A few hundred billion here, a few there....hey, wait a second. Ouch. Not only is this going to leave a mark, but it is going to hurt. It hurts just trying to wrap my head around such large numbers, never mind dealing with the aftermath.
OT, but hey, Yah gotta love crazy stuff at this hour!
If you freeze us, if you don't stop trying to freeze, doing us damage, we can do you damage,'' Chavez said.We won't send oil to the U.S. Get this, Mr. Bush, Mr. Danger. If the economic war continues against Venezuela, the price of oil will reach $200. Venezuela will take up the economic war.'
ernanke, 53, took over the central bank in February 2006, succeeding longtime chairman Alan Greenspan, who also played it safe when it came to his own investments while at the Fed.
An economist who spent most of his career in academia, including teaching at Princeton, Bernanke also is receiving royalties on two textbooks he wrote. Royalty income was listed at between $50,001 and $100,000 for each textbook, the document showed.
The Fed chief's largest assets last year were two annuities TIAA Traditional and CREF Stock Large Cap Blend, which were each valued at between $500,001 to $1,000,000.
Whenever this topic comes up I like posting this chart that I made last month from the most recent Federal Flow of Funds report.
From this chart you can see that approx $4T of mortgage lending was created 2003-2007.
10% of this lending -- $400B -- becoming dead loss over the next few years seems a reasonable minimum estimate.
The only way to save the situation is to get that lending curve back over $1T/year. The FBs need that much lending so the Greater Fools can afford their
It would seem that this sordid financial chapter will not be over until some very large institution ceases to exist in its current form.( I didnt say fails because since everyone has merged they are all too big to fail.) Maybe Citibank is carved up and reformed and the unwieldy mega entity a sideshow for business schools and doctoral dissertations.
If that does not occur I suspect it is because the political class will have realized the gravity of the problem and the attendant risks and decided to attack the problem with a Resolution Trust Corp type of solution.
400 bilion who cares go to the BIS
and have a look at the size of the game (drivative markets) which i personaly think is the real size of the mess we are in globaly. In December we reached something around 650 TRILLION
3 years ago they where only about 275 TRILLION and if we try hard enough we will reach 1000 TRILLION before all explodes. WORLD DOMESTIC PRODUCT is anualy around 27 TRILLION.DO THE MATH how many generations (1 generations aka 20 years) of debt do we have to pay if somebody want's the money promised by the drivatives back?
When people price the risk of mortgages at true value rates will jump to 9-12%. Then things get ugly Benny can lower the short end of the curve but foreign investors dictate the long end. They are going to get their money back the same as Wal Mart gets its money back from shoplifting losses.
More rocks are dropping in the credit pond and bigger ripples are spreading wider. Check out the a.m. WSJ for credit problems spreading to corporate debt fast and the FT for hedge funds closing their doors. We already know that Comm RE is facing dropping demand & tigheter standards and that consumer debt (cards, autos, etc.) are under pressure.
But when the CLO and CDS following the CDO's over the cliff watch out below.
"Societe Generale, in trouble because of losses suffered due to transactions by one trader, will raise almost $8 billion. The rights offering is at an astonishing 39% discount to the price as of the Friday close. "
Troy posits:
"From this chart you can see that approx $4T of mortgage lending was created 2003-2007.
10% of this lending -- $400B -- becoming dead loss over the next few years seems a reasonable minimum estimate."
If we take this as a reasonable estimate, and we guesstimate that the average spread over funding for these loans was 200 basis points that means the lenders are making 80 billion dollars a year on the portfolio in the aggregate, which also means that if this scenario takes five years to play out the total nominal loss will be zero. 4 trillion * 2% * 5 years = 400 billion.
This is going to hit the cash equivalent lines of a whole lot of companies that wouldn't necessarily come to mind as involved in the subprime mortgage market. Let's start with the commercial insurers:
Worry about derivatives, yes, but not that much -- the $275 trillion figure is gross "notional" value, but the net value is much less and (supposedly) most of it is in plain-vanilla interest-rate swaps, in which the notional value is not at risk.
Just like global strategy consulting firm Oliver Wyman suspected, when they said on January 24 that an additional $300 billion in write-downs related to the U.S. subprime mortgage meltdown may be announced by banks before the crisis is over.
You can rest assured that our German friends have done an extremely thorough analysis, as is their habit. If Bankstock.com (HAHAHA) questions it, as they did the Egan-Jones estimate, they will undoubtedly be met with a withering Blitzkrieg of data and analysis.
Assuming, of course, that they stoop low enough to reply.
Don't know if this has to do with financing requirements related to the European banking situation, but each morning 8:00 thru to 9:30 am EST, the Euro usually gets sold off hard and the US dollar bought.. Not every morning, but easily the vast majority of mornings during this time period. Such was the case again this morning.
AIG Discloses `Weakness' in Credit-Default Swap Accounting
By Hugh Son
Feb. 11 (Bloomberg) -- American International Group Inc., the world's largest insurer by assets, said auditors found a ``material weakness'' in how the company values its credit- default swap portfolio.
AIG hasn't yet determined the decline in value that will be stated in its 2007 financial statements, the New York-based insurer said in a regulatory filing today.
AIG is caught cooking the books with their $500 billion CDS portfolio. AIG was claiming these are insuranse contracts which do not have to be marked to market. The auditors are telling them they are derivative contracts which have to be marked to market.
AIG has been advised by its independent auditors, PricewaterhouseCoopers LLC, that they have concluded that at December 31, 2007, AIG had a material weakness in its internal control over financial reporting and oversight relating to the fair value valuation of the AIGFP super senior credit default swap portfolio.
These estimates along with the SocGen 39 point haircut from their capital infusion tells me that nationalization of mortgage debt is coming. Financials simply can't afford to raise capital at these rates much longer (assuming they can even get these deals in the near future). The EU and the US can't afford for them to crash either. So crank up the printing presses.
Sen. Dodd has already floated a $20 billion "par exchange" for distressed mortgage debt, leaving the US taxpayer as bagholder a couple of weeks ago. I laughed at it initially, but the joke is on us.
I just don't see a way out for the financials. Why in the world would China or the Saudis continue to be the dumb money source for these guys?
If I were them, I'd quit pumping money into the companies who just killed the structured finance biz (i.e., themselves) and start buying hard asset exploration/extraction/refining companies. That's the key to their future growth, not a bunch of financial middlemen who add zero (and actually less than zero) value.
This is all such an outrage -- to make a few tens of billions, the scum on Wall Street churned out crap that eventually will cause trillions in losses to investors. (What this really has been is a way to mine the pension funds.)
During the bubble years, total value of mortgages outstanding rose from about $5 trillion to about $10 trillion, and the nominal value of US homes rose from about $10 trillion to $20 trillion.
As the housing market collapses, most of the $10 trillion in added nominal market value will disappear as prices drop back to prebubble levels (just as they did in Japan). But the debt will remain -- or be written off.
Total losses will easily exceed $1 trillion before this is over. I'll bet on about $2.5 trillion.
I'm watching CNBC right now. Oh how the times have changed! The CNBC cheerleaders are grilling a spokesman from the NAR who is pounding the table claiming now is the time to buy.
CNBC, NAR - what a joke. One finds religion, one won't give up the ghost.
If Municipal Money Market Funds blow the next line-in-the-sand is Money Market Funds themselves:
You want to know fear itself? The monolines apparently have guaranteed $1.5 trillion worth of variable-rate munis that might have to be liquidated should credit ratings be lowered. It's like Waiting for Godot, a frightening play whose tone is anxiety-provoking, to say the least. Ackman calls any downgrading of $1.5 trillion in muni bonds the potential linchpin of a systemic risk.
Please read the AIG 8-k on CDS valuation. It is a towering tribute to the english language, and I'm sure you'll get a kick out of it. One wonders whether it was written at 4:00 a.m., and what was in their bong water.
--
Germansausages: "...how many generations (1 generations aka 20 years) of debt do we have to pay if somebody want's the money promised by the drivatives back?"
What kind of question is that when Financial Nazis of America, with their capital in NYC, have triumphed and spread their empire -- via Pushing Debt -- to most of the planet? Derivatives are just a means to support a web of deceit created by ever-increasing debt. No one knows who really will pay the losses from the debt when things go really bad. That is the premeditated scheme of Financial Nazis.
Democracies breed dopes that are Debt Slaves the moment they are born and no country breeds better thoroughbreds than America under the leadership of BFNYC, a certifiable gang of Debt Pushers, using its Propaganda Machine with its two branches Democratic Party and Republican Party. USG and Fed exist to support BFNYC in their enterprise of Pushing Debt. In propaganda department Financial Nazis of America make German Nazis look like amateurs.
Breeding dopes is a necessity for Americas ruling elite to keep American People in line while they get fleeced.
Got some sauerkraut?! (I will head to the local German bakery and deli for lunch with a visiting friend).
"Four of the five biggest U.S. securities firms lost about $83 billion of market value last year, almost 90 percent of their net income since 1999, ..."
"``If you're betting with other peoples' money, you're more willing to take risk than if it's your own,'' ..."
If you read the press release, it looks like AIG is fighting with its auditors over whether to write off $6 bio or $1.6 bio, depending on the mark to model assumptions made. I'm not sure this is worth knocking 10% off the valuation of the world's largest insurance company, but I also expect there's a lot of these types of discussions occuring between financial institutions and their auditors right now.
I am getting to think that the more losses are talked about the more central bankers are likely to inflate assets, cut rates or throw money at the problem to prevent the predicted losses. That is the more its talked about the less likely you are are to see the panic on Wall Street. I am almost scared to short now.
What are the losses actually: loans wholly written off and not repaid; the total face value of "troubled" loans; total of face value of foreclosures; estimated losses after realization from foreclosure; market to market value of the loan paper?
This matters because only one of these represents an actual realized $ loss.
Hey -
At some point could you give us an analysis of the likely consequences of BoA and Capital One's card interest rate hikes?
That's $400 Billion in just Germany, right?
yeah like 280B Euro, thats like nuttin!
A few hundred billion here, a few there....hey, wait a second. Ouch. Not only is this going to leave a mark, but it is going to hurt. It hurts just trying to wrap my head around such large numbers, never mind dealing with the aftermath.
OT, but hey, Yah gotta love crazy stuff at this hour!
If you freeze us, if you don't stop trying to freeze, doing us damage, we can do you damage,'' Chavez said.We won't send oil to the U.S. Get this, Mr. Bush, Mr. Danger. If the economic war continues against Venezuela, the price of oil will reach $200. Venezuela will take up the economic war.'
ernanke, 53, took over the central bank in February 2006, succeeding longtime chairman Alan Greenspan, who also played it safe when it came to his own investments while at the Fed.
An economist who spent most of his career in academia, including teaching at Princeton, Bernanke also is receiving royalties on two textbooks he wrote. Royalty income was listed at between $50,001 and $100,000 for each textbook, the document showed.
The Fed chief's largest assets last year were two annuities TIAA Traditional and CREF Stock Large Cap Blend, which were each valued at between $500,001 to $1,000,000.
As for Paulson, only Tanta can say
Hey that's only 0.0004 quadrillion dollars! Or, 0.4 milliquadrillion. That's not much money.
Whenever this topic comes up I like posting this chart that I made last month from the most recent Federal Flow of Funds report.
From this chart you can see that approx $4T of mortgage lending was created 2003-2007.
10% of this lending -- $400B -- becoming dead loss over the next few years seems a reasonable minimum estimate.
The only way to save the situation is to get that lending curve back over $1T/year. The FBs need that much lending so the Greater Fools can afford their
It would seem that this sordid financial chapter will not be over until some very large institution ceases to exist in its current form.( I didnt say fails because since everyone has merged they are all too big to fail.) Maybe Citibank is carved up and reformed and the unwieldy mega entity a sideshow for business schools and doctoral dissertations.
If that does not occur I suspect it is because the political class will have realized the gravity of the problem and the attendant risks and decided to attack the problem with a Resolution Trust Corp type of solution.
John J Janse
Well, countrywide is already up to 7% delinquent and we aren't even into the real Season of Resets, end of MEW, or recession. 10% seems optimistic.
400 bilion who cares go to the BIS
and have a look at the size of the game (drivative markets) which i personaly think is the real size of the mess we are in globaly. In December we reached something around 650 TRILLION
3 years ago they where only about 275 TRILLION and if we try hard enough we will reach 1000 TRILLION before all explodes. WORLD DOMESTIC PRODUCT is anualy around 27 TRILLION.DO THE MATH how many generations (1 generations aka 20 years) of debt do we have to pay if somebody want's the money promised by the drivatives back?
The IMF's announced April sale of gold this past weekend seems to be a liquidating effort for funds to support the system.
When people price the risk of mortgages at true value rates will jump to 9-12%. Then things get ugly Benny can lower the short end of the curve but foreign investors dictate the long end. They are going to get their money back the same as Wal Mart gets its money back from shoplifting losses.
More rocks are dropping in the credit pond and bigger ripples are spreading wider. Check out the a.m. WSJ for credit problems spreading to corporate debt fast and the FT for hedge funds closing their doors. We already know that Comm RE is facing dropping demand & tigheter standards and that consumer debt (cards, autos, etc.) are under pressure.
But when the CLO and CDS following the CDO's over the cliff watch out below.
Japan is the next sub-prime flashpoint
Last Updated: 12:33am GMT 10/02/2008
There is still $300bn of bad debt out there, and Japan could be hiding most of it. Ambrose Evans-Pritchard reports
Japan is the next sub-prime flashpoint - Telegraph
Haven't seen anybody post this...
"Societe Generale, in trouble because of losses suffered due to transactions by one trader, will raise almost $8 billion. The rights offering is at an astonishing 39% discount to the price as of the Friday close. "
With Societe Generale raising capital at discount, what is value of US banks? - BloggingStocks
Troy posits:
"From this chart you can see that approx $4T of mortgage lending was created 2003-2007.
10% of this lending -- $400B -- becoming dead loss over the next few years seems a reasonable minimum estimate."
If we take this as a reasonable estimate, and we guesstimate that the average spread over funding for these loans was 200 basis points that means the lenders are making 80 billion dollars a year on the portfolio in the aggregate, which also means that if this scenario takes five years to play out the total nominal loss will be zero. 4 trillion * 2% * 5 years = 400 billion.
This is going to hit the cash equivalent lines of a whole lot of companies that wouldn't necessarily come to mind as involved in the subprime mortgage market. Let's start with the commercial insurers:
CNA Fin'l profit down 50 pct amid subprime losses
CNA Financial profit down amid subprime losses
| Reuters
Not that I'm saying anything new....
CR, do you know if the 400b just for the G7 nations?
Germansausages,
Worry about derivatives, yes, but not that much -- the $275 trillion figure is gross "notional" value, but the net value is much less and (supposedly) most of it is in plain-vanilla interest-rate swaps, in which the notional value is not at risk.
Just like global strategy consulting firm Oliver Wyman suspected, when they said on January 24 that an additional $300 billion in write-downs related to the U.S. subprime mortgage meltdown may be announced by banks before the crisis is over.
"Banks May Write Down An Additional $300 Billion"
Boom2Bust.com » Blog Archive » Banks May Write Down Additional $300 Billion
It looks like we are getting some numbers based in reality. We all need to get use to saying Trillion, it looks like billion is out already.
The race to the bottom continues.
CR as asked above G7 only, that's my guess
"Subprime is overblown." -- Wall Street Feb. 2007
You can rest assured that our German friends have done an extremely thorough analysis, as is their habit. If Bankstock.com (HAHAHA) questions it, as they did the Egan-Jones estimate, they will undoubtedly be met with a withering Blitzkrieg of data and analysis.
Assuming, of course, that they stoop low enough to reply.
Which they won't.
Moin from Germany
so far the German banks have disclosed round about $ 25 billion in losses.
The irony / scandal is that the majority ( 80-90 percent ) are coming from state owned enteties.....
So far close to $ 20 billion taxpayers money have been spend / guaranteed to keep the banks solvent.....
Paulson, Bernanke, King & Co have every reason to be jealous
Don't know if this has to do with financing requirements related to the European banking situation, but each morning 8:00 thru to 9:30 am EST, the Euro usually gets sold off hard and the US dollar bought.. Not every morning, but easily the vast majority of mornings during this time period. Such was the case again this morning.
--
Maybe, CR or someone here knows the answer:
Q1: Whose money is being lost and will be lost when all the losses are tallied up?
Q2: Who made the past gains from the current and future losses?
TIA.
Jas
AIG Discloses `Weakness' in Credit-Default Swap Accounting
By Hugh Son
Feb. 11 (Bloomberg) -- American International Group Inc., the world's largest insurer by assets, said auditors found a ``material weakness'' in how the company values its credit- default swap portfolio.
AIG hasn't yet determined the decline in value that will be stated in its 2007 financial statements, the New York-based insurer said in a regulatory filing today.
Moin again,
AIG minus 7 percent....
No news.... at least so far......
Uh...
thanks for the info!
AIG is caught cooking the books with their $500 billion CDS portfolio. AIG was claiming these are insuranse contracts which do not have to be marked to market. The auditors are telling them they are derivative contracts which have to be marked to market.
Expired
AIG has been advised by its independent auditors, PricewaterhouseCoopers LLC, that they have concluded that at December 31, 2007, AIG had a material weakness in its internal control over financial reporting and oversight relating to the fair value valuation of the AIGFP super senior credit default swap portfolio.
Moin,
thanks for the...
It looks like their
" it employs a modified Binomial Expansion Technique ("BET") model"
wasn´t good enough....
" it employs a modified Binomial Expansion Technique ("BET") model"
Is that the model that allows a homeless guy to pay off a $500,000 loan?
here's lehman's loss estimates for comparison ($B, assumes -12% HPA for each of next 2 yrs):
Agy: 34
Prime: 16
Alt-A: 32
Subprime: 205
HELOC & 2nds: 35
Total: 320
they project the bulk of recognized losses to occur from 2008 to 2010, with the peak in 2009.
These estimates along with the SocGen 39 point haircut from their capital infusion tells me that nationalization of mortgage debt is coming. Financials simply can't afford to raise capital at these rates much longer (assuming they can even get these deals in the near future). The EU and the US can't afford for them to crash either. So crank up the printing presses.
Sen. Dodd has already floated a $20 billion "par exchange" for distressed mortgage debt, leaving the US taxpayer as bagholder a couple of weeks ago. I laughed at it initially, but the joke is on us.
I just don't see a way out for the financials. Why in the world would China or the Saudis continue to be the dumb money source for these guys?
If I were them, I'd quit pumping money into the companies who just killed the structured finance biz (i.e., themselves) and start buying hard asset exploration/extraction/refining companies. That's the key to their future growth, not a bunch of financial middlemen who add zero (and actually less than zero) value.
Remember there was a time when banks were forbidden to merge too much. Then the too big to fail numbers were very low.
How about a no more mergers provision. Ah, well, closing the barn door. . .
This is all such an outrage -- to make a few tens of billions, the scum on Wall Street churned out crap that eventually will cause trillions in losses to investors. (What this really has been is a way to mine the pension funds.)
During the bubble years, total value of mortgages outstanding rose from about $5 trillion to about $10 trillion, and the nominal value of US homes rose from about $10 trillion to $20 trillion.
As the housing market collapses, most of the $10 trillion in added nominal market value will disappear as prices drop back to prebubble levels (just as they did in Japan). But the debt will remain -- or be written off.
Total losses will easily exceed $1 trillion before this is over. I'll bet on about $2.5 trillion.
Can we start a pool?
I'm watching CNBC right now. Oh how the times have changed! The CNBC cheerleaders are grilling a spokesman from the NAR who is pounding the table claiming now is the time to buy.
CNBC, NAR - what a joke. One finds religion, one won't give up the ghost.
jmf writes: [AIG] employs a modified Binomial Expansion Technique ("BET") model"
I heard they were using a Gaussian-Unified Extended-Sequence Summation model.
OT:
If Municipal Money Market Funds blow the next line-in-the-sand is Money Market Funds themselves:
You want to know fear itself? The monolines apparently have guaranteed $1.5 trillion worth of variable-rate munis that might have to be liquidated should credit ratings be lowered. It's like Waiting for Godot, a frightening play whose tone is anxiety-provoking, to say the least. Ackman calls any downgrading of $1.5 trillion in muni bonds the potential linchpin of a systemic risk.
A Chrysler-Scale Bailout Of Those Monolines - Forbes.com
DCRogers writes
"I heard they were using a Gaussian-Unified Extended-Sequence Summation model."
ac writes:
"Is that the model that allows a homeless guy to pay off a $500,000 loan?"
bacon dreamz
12% HPA!???
Is that a mis-print?
Tanta,
Please read the AIG 8-k on CDS valuation. It is a towering tribute to the english language, and I'm sure you'll get a kick out of it. One wonders whether it was written at 4:00 a.m., and what was in their bong water.
--
Germansausages: "...how many generations (1 generations aka 20 years) of debt do we have to pay if somebody want's the money promised by the drivatives back?"
What kind of question is that when Financial Nazis of America, with their capital in NYC, have triumphed and spread their empire -- via Pushing Debt -- to most of the planet? Derivatives are just a means to support a web of deceit created by ever-increasing debt. No one knows who really will pay the losses from the debt when things go really bad. That is the premeditated scheme of Financial Nazis.
Democracies breed dopes that are Debt Slaves the moment they are born and no country breeds better thoroughbreds than America under the leadership of BFNYC, a certifiable gang of Debt Pushers, using its Propaganda Machine with its two branches Democratic Party and Republican Party. USG and Fed exist to support BFNYC in their enterprise of Pushing Debt. In propaganda department Financial Nazis of America make German Nazis look like amateurs.
Breeding dopes is a necessity for Americas ruling elite to keep American People in line while they get fleeced.
Got some sauerkraut?! (I will head to the local German bakery and deli for lunch with a visiting friend).
Jas
Wall Street Shareholders Suffer Losses Partners Never Imagined
"Four of the five biggest U.S. securities firms lost about $83 billion of market value last year, almost 90 percent of their net income since 1999, ..."
"``If you're betting with other peoples' money, you're more willing to take risk than if it's your own,'' ..."
If you read the press release, it looks like AIG is fighting with its auditors over whether to write off $6 bio or $1.6 bio, depending on the mark to model assumptions made. I'm not sure this is worth knocking 10% off the valuation of the world's largest insurance company, but I also expect there's a lot of these types of discussions occuring between financial institutions and their auditors right now.
I am getting to think that the more losses are talked about the more central bankers are likely to inflate assets, cut rates or throw money at the problem to prevent the predicted losses. That is the more its talked about the less likely you are are to see the panic on Wall Street. I am almost scared to short now.
DOW boyz are up to it again...
Not your daddy's dow...
BOFA...in the Dow....Bahhahahahha
that means CFC is a DOW MEMEBER
ROFLMAO
only in amerika
``If you're betting with other peoples' money, you're more willing to take risk than if it's your own,''
I am the other way around. I found playing with other people's money more stressful than I do playing with my own.
What are the losses actually: loans wholly written off and not repaid; the total face value of "troubled" loans; total of face value of foreclosures; estimated losses after realization from foreclosure; market to market value of the loan paper?
This matters because only one of these represents an actual realized $ loss.
MAB, that's minus 12%.
(What this really has been is a way to mine the pension funds.)
jm | 02.11.08 - 10:17 am | #
So it turns out IBs are in the mining and extraction sector (not the financial sector) after all.
The irony / scandal is that the majority ( 80-90 percent ) are coming from state owned enteties
gasp
You, you, you mean govt. might be part of the problem? No. Way.
Cheers,
prat
JM I agree a pool is needed.
Dozens of U.S. banks will fail by 2010
Dozens of U.S. banks will fail by 2010: analyst
| Reuters
FDIC Recent Enforcement Decisions:
FDIC: Enforcement Decisions and Orders - Recent Orders and Decisions
WunderBra!