Housing Wire: S&P Confidence in Alt-A overcollateralization waning
Submitted by
CalculatedRisk on Wed, 05/28/2008 - 7:50pm (42 comments)
Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 14 members and 136 guests online.
Recent Recommendations
Uno?
Tanta is the only AAA now.
See, you have been unfair to Spam. The "ultimate inferior goods" are produced by Wall Street.
they oughtta invent a new grade for Tanta
AAAA
albrt, yes, in the common usage of inferior, I'd rather be served some Spam then some AAA Alt-A!
Of course, in economics, "inferior good" just means something people want more of in bad times - and I don't want any Alt-A RMBS (without a steep discount).
Best Wishes.
Any idea how big the 567 classes going to "negative watch" are?
Whew! Just what the market needed for a strong finish for Thur/Fri! We've really, REALLY reached bottom now, right?
OT, but a fairly in-depth article about Libor rate mis-quotes:
"Study Casts Doubt on Key Rate"
WSJ Analysis Suggests Banks May Have
Reported Flawed Interest Data for Libor
Major banks are contributing to the erratic behavior of a crucial global lending benchmark, a Wall Street Journal analysis shows.
The Journal analysis indicates that Citigroup Inc., WestLB, HBOS PLC, J.P. Morgan Chase & Co. and UBS AG are among the banks that have been reporting significantly lower borrowing costs for the London interbank offered rate, or Libor, than what another market measure suggests they should be. Those five banks are members of a 16-bank panel that reports rates used to calculate Libor in dollars.
.
.
.
WSJ(
link:
Study Casts Doubt on Key Rate - WSJ.com
This must be a mistake, because Ben Stein has assured numerous times that this problem is limited to a few subprime mortgages.
35-38 percent loss on Alt-A.
Mai Gooodness.
Anyone know what they were downgraded to. AA?
I have a friendly bet that GM will go under. I know they trade junk but what level exactly. BB?
Judge rejects Farmers Branch ordinance on renting to illegal immigrants
Judge rejects Farmers Branch ordinance on renting to illegal immigrants |
News for Dallas, Texas | Dallas Morning News
| Latest News
Since figures submitted to LIBOR are public (which seems a mistake to me), isn't submitting disinformation there similar to lying about earnings? Can't somebody be prosecuted?
Can anyone outline what the Fed does during a downgrade? Does the bank buy it back from the Fed? Does the Fed continue to hold it at the original value or does the value get discounted?
Any guesses for GDP Tomorrow?
I say 0.3-0.6% 2/3 is domestic consumption and I say that consumption is about 5-10% last quarter. I don't see higher than 4th quarter which was 0.6%. I hear estimates as high as 1.5%. anyway you spin it though we have negative real growth with inflation factored in.
These Banks Need to Raise Capital Quickly
These Banks Need to Raise Capital Quickly | Innovation Update | Financial Articles & Investing News | TheStreet.com
Watch Ambac in next few days. Breaking below $3 and under 900mm market cap while taking 280+mm in write-offs... good luck on the next capital raise!
S&P, you listening? Grow a spine and put a fork in this one...
Another article regarding mistrust of Libor rates:
Libor Proxies Gain as Traders Seek Truth With Swaps (Update2) - Bloomberg.com
"Libor Proxies Gain as Traders Seek Truth With Overnight Swaps"
May 29 (Bloomberg) -- Traders are starting to use alternative measures for borrowing costs as the British Bankers' Association struggles to keep the London interbank offered rate as the global standard.
Libor, the benchmark for 6 million U.S. mortgages and more than $350 trillion of derivatives and corporate bonds, has been called into question since the Bank for International Settlements said in March some lenders may have understated borrowing costs to keep from appearing like they are in financial straights.
One option growing in popularity is overnight indexed swaps, a gauge of expectations for central bank rates. The Federal Reserve uses the one-month OIS rate to set the minimum bid level when it lends cash to banks through its Term Auction Facility. The Fed has auction $510 billion through the TAF since December.
My confidence in S&P is waning.
Did it ever wax?
I suspect if Markit tracked Alt-A, the graph would be looking a bit ugly.
"A review of affected securities by Housing Wire found that all of the classes put on watch for a pending downgrade are currently rated AAA"
So how many of these are posted at the Fed and what is the Fed going to do about them?
FT
Banks launch central clearer for derivatives
FT.com / In depth - Banks launch central clearer for derivatives
Credit Derivatives Clearing House Planned For September
Credit Derivatives Clearing House Planned For September « naked capitalism
the subprime of subprime
"Treet is a canned meat product, similar to SPAM, that is marketed under the brand name Armour Star by the Pinnacle Foods in the USA. Treet is made with chicken and pork. SPAM is made with ham and pork. Treet is often less expensive than SPAM."
Treet - Wikipedia, the free encyclopedia
So how many of these are posted at the Fed and what is the Fed going to do about them?
Perhaps that which has been monetized will be de-monetized?
Nah, the Fed will just lower their standards again.
FFDIC: Why don't I see IMB on that list of banks that need to raise capital quickly?
Libor Proxies Gain as Traders Seek Truth With Swaps
Libor Proxies Gain as Traders Seek Truth With Swaps (Update2) - Bloomberg.com
Libor, the benchmark for 6 million U.S. mortgages and more than $350 trillion of derivatives and corporate bonds, has been called into question since the Bank for International Settlements said in March some lenders may have understated borrowing costs to keep from appearing like they are in financial straights.
One option growing in popularity is overnight indexed swaps, a gauge of expectations for central bank rates. The Federal Reserve uses the one-month OIS rate to set the minimum bid level when it lends cash to banks through its Term Auction Facility. The Fed has auctioned $510 billion through the TAF since December.
skeptictank,
Thank you FFDIC for the link. It's late. I don't care.
Excuse my ignorance, but is the rate banks are borrowing through TAF counted in the reported interbank borrowing rates for LIBOR? Is that technically an interbank rate?
I'm wondering, did you guys chase all the oposing views away? This place seemed one sided, feeding upon itself. Where are all the other people to put a reality smack down on these cult? The problem spoken here is a small fraction of the GDP.
Booger, I beat ya to it...
DoomersNightmare: This is the more realistic forum. what you are asking for is more CNBC/Wall St Journal style teevee info. It's the innovative financial sphere that is getting smacked down by reality which is the topic of this post.
While grammar doesn't necessarily hold up well writing this quickee responses, you can use it for a gauge to judge the writer. "Oposing", okay, quick typo, but "This place seemed one sided, feeding upon itselt." Wrong tense for your meaning and an extra comma, in that case, why should I listen to you?
christofay,
Don't forget "down on these cult".
Doomer,
We're fact based here. We're happy to have you if you can provide them, links preferred.
ShortCourage,
Thank you for helping, but now, what about weather issues and the impact of heat on the recession?
AccuWeather.com - Weather News Headlines - Weather News
CR:
Yes, those clever economists are always thinking of ways to help Wall Street obfuscate its agenda. Like referring to something that people want more of under certain circumstances as "inferior," while conveniently forgetting to invent a comparable label for fraudulent goods that make up most of our economy, and that nobody would want under any circumstances if they knew what was in them.
That goes right along with teaching college freshmen the eternal verities of supply and demand curves, while conveniently forgetting to mention until graduate school that all the assumptions behind the curves are empirically wrong.
Ground up pork shoulder is more useful than either a banker OR an economist.
Billy Hill writes:
Since figures submitted to LIBOR are public (which seems a mistake to me), isn't submitting disinformation there similar to lying about earnings? Can't somebody be prosecuted?
I think the more realistic risk for the misreporting banks is litigation by companies who hedged recently maturing debt with interest rate swaps. The ficticious lower LIBOR rate would mean their swap positions were settled out of the money relative to where a higher real LIBOR rate would have valued. These companies suffered a realized loss from the misreporting which in aggregate could be substantial. Certainly worth pursuit as a class action suit on a contingency fee basis.
FFDIC writes:
These Banks Need to Raise Capital Quickly
I think the relatively few bank failures we've seen YTD is influenced by a dirth of white knight banks prepared to ride in and rescue the troubled institutions. Most prospects are too preoccupied with their own problems to get involved with a rescue. Might this make for a bow wave of failures building behind the scene?
Do stick around, CS.
The spark of intelligence is very welcome.
DoomerNightmare, these issues are not a small part of GDP. There's easily a trillion in bad assets in this crisis, which is magnified throughout the real economy because that trillion or so is leveraged as consumer and business lending.
Having said that, even a correction and a couple of years of stagflation certainly won't spell the end of our way of life, as some here seem to argue. The US economy is still huge, innovative, and open.
Hey, Lose an "A" here and an "A" there, and pretty soon you're talking real money.
This begs the question of how many of the underlying loans were seconds and HELOCs. My guess is that the modeling of loss severity for these loans is much more broken than the modeling of default rate. I just don't think that it's possible to provide enough overcollateralization to on this sort of poo that anyone here would regard the bonds as AAA.
The very fact that I can say the forgoing is a testament to the education that I have received here. Thank you CR and Tanta.
Just saw this via a UK housing site.
Gated communities for the homeless
YouTube - Foreclosed and homeless.
this sounds like it's gonna be a big one (affecting the economy etc)
"I think the relatively few bank failures we've seen YTD is influenced by a dirth of white knight banks prepared to ride in and rescue the troubled institutions."
One person's white knight bank is another vulture investors. Supposedly, Wilbur Ross has billions from Middle East investors to invest in "thousands" of struggling regional banks.
Wilbur L. Ross Jr. aims to buy struggling small banks - The New York Times
Is this one really f**ked up circle? So all the petro-dollars bought treasuries, keeping US rates low, which fueled the mortgage bubble. The petro-dollars then moves to commodities, pushing consumers to the brink, increasing the likelihood of bank failures. Now the petro-dollars are coming to "rescue" the banks...
Interestingly, US laws have restrictions on foreign investment of airlines for national security reasons, but not banks...
Somewhere, the old Soviets are laughing at the superiority of US capitalism.