MBIA Increases Share Offer to $1 Billion
Submitted by
CalculatedRisk on Thu, 02/07/2008 - 9:12pm (89 comments)
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I think the downgrades are coming anyway ... but probably not tomorrow for MBI.
Best to all.
Toast is Toast.
Whole grain or wonder bread?
Jam or marmalade?
That should keep the share price above $10.00 for at least an hour or two after the new shares start trading.
Are they including free warrants in the deal like the Canadian gold prospecters do?
Bond-insurer MBIA Inc. said it boosted the size of a share offering to $1 billion from $750 million after it was oversubscribed by investors.
Oversubscribed???
CR I don't have a subscription to WSJ - does the article say if there are restrictions on those shares or can they just dump them tomorrow immediately as albrt suggests?
ah the last hurrah.
buy at $12.20 today, sell at $14.20 tomorrow morning. nice deal!
But, most importantly, priced 0.30 under my 12.5 strike March puts.
MBIA (MBI) was down 8% in after hours.
MBIA, Inc. (MBI) After Hours Trading
dryfly,
Go here to read the WSJ article.
You can always search it out in Google News to get the free version.
You can always search it out in Google News to get the free version.
You also may have go to the regular web search and look up the writer's name or some other keywords. Not all newspapers show up in the news section but most/many of WSJ articles are syndicated and can be found elsewhere.
off topic but really good report
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0802/document/us0208.pdf
European mortgage tool eyed in U.S./FDIC
404 Page not found
The Bush Financial and Economic Bust of 2008 - The Destruction of Capital
The Bush Financial and Economic Bust of 2008 - The Destruction of Capital :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website
Thanks eli & DannyHSDad - quite the fire sale but doesn't look like any restrictions so they could arb the deal tomorrow if they so desired. Wow.
FFDIC - Isn't the covered bond market in Europe frozen right now?
should result in today's excellent post from eli on CDSes
I'm going to do something I hate and re-post... I think this CDS stuff is important...
RE,
heheheh.. you should know better than to try and get people to take me seriously.
Shit, I don't even know what triggers the CDSes written against the CDOs. I'm just stuck guessing at how they're structured. Also, another stress could come from simple fear... if market participants fear that the CDOs could default at larger rates... that would juice the price of the CDSes.. and that would juice the margin requirements for anyone who wrote the CDSes.. and that could result in mass liquidations.
And, mass liquidations in a market where there are no buyers... well... that's nasty... not as nasty as the CDSes actually exploding.. but it would eliminate a lot of "value".
Anyhooo.. this is just a whole lot of speculation... and it's also unlikely to ever happen. The market seems to be blase when it comes to improbable events... I think that's where it gets difficult to discuss the risks we face.. how do you talk about something that is very remote... but, at the same time, very viscous?
We will more than likely sail through this all with minor pain. But, there's this small off chance that the whole thing will fucking blow up big time.
Anyhoo.. I'm going to have another pain killer and drink another beer. If "the shit goes down", I'll step in and try to be one of the rebuilders.
Here's to tomorrow not being the same as today!
My mother told me not to talk to cowboys.
Can you talk to Indians? That was one scary link...
I'll follow up with this little tidbit...
In general, one has to convey their ideas in some self-serious manner to get others to pay attention.
I've lost all sense of needing to proffer any sort of pretense along with the ideas I present..
I sort of toss them out there in this nonsensical way... but I'd like all of the readers of this blog to know that I am really trying to communicate important ideas.
Now, my own personal ideas lead me to act silly and hide behind ridiculousness when posting... but my hope is that some individuals will read into my posts and see that I am really trying to emphasize some very important points.
Though, I act as absurd as I do because... really.. what does it matter? No one here can change the future. We can't prevent what might happen because of all these derivatives..
The best we can do is just watch what happens happen.
Again, as I always say, the Bad Shit&trade may or may not happen..
Personally, I'm hoping it will happen so that we can experience a change in the status quo.
eli and conjure are making me put extra layers of tinfoil on my hat...
that and the market oracle link.
Zoiks!
Next thing you know, MBIA is going to be demanding One... Hundred... BILLION DOLLARS!
RE: Market Oracle link - way to get around Rob Dawg!
I think Market Oracle hasn't actually grasped how bad this is. There seems to be an assumption that CDS' somehow represent "credit." For the most part they actually represent unsecured and economically useless side bets.
The folks who took the long side are going to go bankrupt when they can't pay, and the folks who took the short side are going to go bankrupt when they can't collect. At least the bankruptcy proceedings will be quick and easy because there are no real assets on either side for the bankruptcy trustee to worry about.
eli and conjure are making me put extra layers of tinfoil on my hat...
Andy,
That's always the problem.. low probability events are hard to deal with.... how does one be aware of the uncertainty in the world... but, at the same time, be optimistic and "soldier forth"?
We need optimism. As a society, we need to believe that we can do anything and that tomorrow is even better than today.
But, some might say that we also need to be aware of any structural weaknesses that exist.
That's a conundrum... it really just seems to give one a wicked sense of cognitive dissonance.
Maybe it's best not to think too deeply about what might go wrong?
eli - Only the paranoid survive.
Maybe it's best not to think too deeply about what might go wrong?
eli | 02.08.08 - 1:48 am | #
its friday night here, and am trying to cmpensate with beer. Having a cold frosty one for all..
Japan Machine Orders Decline on Anticipated Slowdown
Feb. 8 (Bloomberg) -- Japan's machinery orders fell more than expected in December as manufacturers scaled back investment in anticipation of slowing global economic growth.
Orders, an indicator of business spending in the next three to six months, slid 3.2 percent from November, when they sank 2.8 percent, the Cabinet Office said today in Tokyo. The median forecast of 43 economists surveyed by Bloomberg News was for a 0.9 percent drop.
eli - Only the paranoid survive.
MLM,
The paranoid may survive... but I don't think it's much of a life that they get to live.
I'd give anything to lose my paranoia, and be able to take risks without considering the repercussions.
One could hide out in some bunker their entire life... and live a long time...but, really, what would you get out of that life?
I wish to be reckless and wild and even stupid. I'd learn more and probably be happier....
..but who knows.
eek, what eli said.
wish I had the balls to short this market...
Life is not about deception especially not self deception, it is about self realization. It is not by accident that the word realization includes the word real.
Optimism is very often self deception. Might feel good for a while until the hammer hits.
In my experience, native optimism seems to be fairly persistent and can be helpful, even in bad times. Something to that whole Orphan Annie thing. In fact, I wish I had some optimism.
July 18th 2008
From Bloomberg news:
"On the heels of another downgrade threat, MBIA CEO Gary Dunton announced MBIA executives and officers would be willing to whore out their wives and daughters to the three major ratings agencies in order to keep their coveted AAA ratings. "We just can't afford a downgrade from AAA. The ramifications would be catastrophic to the US economy" said Dunton."
OFHEO Questions Mortgage Proposal - washingtonpost.com
That's always the problem.. low probability events are hard to deal with...
Rare maybe, but not improbable. If you play with fire getting burnt is not a low probability event.
Optimism is very often self deception. Might feel good for a while until the hammer hits.
RE,
But, it's possibly best to ignore "the hammer" since there's not a lot one can do about It.
I live in NYC... I can't anticipate some other party igniting a nuclear bomb here... and I cannot anticipate the potential destruction of our financial system.
By "anticipate", I mean plan for or preoccupy myself with the prospect of said event.
The whole idea of "society" is centered around hope. I'm sensible enough to accept that idea.
We fear being alone and abandoned so we get together in groups. This gives us a sense of safety. That safety may be false.. but it is necessary.
So.. while I hope for absolute destruction... I also hope for perseverance. For whatever reason, I believe that society is creative enough to survive whatever will occur.
Anyhoo, while I am not inherently optimistic... I hope to one day be optimistic, and I understand the value of optimism.
Rare maybe, but not improbable. If you play with fire getting burnt is not a low probability event.
I am reading 'The Black swan', double eek!
more beer that is the answer, or maybe some single malt...
The ego on that guy is insufferable.
He has a couple of good ideas, but he acts like he discovered statistics.
Andy,
Midway through the "Black Swan" myself. Taleb makes you think!
more beer that is the answer, or maybe some single malt...
andy,
I'm a long time fan of Taleb's writing.
....also, I'm already a few Laphroaig's (me favorite smokey scotch) ahead of you...
The ego on that guy is insufferable.
Ziggurat,
Yes.. Taleb can be a cock at times... hehe..
Studying mathematics acclimated me to overly sure people.. types who call you stupid in front of a crowd of people.. but... the fun comes when you stand up to them and show them where they are wrong.
And, when they acknowledge that you are, in fact, correct in your reasoning.. it's a very sweet feeling.
It's definitely a peculiar mode of interaction... but.. if you're good at it.. it can be fun. It's like doing battle.. I guess....
Taleb is kind of common sense, when you get down to to it..
but whiskey certainly helps..
Don't know about common sense. Everything in "Fooled by Randomness" and "Black Swan" points out how human nature is heavily geared towards self-deception. He readily admits to consistently falling victim to common biases despite having written extensively about them.
But, it's possibly best to ignore "the hammer" since there's not a lot one can do about It.
If the only way you can make your bid is if the guy to your right holds the Jack of Diamonds, you might as well play as if the guy to your right is holding the Jack of Diamonds, even if you're pretty sure he isn't.
I'm working on integrating that to the way I deal with the world.
Re: Taleb's writings....
It's hard to get down to the core of what he's talking about since he has a tendency to be so, shall we say, colorful in his delivery...
..but... he's really just discussing the impact of excessive amounts of derivatives.
Mainly, when you introduce a mother lode of derivatives to a certain environment.. this will make price movements either extremely un-volatile OR it will make price movements extremely discontinuous (in rare circumstances).
That's what derivatives do... they smooth everything out... and make it very calm (since everything is "insured").
You get massively big fucking problems if the numbers ever move outside of the necessary range because all of the derivatives will start to "explode".
I know that's a very generic way of putting it.. but... that's the best way I can figure to describe our current situation. Derivatives have made prices very un-volatile over the past several years... but... if the prices move outside of the accepted range... extreme things can happen.
Don't know about common sense. Everything in "Fooled by Randomness" and "Black Swan" points out how human nature is heavily geared towards self-deception.
tj,
hehe... that reminds me of the post Tanta did about how people are unaware of their shortcomings.
It resulted in one of the best comment threads full of people committing very un-self aware acts and being none the wiser of what they were doing.
I essentially treat my mind as a foreign entity.. and am always suspicious of the ideas that I have.
tj,
to this fool its kind of common sense, I know my weakness, yet I am compelled to continue down that road to ruin. Beer being a great example
Eli, if I had the smarts to understand dirivitves I would, well not be working for the man...
eli,
That was a great thread, wasn't it?
The whole optimistic delusion thing is quite fascinating, too. Just in case we forget that trap, we always have Seb & O-Joe to remind us of it.
Eli, if I had the smarts to understand dirivitves I would, well not be working for the man...
heheheheheh... what does that make me? I understand derivatives AND I work for the man...
boohoohoo
oh well, one day I will lead the Debtors' Union and that will be my salvation... maybe...
That was a great thread, wasn't it?
tj,
I'm trying to think of what the main story was for that thread.. do you have the link or do you remember any phrases from the post?
Re: JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. managed today's sale. Underwriters were granted a 30-day option to purchase as many as 12.3 million additional shares.
eli
probably just makes you better paid, even if in USD
eli,
Sorry, nothing coming to mind. Too late and too tired.
Nite all!
Great stuff over here tonight:
naked capitalism
Bank of America raises credit card rates suddenly and arbitrarily:
Adam Levin, CEO of Credit.com and former head of New Jersey's Division of Consumer Affairs, says he is surprised Bank of America would risk bad public relations with its rate increases, given the congressional hearings in December. The bank risks alienating new customers and existing ones by being so brazen, he says, adding, "Either Bank of America has more financial troubles than it is willing to admit or it has a level of institutional arrogance that is unacceptable."
"...has more financial troubles than it is willing to admit..." Hmmmm.
"That's what derivatives do... they smooth everything out... and make it very calm (since everything is "insured").
You get massively big fucking problems if the numbers ever move outside of the necessary range because all of the derivatives will start to "explode"."
systemic risk:
The risk that derivatives permit the transmission of risk across previously unrelated markets, thus
making it more likely that a large shock in one will be transmitted (with negative consequences)
to others.
In other words, it acts like insurance and mitigates risk until and unless a shock occurs, at which time the correlations all go to 1 and not only are the diversification benefits lost, but previously unrelated markets are also impacted.
This is from a presentation by the guy who heads up Tricadia a couple of years ago.
http://www.bnet.fordham.edu/event/creditconference/slide_barnes.pdf
maybe "massive fucking problems" gets to the heart of the matter more directly
Credit Suisse research note regarding Goldman Sachs comments at their conference:
"Current environment Credit markets are pretty much as bad as theyve
ever been and worse than what was seen this past summer. This challenge
is now being compounded by the weaker global equity markets. Add to this
the disconnect between the two, with the credit markets behaving as if we
are in a deep recession and the equity markets (put yesterday aside) as if
we were in recovery. These markets will ultimately converge; the question is
when and in which direction."
eli....
Taleb's main argument is that normal distributions, which a big chunk of financial economics depends on, does not have a thick enough tail.
This might be big news to some economists, but people have been using thicker tailed distributions for years.
I like some of his examples. However he could use a ghostwriter to clean up some of the excessive boasting.
List of cognitive biases - Wikipedia, the free encyclopedia
an exhaustive list of cognitive biases
""We actually went through a rolling credit crunch of sorts and we're still in it to some degree, but what we've really done is seen credit cut off to a lot of things that should have been cut off and we've seen credit that was mispriced get repriced," Mr. Buffett said.
"We do not have an unavailability of credit to people who've got reasonable credit demands, and it's not expensive. We're not in a credit crunch for those who have sound deals. I went through 1982 when short-term money cost 21%. This is not a tough period.":
'I am a huge bull on the U.S. economy'
Taleb's main argument is that normal distributions, which a big chunk of financial economics depends on, does not have a thick enough tail.
That's his argument, but it isn't the correct one. The problem isn't whether the distributions have a thick enough tail. The problem is that there are conditions under which the independent variables stop being independent. Once that happens, your statistical distribution stops working, no matter how fluffy the tails.
Thinking of it as simply not having fat enough tails misses the point entirely. You can't model a binary system in which the law of large numbers either works or it doesn't with a single distribution like that.
Real justice would be for MBIA and Ambac to tell Deutsche Bank, Citigroup, Goldman Sachs, and all the other Mismanagers of the Universe to go pound sand.?Why? Because like any insurer, the insurer does not have pay claims when the claimant has acted recklessly or fraudulently.
KISIS-
"The problem is that there are conditions under which the independent variables stop being independent."
Certainly correct - just look at valuations on CDOs.
CPDOs are an even better example for those aware of them.
OT - the value of optimism-
Genetics plays a big role - there's obviously some sort of survival advantage in being mildly optimistic, given that it is the default for most people.
Easy to see why extremes of either optimism or pessimism tend to get bred out.
Optimism = let's hunt that elephant with our bare hands, we can do it!
Pessimism = A)why bother planting corn because the bugs are going to eat it. And I'm going to die anyway, so might as well join in on bare handed elephant hunt.
Mild optimism is more likely to get you laid too.
Credit card atm-
"America's love affair with credit cards may be headed for the rocks.
Credit-card delinquencies are rising across the nation, a sign that some Americans are at the end of their rope financially. And these mounting delinquencies, in turn, have prompted banks to tighten lending standards, keeping people who have maxed out their cards from finding new sources of credit.
The result could be a sharp pullback in consumer spending that would further weaken the slowing U.S. economy.
Such a pullback may already be taking shape. Yesterday, the Federal Reserve reported an abrupt slowdown in consumers' credit-card borrowings."
consumer confidence-
"WASHINGTON (AP) -- People's confidence in the economy sank even lower amid heightened fears about shrinking job opportunities and the possibility the country is falling into recession.
According to the RBC Cash Index, confidence dropped to a mark of 48.5 in early February, from 56.3 last month. The new reading was the worst since the index began in 2002 and surpassed the previous low reached in January."
Expired
January hedge performance-
"Concentric Capital ASA's $740 million Concentric European Fund lost 22 percent. The Oslo-based firm, run by Peter Jebsen, wagered on about a dozen companies to increase in value, according to an investor. Jebsen, a former stock trader for billionaire investor George Soros, started Concentric in 2002.
Quantitative Investment Management, the Charlottesville, Virginia-based manager with $3 billion in assets, declined 7.8 percent in its QIM Global Program last month, following a 2007 gain of 28.4 percent, according to a monthly client letter."
http://www.bloomberg.com/apps/news?pid=20601103&sid=a5Ruwip5PJYc&refer=news
from above, wsj credit card link-
Credit-Card Pinch Leads Consumers To Rein In Spending - WSJ.com
Moin,
this link is worth a look...
Super Friday for monolines? Moodys cuts rating on XLCA
Not Found us0208.pdf
Did you see where they quoted Rob Dawg right next to a picture of Bernanke?
I swear, somebody here is gonna become a cabinet member someday.
Gross on monolines-
FT.com / Comment / Opinion - Rescuing monolines is not a long-term solution
MBIA shares fall 11.5% in pre-open trade
Ok, if the banks losses are estimated at $143B if the bond insurers are downgraded--what are the losses if the bond insurers go broke?
Or does even one downgrade break the machine?
Market cap was $1.7B, so they just diluted by 40%, and I don't think that counts the options they sold to Pincus Warburg. A lot of over-eager bottom fishers have been burned.
One might expect the eagerness to jump in at the bottom is starting to wane a little. I wonder if that's a factor in finding a true market bottom?
"Bond-insurer MBIA Inc. said it boosted the size of a share offering to $1 billion from $750 million after it was oversubscribed by investors."
Right! Everyone thought Warburg Pincus was a genius $20 ago too. The insatiable need of people to have and love their Icons, for the MSM to focus on them, elevating them to an almost "auric" status, only to be disappointed that they really are not much smarter than themselves and quite ordinary.
Hard evidence that securitisation encouraged lax mortgage lending in America.
Premium content | Economist.com
For all of you, Steve Pearlstein has a very good column the Wash Post today on what happens to economic models in extreme situations and why relativity breeds economic irrationality. Pearlstein has done some very good writing over the past 6 months on several subjects. Sorry don't have the link.
I show it at 12.30, with about 180K traded in the premarket. Down about 13.3%.
This thing has been a swing trader's wet dream for months now.
Bigger picture, I honestly don't see how anyone believes the whole subscriber/rating agency/bond insurer circle jerk is going to be a viable model going forward.
It's just that we can't see what's going to replace it yet.
I don't think anything will replace it permanently. Bond insurance was born in 1981, at the start of this K wave in leverage. It is dying at the end, right on schedule.
Bond insurance involved a built-in arbitrage, that the premium bought more value than it cost. The premium arbitrage was created by the K wave, not the bond insurers. They just had the right idea, right place and time.
In the K winter, the arbitrage reverses and the premium buys less than it costs. Buffett may look at a lot of bonds and offer a few bids. But his premiums will be too high in most cases.
Bond insurance may return in 10 years, at the start of the next K leverage wave. It can't return now because the risk is too high and too much leverage shakeout is coming.
If you could get CEOs of all the monolines in the same room and ask them why they kept leveraging up risk right to the end, they would all say the same thing. "We had no choice. We are just men working in complex, competitive global systems, and we had to keep EPS growing by writing more and riskier business."
This is why K waves peak and crash. The global competition and overcapacity issues in this wave will make the crash very bad. You could look at hundreds of companies and you would see really shocking increases in debt, leverage and risk from 2005 through early 2007. It was all about chasing EPS and outrunning crazy competition.
Everybody interpreted Chuck Prince's "dancing" quote as a sign of bravado or risk-insensitivity. But if you look at it in another context, it's an expression of ironic helplessness.
I can buy part of a bank? Cool! I always wanted to own a bank. Is this a great country, or what?
Any idea how much of the capital raise came from short covering? If you were short MBI prior to the capital raise, the capital raise gives you the perfect opportunity to cover your position at a guaranteed profit as the capital raise is below the prevailing price.
A bare-handed elephant hunt?!
Priceless!
Let's see...if you think buying more shares of various bond insurers is a good idea, you just might be on a bare-handed elephant hunt.
If you think Bush's stimulus plan will avert recession, you just might be on a bare-handed elephant hunt.
And if you think the American consumer is prepared to take on higher levels of debt service, because they are getting such a "good deal on interest," then you just might be on a bare-handed elephant hunt!
Yep, metaphor works. Good work, rcyran!
We see Rob Dawg giving an exhausted Bernanke an oily massage after shoveling all that money into the furnace.
Ewwwww. That's gonna need some industrial strength mind bleach to remove.
i can haz dilution AND lubrication?
Tom Sawyer on Bankers and their MBS's, CDO's, SIV's, CDS's, and monolines:
"...the person that had took a bull by the tail once had learnt sixty or seventy times as much as a person that hadn't, and said a person that started in to carry a cat home by the tail was getting knowledge that was always going to be useful to him, and warn't ever going to grow dim or doubtful."
Mark Twain, "Tom Sawyer Abroad"
Also, in other breaking news 40M Boomers wake up and realize that they have no savings. Report being unsatisfied by the development:
Expired
Meanwhile, GenX/GenY continues to put happy face stickers on their financial statements. Reports are that they "feel good" about themselves.
"Seventy seven percent of U.S. homeowners believe that the value of their home increased or remained the same during 2007, according to a study released Wednesday by real estate information site Zillow.com."
fromhttp://www.housingwire.com/2008/02/07/not-just-a-river-in-egypt-77-percent-of-homeowners-believe-their-home-didnt-lose-value-in-2007/
from the housing wire next door.
Everybody interpreted Chuck Prince's "dancing" quote as a sign of bravado or risk-insensitivity. But if you look at it in another context, it's an expression of ironic helplessness.
rich | 02.08.08 - 8:56 am |
Yes, and well said. Conjure says, "A brilliant career in intelligence awaits you."
and the stock is up. Just like CFC when BAC announced its first shrewd buy-in, before it tanked.
Good quote. This is totally obvious for homebuilders who think they can build their way out of their problems, but less so for financials.
I'm a naif when it comes to finance, but one thought about black swans. It seems to me that construing an event as "low probability" actually acts reflexively (as Soros would say) on the odds of the event happening --i.e., the more people are enticed into a low risk trade, the more the risk profile of the trade shifts over time. In part, because so many funds become hedged in an identical way; in part because the redundancies make returns smaller, even as risk rises, and so more and more leverage gets piled on to a single thesis, even as the original inefficiency that inspired it closes up. Citing "black swans" is a way of fig leafing the amount of greed that motivated bad actors towards the end of the cycle. Be curious to hear if this chimes with anyone's experience. (Disclosure: this is a subject I will probably write about publicly. I am a journalist.)
ANONANON: "Citing "black swans" is a way of fig leafing the amount of greed that motivated bad actors towards the end of the cycle. "
Totally agree with that. Haven't read Black Swan or anything about it but that seems like a misleading characterization of the situation. That probability explanation almost seems like the oft-quoted view that someone blew up because a once in a thousand year event is unfolding in the market. Well, IMO, that's nothing more than a convenient excuse.
As far as I'm concerned, the problem was the shady deals and excessive risk-taking that occured near the end of a cycle. Otherwise, how do you explain the fact that nearly all the problem RMBS and CDOs are post-2005 securities? Since one can generally make more money in the latter stages of a bubble, it is quite obvious that greed, lies, and deception played a bigger part than any problems with the models.
As for MBIA, this is their last strategic move. They have made their move--a risky one but forced to do it--and all they can do is to wait and see... Ackman, Tilson, and other shorts can say whatever they want in the future and it won't matter. It'll all come down to subprime default rates and loss recovery...
"AnonAnon writes:
I'm a naif when it comes to finance, but one thought about black swans."
It isn't about rare events but rather correlation between asset classes. Diversification requires independence. Since when is a recession a 'black swan'?
See my earlier post defining systemic risk.