN certificates were issued for this programme, merely an account custodial receipt, as the UAE Central Bank must give approval before a bank or financial institution can issue a full MTN.
The beauty of an MTN programme is its swiftness, safety and secrecy. It can be tailor made to suit an investors demands, said Chambers.
Given the size of the MTN market in Europe and its continuing explosive growth, the chances of any investor losses from non-trades is probably limited to any very short-term differential between bank bid and offer interest rates, plus leveraging costs, if any.
the emperor has no clothes
"regulators and banks will be strongly incentivised to reach a workable solution"
Along with the involuntary cooperation of taxpayers.
CR, Tanta - I think this will be as effective as M-LEC was. What do you think?
banks will need as much as $143 billion in fresh capital to absorb the impact
Then let them pay for it at the going rate.
I'm confused here. I have read everything from 15B to 400B. Are there analysts reviewing the situation? Kinda funny that nobody knows what the hech the exposure really is.
But I am assured this insurance thing is contained and will not spread. Oh on topic:
NEW YORK Credit rating agency Fitch Ratings downgraded the financial strength ratings of XL Capital Ltd.'s insurance and reinsurance subsidiaries to "A+" from "AA-."
Fitch cut the rating Thursday after XL Capital said it would take fourth-quarter charges ranging between $1.5 billion and $1.7 billion. Most of the charges are tied to XL Capital's investment in and relationship with Security Capital Assurance Ltd
CATS and TIGRS are not considered US government securities by the staff of the Securities and Exchange Commission (SEC).
I can never remember a time when so many companies that were about to go under had so much effort spent on trying to save them by a group of other companies.
When the nasdaq crashed, no one seemed to care outside of common shareholders.
It's kind of like all the mafia dons trying to keep each other from being indicted so they won't rat each other out.
I'm afraid Tanta is busy building a Tantadome and will be unavailable for comment.
Do the banks have the "money" to play this shell game?
What bank could justify putting out more money to save the insurer than they would stand to lose in a downgrade?
Does this mean that the bagholders have been identified? How did they determine who got invited to the party?
This is stupid. Which is it? $15B or $143B..
Numbers flying around as if the BLS is in control of all estimates.
Now... where would a down-on-its-luck bank get money... Hmmmm....
sorry if this is a dumb question. what's an MTN?
"We could not tell the investors because they are not yet familiar with MTNs."
huh?
143B if downgraded.
200B to avoid downgrade.
That's a no brainer.
Beano | 01.25.08 - 3:16 pm |
Exactly. The $200B article isn't even a day old.
If the numbers are remotely accurate the only way there will be a insurer bailout is if the feds say 'or else'.
ShortCourage ("OT news that could be a perfect symbol for our current financial situation...Casino Is Burning")
Banks will lose money because bond insurers get downgraded from AAA to CCC?
That sounds wrong, if I put a sticker on my Saturn that says "I am really Mercedes" that should not make my Saturn cost more.
Or maybe, just maybe, banks will lose money because they mis-priced the credit risk associated with bonds they bought and sold? Then it seems logical that banks will lose 143B NO MATTER WHAT.
They can either spend these billions now propping up these bonds (via Ambac and Co) or they can spend them later writing off the losses.
Maybe real story should be on why would Barclay publish this meaningless piece?
Charlie, it's because they're banks.
And banks are THE core infrastructure of most modern nations' monetary operations. Yes, we can work around their failure - sorta, and with significant difficulty.
I think this is called a (death) spiral:
(Corrects to show Fitch is only applying new policy to municipals.)
NEW YORK, Jan 25 (Reuters) - Fitch Ratings on Friday said that when it downgrades a bond insurer, it will withdraw its ratings for the insured bonds if it has not done an underlying rating for them but its rivals have.
If Moody's Investors Service or Standard & Poor's Ratings Services have rated the underlying bonds, and those ratings are higher than the one Fitch has assigned to the bond insurer, "Fitch will use the lower of the two (credit agencies' ratings) in making this determination," it added in a statement.
If the underlying rating is the same as the bond insurer's then Fitch will rate the bond at the bond guarantor's rating. "We're only applying it to public finance, right now," said David Litvack, a Fitch analyst.
I love the last line:
"We're only applying it to public finance, right now"
Definition of Medium Term Note:
http://financial-dictionary.thefreedictionary.com/Medium+Term+Note+-+MTN">Medium Term Note - MTN
The final numbers seem like they'll be a hell of a lot larger than $143 billion in the event of a downgrade - that's just the impact on the banks themselves, and doesn't take into account all the other implicit holders of these contracts (money market funds holding wrapped securities, hedge funds, pension funds, etc.).
When we were talking about Citi BK "rumors" I mentioned that if they had another $20-25b shock that they couldn't handle it.
I'm guessing they can't handle this and pier loans this Q without bringing out the begging bowl.
From Briefing.com
(quote)
Standard & Poor's analysts said bond insurers must resolve business viability and other issues in order to retain their "AAA" ratings, according to Reuters. Reuters also reports that a bond insurers group said the industry is "financially strong" and is intent on defending its top credit ratings.
(end quote)
How do the phrases "business viability issues" and "AAA" ratings find themselves in the same sentence?
At the brink of broke.
"Financially strong", just like the US economy.
looks like the Dow is going to close today amost exactly where ist stared last Friday (around 12200). Is this what 75 basis points emergency does to the markets? WOWWWWW
err... I meant 75 basis points emergency CUT
Banks will lose money because bond insurers get downgraded from AAA to CCC?
That sounds wrong, if I put a sticker on my Saturn that says "I am really Mercedes" that should not make my Saturn cost more.
The banks all bought Mercedes that were really just Saturns with the emblem swapped out.
The problem is that the banks have all these Saturns on the books valued as Mercedes and the only thing that's preventing them from acknowledging that they're not and writing the losses down is the insurers.
The insurers are basically hiding a huge financial fraud (nevermind who exactly was the perpetrator).
That's how I understand it anyway.
Dumb Q?MTN = Medium term note
$143b - A few weeks ago we were told this all overblown. I think $143b might turn out like the rest of the estimates, way too conservative.
Does this mean that the bagholders have been identified? How did they determine who got invited to the party?
The next time you pass a mirror, stop.
Turn slowly and look directly into it.
Congratulations! You've just identified one "bagholder."
As Bruce Willis said in Die Hard, "Welcome to the party, pal!"
Good thing it's still confined to subprime:
Brian Westbury of First Trust Advisors believes concerns over subprime's effect on the economy are overblown.
"I think people need to calm down and realize this whole subprime loan problem is at most two or 300 billion dollars, that's it," Westbury said. "This is just too small of a problem to cause all this panic."
Stocks Are Already Behaving Like It's a Bear Market - CNBC
This will solve everything:
See Illiquid Securities.
In accordance with a requirement imposed by the staff of the SEC, the Advisor will consider privately-issued fixed rate interest only classes of SMBS (IO) and principal only classes of SMBS (PO) to be illiquid securities for purposes of the Funds limitation on investments in illiquid securities. Unless the Advisor determines that a particular government-issued fixed rate IO or PO is liquid, it will also consider these IOs and POs to be illiquid.
Remember to NOT have chickens or other livestock in your fron tyard during an appraisal period; after you get the thumbs up, anything goes (do we have a video?)
Brian Westbury of First Trust Advisors believes concerns over subprime's effect on the economy are overblown.
I was wondering when Ben Stein was going to have to resort to using pseudonyms.
Turn slowly and look directly into it.
Congratulations! You've just identified one "bagholder."
Perhaps we need a bagholder t-shirt. "I'm with bagholder" or "A bagholder is me".
Bagholders "R" Us (TM)
The total sums will clearly be visible in the rear-view mirror.
Until then, we circle the bowl.
Bag. Iz holdn it.
I kinda prefer:
"All your bailout dollar are belong to us."
Or maybe, "Bank have no chance to survive make your scapegoat."
u can holdz bags for me?
Dang no wonder Pimco is so bitchy about getting rates lower, look at the mess Gross has engineered there! He does need more room to escape!
Mortgage-Related and Other Asset-Backed Securities
Each Fund may invest in mortgage- or other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations (CMOs), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities (SMBSs) and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property.
The value of some mortgage- or asset-backed securities may be particularly sensitive to changes in prevailing interest rates...
http://icma.eprospectus.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1?sessionId=id2OWlXS5qVHx-3&ID=5453589
Mook and Calculated risk got a nice hat tip over at econbrowser in a blog written two days ago called "fed makes it's move"
waytago guys.
I think there's a market out there for mortgage pig and containment slogan t-shirts.
ah, now i get what conjure bag was talking about.
Glad i listened. And I was so close to betting the house on o-joe, too. Luck of the draw.
Re: . See Illiquid Securities.
In accordance with a requirement imposed by the staff of the SEC, the Advisor will consider privately-issued fixed rate interest only classes of SMBS (IO) and principal only classes of SMBS (PO) to be illiquid securities for purposes of the Funds limitation on investments in illiquid securities.
Does that infer that there are ARM classes of SMBS, if there are I sure love to see what they feel like......LOL
The comments by Bill Ackman really bear on this (see Big Picture): the bond company investment portfolios hold much, often a majority, of bonds insured by themselves or other insurers.
A bond insurer therefore may have a vested interest: if it downgrades bond held in its own portfolio, it has committed suicide.
Come back, tanta, we're behaving in here.
OT news that could be a perfect symbol for our current financial situation...Casino Is Burning
ShortCourage | 01.25.08 - 3:11 pm | #
Bernanke just announced that the fire has been contained.
Why don't they just change the rules so that the downgrades don't affect the banks or anyone else.
It's their game. They can make up new rules, can't they?
I think the word Trillion is going to become very common shortly.
jo6pac
The race to the bottom continues
Yalt posted: "I think people need to calm down and realize this whole subprime loan problem is at most two or 300 billion dollars, that's it," Westbury said. "This is just too small of a problem to cause all this panic."
I'm no apologist for Westbury or any other analyst/guru/pundit, but if you look strictly at the economic indicators (GDP, CPI-U, ISM manufacturing and services indices, employment, etc.) he's absolutely right. SP500 dividends for the last 12 months were $246.58 billion, with earnings of course being much higher, so even $200-$300 billion simply isn't that big a number.
The Fed easings and other policy actions (tax rebates or whatever) are not responses to a weak economy, but to the stock market and banking system. The economy is strong enough to take care of itself.
Sebastia
On the frontpage of reuters:
Breaking News
Stocks end more than 1 percent higher
http://thumbsnap.com/v/F8xBb6fA.jpg
Next bubble, wishful thinking?
C'mon, is that all the bear market rally we get???
On these threads I have seen occasional references to bank borrowing from the federal reserve, etc. Conjure recently linked to a chart that showed a big spike. Spikes on charts are always scary, but I for one would be grateful if someone would be kind enough to share some wisdom with us grasshoppers: What does this mean? What does it tell us? Thanks.
"For US banks, Level 3
assets rose in third quarter 2007 by a third to levels that ranged between 2.2%
and 8% of overall assets. On the face of it, these proportions do not look so
catastrophic, but readers should look further. As a proportion of tangible equity
(a definition that strips out some forms of capital as well as goodwill), Level 3
assets were about 71-245%."
This is from a research paper I am currently reading. Anybody else beginning to see the problem with massive downgrades/defaults. How many banks can take a hit on equity like that and survive...
Chris
P.S.- Did ya know private,nonfinancial debt rose from approx 10000B in 1995 to 25000B in 2005 ?? Yep thats also sustainable..
Back onto that conforming loan limit thing: Since raising the conforming loan limit will take loans away from other parts of the country (outside of California) we can probably get this stopped by writing our Senators (assuming you're outside of CA, that is). I just sent the following email to my Senators here in Oregon:
The recent economic "stimulus" package proposed by President Bush and House Democrats contains some questionable items. I would like to highlight one that I think is actually dangerous; that is the proposal to increase the conforming loan limit to $729,000 from the current $417,000.
First of all, OFHEO Director James B. Lockhart is opposed to increasing the limit. Today he said: "We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs regulator has all the necessary safety and soundness tools." As you know, the OFHEO is the regulator charged with ensuring the safety and soundness of Fannie Mae and Freddie Mac.
And secondly, raising the conforming loan limit will mean that less total loans are made since the GSEs have a finite amount of money to lend. For example, a $729,000 loan made for a house in California, could have been two (or possibly even 3) loans made in Oregon. This will be bad for Oregonians and for citizens of others states who have housing prices which are much less than California's home prices.
And finally, the GSEs (Fannie Mae and Freddie Mac) were created to help people of "modest means" to buy a home. A $729,000 limit seems to help people who are very well off.
Please oppose the raising of the conforming loan limit.
Yep. Appeal to their fear: fear that their constituents are going to lose out so that California will benefit. This is why we've got a Senate: the founding fathers were wise.
You can contact your Senators here:
U.S. Senate: Senators Home
C'mon, is that all the bear market rally we get???
If it weren't for that silly hedge fund we'd be up 500 points on the day. >:(
in the econbrowser article james hamilton makes a persuasive case...along the lines of Ella's opinion on a thread here last night...that the fed's 75 basis point move really looks like fear bordering on panic.
check out the link at econ b (to st L fed research) to the historical chart of fed moves.
the entire article at:
Econbrowser: The Fed makes its move
Do "I'm a bag holder" tee shirts come in childrens' sizes?
Oh baby. this should make someone froth:
First, and Im far from the first to note this, most CMOs are of the plain-vanilla REMIC variety that currently dominates the market for FNMA and FHLMC pass-throughs (read this to get some background on REMICS and CMOs, if you arent familiar).
Tanta over at Calculated Risk has said that the bond market is certainly going to change pretty radically if we declare that REMICsas suchare too toxic for retail investors. These are, after all and literally, your grandmothers securities.
Which is precisely why I dont think were talking about REMICs here, although neither the WSJ nor Bloomberg appear to have bothered with this important distinction.
Rather, I think were talking about IO strips here, part of whats known as the stripped mortgage-backed securities (SMBS) market by IO, I mean interest-only.
To put it lightly, IOs represent one of the riskiest fixed-income assets available. Allowing retail investors to dabble in this space would, IMHO, absolutely become an issue of suitability on behalf of any yahoo that actually went ahead and sold it to an investor (or even marketed it, put it into a PowerPoint you get the idea).
What the FINRA investigation suggests here is that more securities brokerages than just Brookstreet decided to get into this complex game. Which is absolutely stunning.
Re: Both the Wall Street Journal and Bloomberg reported Friday morning that the Financial Industry Regulatory Authority FINRA for short is investigating securities brokerage firms marketing and sale of collateralized mortgage obligations.
HW readers may recall coverage of Orange County, Calif.-based Brookstreet Securities Corp., which went belly-up in June over bad CMO bets.
In letters sent in mid-December, the Wall Street Journal reports that FINRA asked firms for marketing materials, a list of supervisory policies and procedures, and descriptions of how collateralized mortgage obligations were valued.
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States.
From the Journal:
The letters, dated Dec. 14, were sent from Finras enforcement division in what has been described as a sweep investigation, which is a broad look at industrywide practices that doesnt necessarily result in an enforcement action. The letter asks for PowerPoint presentations, sales scripts and detailed customer-account information from June 30, 2006, through July 31, 2007. Firms have until Tuesday to respond.
Bloomberg reports that FINRAs concern is over the suitability of CMOs, with one lawyer interviewed characterizing the securities as potentially risky and complicated products.
I have all sort of comments here, harking back to discussions over Brookstreets failing.
public service of DHE
Bagholders "R" Us (TM)
trail | 01.25.08 - 3:57 pm
Can these be printed by Independance Day we need about 375M of them - might I suggest in black only to save a penny or two.
and
"Bernanke just announced that the fire has been contained"
I thought I heard "its not a fire, I now recognize this as an extravagant flaming french brule, so no worries"
Ben is on high doses of Koolaid
The banks need capitol if they are going to help another (call me Ms Obvious). Borrowing from the Fed will only do so much. They need to liquidate their REO holdings. The question is, how soon until the regulators make them do it?
mock turtle said: "in the econbrowser article james hamilton makes a persuasive case...along the lines of Ella's opinion on a thread here last night...that the fed's 75 basis point move really looks like fear bordering on panic."
I absolutely believe that's what it is. And what should one do when someone else is panicking?
Seriously, though, if the Fed follows its typical pattern it will ease at least one more time because that's what it does: Over-react, with a "lead foot" on both the gas and the brakes.
Sebastia
Why don't they just change the rules so that the downgrades don't affect the banks or anyone else.
Who is 'they' here? And there is a wee bit of danger in letting banks have any more leeway in setting the value of the assets on their books. Bank accounting can't become a genre of fiction - a modern economy is too dependent on people having a high level of confidence that they will get their money back when the make a deposit. Do you want to go through a rapid transition to a cash economy? I don't.
NYC sues CFC officers and underwriters
NYC sues Countrywide officers, underwriters
| Reuters
Good News! The CBO says we won't have a recession. Ray of light: CBO says U.S. economy will avoid recession in 2008 - BloggingStocks
Bc the government would never lie to us, right?
If I remember correctly Tanta told someone to go to law school to profit from this mess.....
Sebastian, we disagree often, but this time i share your view.
the fed is likely to over correct regarding fed funds rates
is there another 25 or 50 basis point reduction looming at the regular fomc meeting? i guess there is.
"we can probably get this stopped by writing our Senators (assuming you're outside of CA, that is)"
I know an awful lot of Californians that would like it stopped too. We're all nuts >; )
Oh my doG! Oh my doG! My eyes! My eyes!
WHAT is with that craZy, bLinKing banner?!?
Aaah.... criminy... I need to rest my eyes and put my shades on. Whew...
I wear my sunglasses at CR. So I can, so I can ... read the blog.
Remeber the days of the little forest trail
This is the link for Tanta vision: Market Pipeline: Regulators broaden mortgage probe
Saturday, January 5, 2008
Regulators broaden mortgage probe
My deepest apology!
Now go to the reception office and tell that little sod No to any pay increase!
Vikram Pandit, six weeks into his new job as CEO of Citigroup, received stock worth nearly $30 million, as well as 3 million stock options, according to a document filed with the SEC last night.
Citi granted Mr. Pandit 1,094,949 shares outright, worth $29.9 million as of Thursdays closing stock price of $27.33. The grant was part of a company incentive plan developed in 1999. Mr. Pandits 3 million options vest over a four-year schedule, beginning a year from now.
Saying 143 v 200 is a no-brainer makes the very bad assumption that the 143 is correct.
Also, I've think you have all been remiss in identifying THE word for 2008. Let's all say it together:
C-O-U-N-T-E-R-P-A-R-T-Y
Indeed, it looks like the party is just beginning!
ok I need help with the first half:
"Citibank got X and all I got was 300 bucks*
Or we just do the first half, add the obligatory "All I got was this wood shirt" and use a barrel print as background.
This doesn't pass the smell test.
Total bonds insured by mbi and abk are about $1.2 trillion. This includes everything.
Also, I know that analysts are supposed to be independent and all, but does anyone think it is a great career move for a bank employee to push the idea that large banks are essentially insolvent.
The idiot with the highest number gets quoted. And, I suppose with luck, a better job quickly somewhere else.
Mortgage derivatives are subject to the risks of price movements in response to changing interest rates and the level of prepayments made by borrowers. Depending on the class of CMO or SMBS that the Portfolio holds, these price movements may be significantly greater than those experienced by mortgage securities generally, depending on whether the payments are predominantly based on the principal or interest paid on the underlying mortgages. IOs, POs and inverse floaters may exhibit substantially greater price volatility than fixed rate obligations having similar credit quality, redemption provisions and maturities. IOs, POs and inverse floaters may exhibit greater price volatility than the majority of mortgage pass-through securities or CMOs. In addition, the yield to maturity of IOs, POs and inverse floaters is extremely sensitive to prepayment levels. As a result, higher or lower rates of prepayment than that anticipated can have a material effect on the Portfolios yield to maturity and could cause the Portfolio to suffer losses.
Morgan Stanley Institutional Fund Trust, et al. · 485APOS · On 11/16/07
I guess that was obvious!
FACTBOX-U.S. bond insurers and amount of debt insured
| Reuters
SP500 dividends for the last 12 months were $246.58 billion, with earnings of course being much higher, so even $200-$300 billion simply isn't that big a number.
(1) For 2005 (the last year I could find stats for), free cash flow for the S&P 500 totaled $638.6B. Are you honestly implying that a figure equal to about 45 cents of every dollar of total cash generated by America's 500 largest companies for an entire year "isn't that big a number"?
(2) Regardless of that, apples-and-oranges comparisons (Ben Stein's fond of using the $12T size of the US economy to downplay the subprime price tag) are highly misleading in general, because most economic activity happens (or doesn't happen) at the margins. If I have a manufacturing business running on 5% net margins (say $200M of product sold and $10M of profit per month), and something shuts my line down for a day and a half, my profit for that month goes from $10M to ... zero. 5% of the top line becomes 100% of the bottom line.
So it is with subprime. The trillions in derivatives and "insurance" that this $300B is supposed to backstop are the Jenga pieces that all come tumbling down when someone pulls the wrong piece from the bottom of the tower.
We are all counterparties now.
This is why we've got a Senate: the founding fathers were wise.
So why do we have an electoral college?
Because we have a Senate.
No, why do we still have an electoral college?
Because we have a Senate.
By all means let the smallest speak the loudest.
It's how we ended up with Bush.
Sebastian, when you're treading water, you should get as far away from that person as possible.
The Fund may purchase securities on a when-issued or delayed delivery
basis, may purchase or sell securities on a forward commitment basis, may
purchase securities on a "when, as and if issued" basis, and may lend its
portfolio securities, as discussed under "Risk Considerations" below.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
value, determined daily, of the loaned securities. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to
firms deemed by the Investment Manager to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks.
Regardless of that, apples-and-oranges comparisons (Ben Stein's fond of using the $12T size of the US economy to downplay the subprime price tag) are highly misleading in general, because most economic activity happens (or doesn't happen) at the margins.
Nevermind the decline in real estate values which is probably already on the order of $1.5 trillion now. Then you can add in the recent decline in stock values.
Loss in RE "wealth" alone is likely greater than 10% of the yearly GDP.
Why doesn't Mr. Stein ever bring that up?
sportsfan,
Cuts both ways unfortunately - the wisdom of the crowd can end up with a Chavez - checks and balances and a prayer...and the Churchill quote on democracy!
This is Allistair Barr recycling the same "news item" from Barclays Capital analyst Paul Fenner-Leitao
Here is the Bloomberg link...
Banks May Need $143 Billion of Reserves for Insurer Downgrades - Bloomberg.com
"The estimates are based on banks' holdings of the outstanding $820 billion of structured securities covered by bond insurers, the report said."
So this is the same piece of "research" that had the $22 billion for a downgrade from AAA to AA, etc.
So Barclay's panicked along with goldman's designing this mess, and now they get say- look who still has to confess!
This has gone insane.
The monolines are broke due to cdo insurance. Banks still have billions in piers and tier 3 that is something like garbage, jingle mail has entered the lexicon.
Panic is what wall street should continue to do. However, the Fed can do magic.
Yeah, sure, and I am going to get my pink pony with ribbons for an imaginary daughter.
Nice little margin call today that reversed as the homebuilders resumed their fall to earth.
Nothing left to do but sit and wait for the obvious to continue in housing.
No Seb, it isn't the end of the world, it is, however the end of housing finance as we knew it.
LBOs are pretty much dead too. Steve Schwartzman Blackstone CEO is complaining about tight credit.
No more eaaasy money. I don't care what the fed does.
Who is going to buy all these houses?
We have several years until the boomer retirement starts the great housing shuffle.
Someday this war's gonna end...
Sebastian -
9 times out of 10, people panic for good reason and in those cases when they panic you should do your best to beat them to the exit... True contrarians are the ones who can figure out that 1 out of 10 times when the panic or negative bias is overblown. I have been a contrarian with a pretty good track record for three decades and I dont believe we are in one of those "1 out of 10" times.
To quote the great front man for Spinal Tap, David St. Hubbins: "It's such a fine line between stupid, and clever..."
There is no way to get a number this big.
Or, conversely, if it is remotely accurate, it would be will worth it for the banks to put up $5 or $15 billion, just to buy time, if this is remotely close to being accurate.
I talked to a source today in a big organization that structures a lot of guarantees on equity products. He said: "We're having problems, too. Our hedges aren't working."
I think it's the insured equity derivatives sides of SocGen and Fortis that is having problems, and I think these problems are systematic around the world.
SocGen and Fortis are both very good risk-hedging organizations. But if their counterparty goes under, they are screwed.
Watch SocGen start to back-peddle on the rogue story. Nasty, lying stuff.
It has been an interesting week for anyone that bought eef last friday. It is back exactly where it started.
Anonymous at 4.40 pm - What's your point?
Off Topic for this post (but dead-on for the site)
Here's what I'm seeing in a "it's different here" part of the Bay Area:
MTHood, but it's different here, just ask the folks on socketsite.....
On the subject of bagholders... you've got to wonder when the Arabs and Chinese sovereign funds decide they don't want to be the last bagholders. So far they have been pumping in billions only to see their investments get clobbered. Pretty soon they'll be telling the grovelling begging CEOs to, run along.
barely - they will at first grovel and then insist on Board participation. Thats when the fun really begins.
ZIGURRAT,
The Barclays number seems reasonable. Remember that they are talking about deep downgrade of the monoline ratings. Recall that a rating simply indicates probability of payment. If the bond insurers are cut to, say, BB, then it likely means they are likely to default and might never pay.
I think any number between around $15 billion and $1 trillion makes sense for potential losses if all the monolines defaulted (if you count the losses by the non-banks then it can be more of course).
Sebastian,
I'm guessing Bernanke has better and more current data sets than you.
aren't we reaching the point where the SWF reach 10% benificial interest and require blessing of TPTB?
energyecon,
True, there are a lot of ways for people to go wrong.
Personally, I think raising the GSE limits is one of those ways.
But all that is beyond my control.
gab,
Re: 4:40
when, as and if issued" basis, and may lend its portfolio
Specific: As with any extensions of credit,
Many companies in trouble can rent securities or take loaned securities as these to boost earnings, by using these loans as credit enhancements, just as window dressing, as in obtaining a higher credit rating from say a rating agency which may accept temporary capital adjustments as being acceptable enough to allow for a higher rating than be realistic! How would you like to know your underlying collateral for a junior tranche is linked to borrowed or rented collateral which is not fully disclosed!
Also, in regard to stripped mortgage-backed securities, REMIC Certificates & Custodial Receipts, if these are being loand or rented to adjust books for SEC/GAAP, then how is it disclosed and does it transfer risk? This could be a false and misleading action that would impact shareholders.
Read that again: . As with any extensions of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower of the securities fail financially
Securities loans are typically arranged by an agent, usually a commercial bank, on behalf of pension or ERISA investment portfolios. Loanable securities include U.S. treasuries and agencies, actively traded stocks, new issue corporate bonds and non-U.S. securities
Siv:
What is the total amount of structured finance securities insured by abk?
I would be surprised if the totals of both abk and mbi are close to $200 billion.
If so, what percentage is currently held by banks as opposed to others.
It doesn't make sense.
Someone set us up the bomb.
Whocoodanode?
"I think any number between around $15 billion and $1 trillion makes sense for potential losses if all the monolines defaulted (if you count the losses by the non-banks then it can be more of course)."
There is no way that an estimate of both $15 billion and $1 trillion can make sense.
Barley,
""We're only applying it to public finance, right now"
Doesn't matter. The insurance companies have to apply the same formula to ALL securities held. That's what the Insurance Industry Finance guy/thingy I read yesterday said.
Damn I GOTTA start saving good links.
It's all FFDIC's fault. All those great cardiac inducing links.
Cheers,
Even Ackman is talking about the equity being wiped out..not every single bond insured by the companies tanking.
Misean, LOL
I am under the care of a cardiologist and his great nurse and would probably be dead if it were not for them and CR.
The banks need capitol if they are going to help another.... Borrowing from the Fed will only do so much. They need to liquidate their REO holdings. They need to liquidate their REO holdings.
I think you're confusing Liquidity with Capital. Selling REO (except in those heady days of 2006 when banks sold REO for a gain!) does not add to capital. In this market, its highly likely that REO sales are at a loss (even to the marked down value), and so sales reduce capital. FED or FHLB etc borrowing does not increase capital. Capital is basically shareholders' equity.
Liquidity is likely part of what did in a pseudo-bank like CFC (CP rolling with no refi available). Capital adequacy is the risk these universal banks -- and our banking system in general -- face.
sportsfan,
That is the rub, no system is perfect particularly when it comes to government...and raising the GSE's is a recipe for turning a disaster into a catastrophe (or was that the other way around?).
Powerless? Can't completely go with you on that one, though the probability of you or I being able to change the course of this unwind is akin to the single chance MegaMillions lotto ticket paying off...
Deflationary Jane,
"The banks need capitol..."
Yep they're there whining to treasury and Fed even as we speak.
Cheers,
in the trenches said: "I have been a contrarian with a pretty good track record for three decades and I don't believe we are in one of those "1 out of 10" times."
Respectfully, I know we are not. Not a belief, not an opinion, not a subjective assessment, it's simply what the economic data says.
Sebastia
I hope no one listen to the 1375 bracket that ken lewis told me about, and that i shared with you all...
just to make amends , i'm going over to his house tonight, and i'll pee on his rose bushes...
that way you can all smile as he bends over to smell them.
143B if downgraded.
200B to avoid downgrade.
That's a no brainer.
Beano | 01.25.08 - 3:16 pm
Soon some financial wizard is going to have the banks can pay the $143B and book a $57B profit off the transaction...
in the trenches said: "I have been a contrarian with a pretty good track record for three decades and I don't believe we are in one of those "1 out of 10" times."
Respectfully, I know we are not. Not a belief, not an opinion, not a subjective assessment, it's simply what the economic data says.
Sebastian
To repeat,
I'm guessing that Bernanke has better and more recent data sets than you do.
I'm also now guessing he understands them better than you.
Respectfully,