Morgan Stanley on Monday said it was willing to buy back about $4.5bn in auction rate securities in response to pressure from regulators, but New Yorks attorney-general rejected the offer as too little, too late.
i read in the wsj that fannie would provide about-to-be-foreclosed-on homeowners additional loans to bring them current, just so that fannie may avoid buying back the what would be a delinquent loan at full face value. they throw away some money doing that (a few hundred mil) , but avoid big billion dollar writedowns - temporarily at least.
how long before these other banks learn such tricks, or some new ones, and avoid pissing off their shareholders with these neverending writedowns?
you wake up one morning this month, and everyone tries to give lame reasons for the drop,
1 End of the olympic games
2 Chinese government revised growth figures to null
3 Investors finally acted up on Georgian conflict, etc
the real reason, market being complex system could be very unpredictable in the short run.
the MER deal wasn't 5 cents on the dollar. this is just like me selling my house, accepting a down payment and financing the rest. if the loan is paid off I get the down payment, the principal and interest. if the loan defaults I get the house. the problem is if the loan defaults they get the CDOs which probably won't be worth much because if they were the buyers would have not defaulted. seems like a big risk for MER. if the loan pays off they actually will make money, no?
I however am not an expert in this matter so can anyone correct me?
The tell for the brokers will be when they report to see how the prop businesses performed. Virtually the lot of hedge funds have been run over with the wild volitility and the brokers have all be monster long the coommodities trade. If we start to see "very strong" results from the divisions, one has to begin to ask themselves, how do these guys keep ending up on the right sifde of the trade? The JPM trade adds some solicae to the idea that there are some places where even magic doesn't work. Then again JPM had a monster 2Q in fixed income? What is a billion and a half anyway...
Tonight we look @ JPMORGAN CHASE & CO.
FORM 10-Q
For the Quarterly Period Ended June 30, 2008
The Investment Bank continues to be negatively affected by the disruption in the credit and mortgage markets ...
The Firm held $16.3 billion (gross notional) of legacy leveraged loans and unfunded commitments as held-for-sale as of June 30, 2008. Markdowns averaging 20% of the gross notional value have been taken on these legacy positions as of June 30, 2008. Leveraged loans and unfunded commitments are difficult to hedge effectively, and if market conditions further deteriorate, additional markdowns may be necessary on this asset class. The Investment Bank also held, at June 30, 2008, an aggregate $19.5 billion of prime and Alt-A mortgage exposure and $1.9 billion of subprime mortgage exposure. In addition, the Investment Bank had $11.6 billion of Commercial Mortgage-Backed Securities (CMBS) exposure, which is substantially credit hedged. These mortgage exposures could be adversely affected by worsening market conditions, further deterioration in the housing market and market activity reflecting distressed sellers. For the third quarter to date, trading conditions have substantially deteriorated versus the second quarter. In particular, spreads on mortgage-backed securities and loans have sharply widened causing the company to incur losses (net of hedges) of approximately $1.5 billion for the quarter to date.
Net credit derivative hedges notional (g) (86,051)
(g)\t \t
Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under SFAS 133. Includes $34.4 billion and $31.1 billion at June 30, 2008, and December 31, 2007, respectively, which represent the notional amount of structured portfolio protection; the Firm retains a minimal first risk of loss on this portfolio.
Credit portfolio VAR includes VAR on derivative credit valuation adjustments, hedges of the credit valuation adjustment and mark-to-market hedges of the retained loan portfolio, which are all reported in principal transactions revenue. For a discussion of credit valuation adjustments, see Note 4 on pages 111118 of JPMorgan Chases 2007 Annual Report. Credit portfolio VAR does not include the retained loan portfolio, which is not marked-to-market.... blah, blah, etc..
American Securitization Forum subprime adjustable rate mortgage loans modifications
In December 2007, the American Securitization Forum (ASF) issued the Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans (the Framework). The Framework provides guidance for servicers to streamline evaluation procedures of borrowers with certain subprime adjustable rate mortgage (ARM) loans in order to more quickly and efficiently provide modification of such loans with terms that are more appropriate for the individual needs of such borrowers. The Framework applies to all first-lien subprime ARM loans that have a fixed rate of interest for an initial period of 36 months or less; are included in securitized pools; were originated between January 1, 2005, and July 31, 2007; and have an initial interest rate reset date between January 1, 2008, and July 31, 2010. JPMorgan Chase has adopted the Framework, and during the three and six months ended June 30, 2008, had modified $649 million and $836 million, respectively, of Segment 2 subprime mortgage loans. In addition, during the three and six months ended June 30, 2008, $483 million and $524 million, respectively, of Segment 3 loans were modified, $302 million and $377 million, respectively, were subjected to other loss mitigation activities, and $43 million and $76 million, respectively, were prepaid by borrowers. For additional discussion of the Framework, see Note 16 on pages 108109 of this Form 10-Q and Note 16 on page 145 of JPMorgan Chases 2007 Annual Report.
Other shit you don't need:
(a)\t \t
Included credit card and home equity lending-related commitments of $736.4 billion and $66.7 billion, respectively, at June 30, 2008, and $714.8 billion and $74.2 billion, respectively, at December 31, 2007. These amounts for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. For credit card commitments and if certain conditions are met for home equity commitments, the Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law.
(b)\t \t
Included unused advised lines of credit totaling $34.0 billion at June 30, 2008, and $38.4 billion at December 31, 2007, which are not legally binding. In regulatory filings with the Federal Reserve Board, unused advised lines are not reportable. See the Glossary of Terms on page 130 of this Form 10-Q for the Firms definition of advised lines of credit.
(c)\t \t
Represents contractual amount net of risk participations totaling $29.7 billion and $28.3 billion at June 30, 2008, and December 31, 2007, respectively.
RE the 22c vs 5c discussion. INCONCEIVABLE.
Inigo Montoya: You keep using that word. I do not think it means what you think it means.
The fact that the buyers put up the 1.5 Billion for the "5c" valuation shouldn't be discounted. They lose their entire investment if they are unable to recover more than 22c, unless I missed something. They are therefore highly motivated to work to do so. Therefore, dismissing the purchase as less than 22c out of hand is a pretty tall stretch.
Now we may indeed find that the buyers were falling knife catching, and that they will lose their investment, but their loss starts at any recovery of less that 22c.
"NEW YORK (Reuters) - Wachovia Corp increased its previously reported second-quarter loss to $9.11 billion to cover costs to settle a probe of auction-rate securities sales, and said it will cut more jobs as the housing market deteriorates."
yaks, what is the job cuts toll in the finance industry, is it 200K yet?
I think we might have another couple of years to wait for the financial rapture we are all waiting for. People at my work are still upbeat, buying houses, acting like there's no recession, telling me "unemployment is only 5%". One co-worker looking at a house feels that "housing is local". I tried to explain that "local means Southern California", but he rebuffed me, "local mean's the city" (Camarillo).
Despite the fact that DQ shows something like a 20% YoY loss in our city, he's telling me that "As soon as the price hits $380k, 5 offers". Okay, that might be true but 1 year ago someone was saying, "As soon sa the price hits $450k, 5 offers", and if the trend continues in another year its, "As soon as the price hits $300k, 5 offers!". So there are other towns where the price declines have hit a bit more (Oxnard, 40% YoY per DQ)... but apparently Oxnard is not going to have an impact on Camarillo or Ventura. I've never lived through a bust but I find that a bit unlikely... although its true that Oxnard is a dump and the other two cities aren't... I find it hard to believe that all those low prices houses in Oxnard are not putting any pressure on the next towns over.
Anyway, I think 401(k) plans are great indicators for how average American's are thinking... until we see some drastic changes in retirement planning, and some other metrics I'm not going to hold my breath. I'm gonna still hold onto my gold and buy some more "bear market" type of investments...
Covered bonds will fix this, as we take this debt and repackage it then restructure it, reorganize it, re-rate it, re-hype it, re-sell it, re-hedge it, re-upgrade it, re-spin it, re-ignite it, socialize it, re-tax it...
The bank plans to separate its business divisions into three autonomous'' units to increasestrategic flexibility.'' Chief Executive Officer Marcel Rohner faces pressure to stem losses, shrink the investment bank and limit damage to UBS's wealth management business, the world's largest. Rich clients removed 17.3 billion francs more than they added in the second quarter, the first net withdrawal in almost eight years.
I don't think either side wants to hit the pipeline (it hasn't been, yet, to my knowledge), although with the "fog of war", accidents WILL happen.
Re: Georgia being admitted to NATO....they applied, but I haven't heard of any groundswell of support for it, even before this latest flare-up (which effectively kills it, for the immediate future, at least).
I am curious, however, what China's oil demand will look like, post-Games, given the restrictions vehicular travel, and industry/commerce, in an effort to cut the air pollution during the Games. (Yes, I know that a lot of their power generation is coal-fired).
Face value of the deal was 22 cents on the dollar. However Merrill had to raise the money to do the loan. They did this by selling more shares but there was a ratchet provision from shares they sold in January. The ratchet provision to the original purchasers in Singapore required that if shares were sold again withen a year Merrill had to make up the difference in price from what they paid in January. This amounted to an additional 2.5 billion. That makes this deal worth at best 13 cents on the dollar and at worst a loss of 4 cents on the dollar if they get the CDOs back after they are WORTHLESS.
Japanese annual wholesale price inflation jumped to 7.1 percent in July, a 27-year high and well above expectations, adding to fears that high energy and commodity costs are squeezing firms and pushing the economy into recession.
The soaring wholesale inflation comes as worries grow that Japan's longest post-war recovery may have ended as exports -- the main engine of growth in the world's No.2 economy -- sputter as the global economy slows.
Re: world's No.2 economy ... is that China as first?
Collateralized Debt Obligations vehicles
Exposures to collateralized debt obligation (CDO) warehouse VIEs at June 30, 2008, and December 31, 2007, were as follows.
The total purchase price to complete the Merger was $1.5 billion.
The Merger was accomplished through a series of transactions that were reflected as step acquisitions in accordance with SFAS 141. On April 8, 2008, pursuant to the share exchange agreement, JPMorgan Chase acquired 95 million newly issued shares of Bear Stearns common stock (or 39.5% of Bear Stearns common stock after giving effect to the issuance) for 21 million shares of JPMorgan Chase common stock. Further, between March 24, 2008, and May 12, 2008, JPMorgan Chase acquired approximately 24 million shares of Bear Stearns common stock in the open market at an average purchase price of $12.37 per share. The share exchange and cash purchase transactions resulted in JPMorgan Chase owning approximately 49.4% of Bear Stearns common stock immediately prior to consummation of the Merger. Finally, on May 30, 2008, JPMorgan Chase completed the Merger, and as a result of the Merger, each outstanding share of Bear Stearns common stock (other than shares then held by JPMorgan Chase) was converted into the right to receive 0.21753 shares of common stock of JPMorgan Chase. Also, on May 30, 2008, the shares of common stock that JPMorgan Chase and Bear Stearns acquired from each other in the share exchange transaction were cancelled. From April 8, 2008, through May 30, 2008, JPMorgan Chase accounted for the investment in Bear Stearns under the equity method of accounting in accordance with APB 18. During this period, JPMorgan Chase recorded reductions to its investment in Bear Stearns representing its share of Bear Stearns net losses, which was recorded in other income and accumulated other comprehensive income.
In conjunction with the Merger, in June 2008, the Federal Reserve Bank of New York (the FRBNY) took control, through a limited liability company (LLC) formed for this purpose, of a portfolio of $30 billion in assets acquired from Bear Stearns, based on the value of the portfolio as of March 14, 2008. The assets of the LLC were funded by a $28.85 billion, term loan from the FRBNY, and a $1.15 billion, subordinated note from JPMorgan Chase. The JPMorgan Chase note is subordinated to the FRBNY loan and will bear the first $1.15 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, the JPMorgan Chase note and the expenses of the LLC, will be for the account of the FRBNY.
For further discussion of the Merger, see Note 2 on pages 8083 of this Form 10-Q.
This Statement also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with this Statement). In accordance with Statement 141 and related interpretative guidance, an entity that acquired another entity in a series of purchases (a step acquisition) identified the cost of each investment, the fair value of the underlying identifiable net assets acquired, and the goodwill on each step. Statement 141 did not provide guidance on measuring the noncontrolling interests share of the consolidated subsidiarys assets and liabilities at the acquisition date. The result of applying Statement 141s guidance on recognizing and measuring assets and liabilities in a step acquisition was to measure them at a blend of historical costs and fair valuesa practice that provided less relevant, representationally faithful, and comparable information than will result from applying this Statement.
NOTE 2 BUSINESS CHANGES AND DEVELOPMENTS
Merger with The Bear Stearns Companies Inc.
In conjunction with the Merger, in June 2008, the Federal Reserve Bank of New York (the FRBNY) took control, through a limited liability company (LLC) formed for this purpose, of a portfolio of $30 billion in assets acquired from Bear Stearns, based on the value of the portfolio as of March 14, 2008. The assets of the LLC were funded by a $28.85 billion, term loan from the FRBNY, and a $1.15 billion, subordinated note from JPMorgan Chase. The JPMorgan Chase note is subordinated to the FRBNY loan and will bear the first $1.15 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, the JPMorgan Chase note and the expenses of the LLC, will be for the account of the FRBNY
The unaudited pro forma combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined...
Re: November 30, 2006: As a primary dealer, Bear Stearns bids directly on all auctions of US government securities. Additionally, Bear Stearns furnishes periodic
reports of its inventory positions and market transactions in US government securities to the FRBNY. Bear Stearns also buys and sells
government securities directly with the FRBNY as part of the open-market activities of the FRBNY.
Summary of Terms and Conditions Regarding the JPMorgan Chase Facility
The Federal Reserve Bank of New York ("New York Fed") has agreed to lend $29 billion in connection with the acquisition of The Bear Stearns Companies Inc. by JPMorgan Chase & Co.
The loan will be against a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as marked to market by Bear Stearns on March 14, 2008.
The rate due on the loan from the New York Fed is the primary credit rate, which currently is 2.5 percent and fluctuates with the discount rate. The rate on the subordinated note from JPMorgan Chase is the primary credit rate plus 450* basis points (currently, a total of 7 percent).
Repayment of the loans will begin on the second anniversary of the loan...
I'm a bit hazy on Blackrock here
BlackRock Financial Management Inc. has been retained by the New York Fed to manage and liquidate the assets.
Lets recap. Bear Stearns had $389b in assets and $387 bn in liabilities at the time it went belly-up. It had $11.9 bn in shareholder equity, or net worth, to support that book of business.
The bonds on its books were getting crushed by the subprime crisis, so much so that two of Bears own hedge funds went belly-up last July, with the two former hedge fund managers subsequently arrested for alleged securities fraud and conspiracy, among other things. A cash run on the bank leading up to its St. Patricks day rescue put Bear Stearns on the brink of bankruptcy.
JPMorgan Chases chairman and chief executive Jamie Dimon initially balked at the thought of his bank taking on Bears colossal balance sheet, and rejected a deal. I tell people that buying a house is not the same as buying a house on fire, Dimon testified before Congress later (Dimon sits on the board of governors of the New York Federal Reserve).
The Fed then stepped in with an initial $30b loan, and then JPMorgan agreed to buy Bear Stearns for $2 a share, or $236m. JPMorgan increased its offer to $10 a share a week later amid a revolt by the smaller firms shareholders. JPMorgan is now digesting Bears massive $360 bn balance sheet.
Back to the $30b loan JPMorgan got from the Fed to seal the deal, supported by Bear securities that the two sides say were valued, or marked to market, at $30b as of March 14.
The Fed came up with as novel a rescue as it could. Using a creative read of section 13A of the Federal Reserve Act, the New York Fed agreed to lend JPMorgan $30 bn over 10 years at a small 2.5% rate, a loan backed by a similar amount of Bear Stearns assets. Never before had the Fed taken on mortgage-backed securities as collateral. The Fed is now holding those assets to maturity and is not marking them to market, analysts note.
JP Morgan subsequently agreed to absorb the first $1b of losses on that $30b if the value of the assets backing its loan declines. Again, if that portfolio drops in value, JP takes the first $1b in losses. If the portfolio zeroes out, the Fed takes a $29b hit. The assets now sit in a Delaware limited liability company.
The Fed minutes show that JPMorgan had requested assistance in financing a specific pool of assets that Bear Stearns had difficulty financing in the market and that JPMorgan Chase believed added significant uncertainty to the level of risk it would assume in its acquisition of Bear Stearns.
To seal the deal, the minutes show that the Fed gave JPMorgan Chase, among other things, an 18-month exemption from the Feds statutes requiring banks to hold a certain amount of capital on its books against its risk-weighted assets. Banks also must adhere to international debt to capital ratios under the Basel accords. The capital ratio is the percentage of a banks capital to its risk-weighted assets.
The Fed let JPMorgan exclude the assets and exposures of Bear Stearns from its risk-weighted assets for purposes of applying the risk-based capital requirements at the bank. The Fed also let JPMorgan exclude the assets of Bear Stearns from the denominator of its tier 1 leverage capital ratio requirements, noting that each exemption would be reduced over time.
Now the debate is just what is in that $30b pool of assets, given that the Fed is taking on this credit at a time when the government is already levered to the hilt, what with what is going on at Fannie Mae and Freddie Mac. The New York Fed hired Black Rock, 49% owned by Merrill Lynch, to cherry pick the best assets off of Bears books to use as collateral. Both sides signed a confidentiality agreement covering those assets-why tip your hand to the market and invite unwanted arbitrage?
Only broad descriptions are available. The Bear assets are collateralized mortgage obligations, the majority of which are obligations backed by the likes of Freddie Mac, as well as asset-backed securities with things like adjustable rate mortgages, as well as commercial mortgage-backed securities, collateralized bond obligations, and cash assets consisting of investment grade securities rated BBB- or higher.
But how sound is that $30b worth of collateral?
JPs Dimon testified: We could not and would not have assumed the substantial risks of acquiring Bear Stearns without the $30b facility provided by the Fed.
That comment led Sen. Robert Menendez to ask: JP Morgan would have never gotten involved [in the deal] but for your [the Fed's] guarantee that it would swallow $29b in Bears assets and not hit up JPMorgan for other collateral if those Bear assets zero out. Menendez wondered, is that a vote of confidence in these assets?
And remember what Geithner said in testimony before Congress, in defending the central against criticisms that it should have opened its Fed window to investment banks, not just commercial banks, to help Bear Stearns survive. We only allow sound institutions to borrow against collateral at the Feds discount window, he testified, adding, I would have been very uncomfortable lending to Bear given what we knew at that time.
What suddenly turned Bears assets golden as collateral for the Feds $29b loan to JPMorgan, what turned those sows ears into silk purses over night?
This gets back to Blackrock and what they are doing in terms of liquidating assets and how this impacts JPMorgan Chase .... now don't it!???
Ok, I give up, but I'm still confused, so can someone explain how this $30 Billion loan is collateral that needs liquidated by Blackrock? I'm still fuzzy on that, i.e, this seems like JPMorgan Chase and The FED bought Bear for $30 Billion, but JPMorgan Chase had to put up $1 Billion for the right to own Bear, while The Fed hides $30 Billion in shit loans, which seem to be worthless, which brings up Blackrock, who apparently is going to liquidate this shit over the years and then hand the keys over to JPMorgan Chase?
Toxic analogy?
This "miracle material" is now known to be highly toxic. The inhalation of asbestos fibers can cause serious illnesses, including mesothelioma and asbestosis. Since the mid 1980s, many uses of asbestos have been banned in many countries.
The Bear Family has a house built of asbestos; they lived in this for years, but during a pleasant Spring week, rumors swell like thunder storms that problems are in the wind, and trouble is brewing at The Bear House. Seemingly out of nowhere, along comes news on a Friday afternoon that The EPA has issued an Asbestos Ban. Panic overtakes the neighbors and the mayor of MafiaCity declares that something must be done to save their house from being condemned as a health hazard -- and unless something is done before the brokers open shop on Monday, The Bears house and others like it, may be considered worthless.
What to do? The Mayor in an emergency meeting declares that the city of Fraudville will buy all the homes that may be impacted by The Asbestos Ban, but due to technical problems The City can't buy all the houses, so The Mayor calls the local mortgage company, and placing a laserbeam gun to the head of the loan clerk (over the phone) dictates the terms of the blackmail request, regarding the transfer of The Bear Mortgage to a pool of asbestos subprime loans that will be added to a larger pool of toxic waste at the subsidiary of The Covered Bond Entity Association run by SIFMA that will help liquidate all this shit, and I really can't go on.......... However, the point here was related to a third party helping The Bears liquidate the house, which although toxic is now collateral for The Bears new and nicer home, and BlackBeak is going to sell The Bears asbestos-filled home for big bucks and then pay off the mortgage company and The bears will live happily ever after....amen!
How do you figure out what your house is worth if there are no sales? How are appraisals being done these days? Hard to make a financial decision with nothing to base it on.
I was just trying to be nice and understand why Blackbeak is involved in this charade and maybe vent just a little.. I'm sorry if I ruffled your feathers, but it was slow, and things of this nature occur from time to time...
Fibre Glass Boat, 324 F. Supp. at 1056 ("Surely the creditor would not enter into a financing arrangement secured by collateral fixed on a particular date, when the collateral by its
nature would be constantly changing.").
Essentially, a floating lien on inventory and accounts receivable is presumed because the collateral is viewed in aggregate as a shifting body of assets. See Nickerson & Nickerson, 329 F. Supp. at
Fraudulent Conveyances.
Constructive Fraud:
Conveyance made by a person who is insolvent or will be rendered insolvent by the conveyance is fraudulent as to creditors without regard to intent, if made without fair consideration. Md. ComL. § 15-204.
Insolvent for business = engaged or is about to engage in a business transaction for which the property remaining in his hands is an unreasonably small capital. Com.L. § 15-205.
Entity has an unreasonably small amount of capital. Com L. § 15-205.
About to incur debts beyond his ability to pay. Com. L. § 15-206
Fair consideration = received in good faith, in an amount not disproportionately small. Md. ComL § 15-203. Not disproportionately small depends on the circumstances.
Conveyance in anticipation of future debt can be fraudulent. Com.L. § 15-206. Future creditors may avoid transfers if:
Person is or will be insolvent because of the transfer; and
The insolvent intends or believes that he/she will incur debt that he/she will be unable to pay.
The fair value of an asset is usually determined based on a market approach and/or an income approach. The income approach involves discounting the future cash flows from the assets at a risk-appropriate discount rate.
If using a market approach, the valuator must determine what the assets could be sold for to a ready and willing buyer. That is a different standard from either (a) a forced liquidation sale, which assumes transaction costs, substantial discounting for third-party risk and a profit margin for the buyer; or (b) what could be obtained in the ordinary course of business if the debtor were allowed to take what ever time was necessary to sell the assets at their customary prices and profit margins.
See: Balance Sheet Test
The balance sheet test determines whether the companys asset value was greater than its liability value at the time of the transaction in question.
Cash Flow Test
The cash flow test determines whether a company incurred debts that were beyond its ability to pay as the debts matured.
i've heard both... any sleuths have the straight dope?
confused | 08.11.08 - 11:49 pm | #
The price was $0.22 on the dollar, but they lent the buyer most of the money to buy the crap. Once the "vendor financing" is taken into consideration its more like $0.05 on the dollar, hence the 2 numbers.
despite rumour mongering of worst sorts & credit crunch ensued by some greed, the major US indices are not even down 20% (despite 2 yrs of incessant chatter of doom & gloom)
A major event has happened. USD has broken the multi yr long downtrend. This will make US stocks more desirable to the foreigners. In fact one can make the argument that US stocks are one of the chepest in the world . This brings in much needed capital into US finance.
Yes there are credit issues. But the market is telling me, things are getting better from here.
why don't you have a look and compare the SPX, DAX, FTSE, CAC from the 2003 "bottom" to today
What I can see is that from 2003 to the 2007 top the SPX rose about 90%. During the same time interval the FTSE rose over 100% and the DAX over 200%.
.... and I won't even bring up the currencies because it hurts
Considering the time frame 1999 to today also suggests that the DAX and CAC may be more volatile so they may correct by a higher percentage this time again (as they did from 2000 to 2003)
Does this mean Hank's not having any luck in china?
Bankers said July was the worst month for mortgage-backed bonds since the beginning of the crisis
So much for waiting this one out...
They said the writedowns were partly driven by Merrill Lynch’s decision to sell $6.7bn in toxic securities ... for just 22 cents on the dollar
Make that 5.5 cents on the dollar!!!
Explain to me how huge unexpected losses and random unforseen events only happen on even quarters or within calendar months.
This s dribble news as perfected by a previous administration.
This is interesting...
Morgan Stanley on Monday said it was willing to buy back about $4.5bn in auction rate securities in response to pressure from regulators, but New Yorks attorney-general rejected the offer as too little, too late.
source
? writes:
Does this mean Hank's not having any luck in china?
? | 08.11.08 - 11:44 pm | #
Do you mean a honeypot?
was it 22c/$ or 5c/$?
i've heard both... any sleuths have the straight dope?
i read in the wsj that fannie would provide about-to-be-foreclosed-on homeowners additional loans to bring them current, just so that fannie may avoid buying back the what would be a delinquent loan at full face value. they throw away some money doing that (a few hundred mil) , but avoid big billion dollar writedowns - temporarily at least.
how long before these other banks learn such tricks, or some new ones, and avoid pissing off their shareholders with these neverending writedowns?
It's like we got another year's worth of bubbles and nothing to show for it.
Except the guarantee of even more busts coming down the pipeline.
I don't get it.
MOT - They are going to keep repeating 22 cents until it's true... lmao
This is basic double-speak 101.
Sorry to sound cynical, but does this mean that the market rallies tomorrow??
confused - The sale was 75% financed by no other the seller - Merrill Lynch.
That's why the real value is 5.5 cents on the dollar.
MiTurn - What this means is that SKF is heading to below 100.
Anybody else have that sinking feeling that a 'third wave' is on the way, and it's gonna be a hummdinger?
Nanook 3rd? This will be 5 looking at the TED Spread.
Bloomberg.com:
Personal Finance
"Anybody else have that sinking feeling that a 'third wave' is on the way"
not really a wave, it is more like a 7-10% daily drop
"daily" - one day followed by smaller droplets,
you wake up one morning this month, and everyone tries to give lame reasons for the drop,
1 End of the olympic games
2 Chinese government revised growth figures to null
3 Investors finally acted up on Georgian conflict, etc
the real reason, market being complex system could be very unpredictable in the short run.
the MER deal wasn't 5 cents on the dollar. this is just like me selling my house, accepting a down payment and financing the rest. if the loan is paid off I get the down payment, the principal and interest. if the loan defaults I get the house. the problem is if the loan defaults they get the CDOs which probably won't be worth much because if they were the buyers would have not defaulted. seems like a big risk for MER. if the loan pays off they actually will make money, no?
I however am not an expert in this matter so can anyone correct me?
Perhaps OT, but so much for "demand destruction" ("India govt panel sees 08/09 oil demand up 6.3 pct")
India govt panel sees 08/09 oil demand up 6.3 pct
| Markets
| Reuters
Re: " excluding hedges"
Do tell?
They will receive the 22 cents IF all goes well and the value of the CDO's does not deteriorate. So far, they have received the 5.5 up front.
The tell for the brokers will be when they report to see how the prop businesses performed. Virtually the lot of hedge funds have been run over with the wild volitility and the brokers have all be monster long the coommodities trade. If we start to see "very strong" results from the divisions, one has to begin to ask themselves, how do these guys keep ending up on the right sifde of the trade? The JPM trade adds some solicae to the idea that there are some places where even magic doesn't work. Then again JPM had a monster 2Q in fixed income? What is a billion and a half anyway...
Sorry to sound cynical, but does this mean that the market rallies tomorrow??
oh yeah.
1) Russia bombs a pipeline carrying 1% of the world's crude, and begins a a full scale invasion of a country being considered for NATO membership.
2) THREE US Navy Carrier groups in the Persian Gulf, on Iran's door step.
I'm thinking 500 point rally on the Dow, with Gold dropping to $750.
"They will receive the 22 cents IF all goes well and the value of the CDO's does not deteriorate."
plus interest, right?
Clearly, when I once said "thirtycent is the new dollar," I was being overly optimistic.
Good Evening and welcome to, LIve @ SEC:
Tonight we look @ JPMORGAN CHASE & CO.
FORM 10-Q
For the Quarterly Period Ended June 30, 2008
The Investment Bank continues to be negatively affected by the disruption in the credit and mortgage markets ...
The Firm held $16.3 billion (gross notional) of legacy leveraged loans and unfunded commitments as held-for-sale as of June 30, 2008. Markdowns averaging 20% of the gross notional value have been taken on these legacy positions as of June 30, 2008. Leveraged loans and unfunded commitments are difficult to hedge effectively, and if market conditions further deteriorate, additional markdowns may be necessary on this asset class. The Investment Bank also held, at June 30, 2008, an aggregate $19.5 billion of prime and Alt-A mortgage exposure and $1.9 billion of subprime mortgage exposure. In addition, the Investment Bank had $11.6 billion of Commercial Mortgage-Backed Securities (CMBS) exposure, which is substantially credit hedged. These mortgage exposures could be adversely affected by worsening market conditions, further deterioration in the housing market and market activity reflecting distressed sellers. For the third quarter to date, trading conditions have substantially deteriorated versus the second quarter. In particular, spreads on mortgage-backed securities and loans have sharply widened causing the company to incur losses (net of hedges) of approximately $1.5 billion for the quarter to date.
Net credit derivative hedges notional (g) (86,051)
(g)\t \t
Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under SFAS 133. Includes $34.4 billion and $31.1 billion at June 30, 2008, and December 31, 2007, respectively, which represent the notional amount of structured portfolio protection; the Firm retains a minimal first risk of loss on this portfolio.
Credit portfolio VAR includes VAR on derivative credit valuation adjustments, hedges of the credit valuation adjustment and mark-to-market hedges of the retained loan portfolio, which are all reported in principal transactions revenue. For a discussion of credit valuation adjustments, see Note 4 on pages 111118 of JPMorgan Chases 2007 Annual Report. Credit portfolio VAR does not include the retained loan portfolio, which is not marked-to-market.... blah, blah, etc..
That concludes our broadcast this evening....
"They will receive the 22 cents IF all goes well and the value of the CDO's does not deteriorate."
Who do you think is in the drivers seat on this deal when Merril Lynch has to lend the buyer of these CDOs 75% of the transaction non-recourse?
Given what has transpired so far, I'm going to lean on the cynical side and think 5.5c is closer to reality then 22c.
Other shit from previous connection:
American Securitization Forum subprime adjustable rate mortgage loans modifications
In December 2007, the American Securitization Forum (ASF) issued the Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans (the Framework). The Framework provides guidance for servicers to streamline evaluation procedures of borrowers with certain subprime adjustable rate mortgage (ARM) loans in order to more quickly and efficiently provide modification of such loans with terms that are more appropriate for the individual needs of such borrowers. The Framework applies to all first-lien subprime ARM loans that have a fixed rate of interest for an initial period of 36 months or less; are included in securitized pools; were originated between January 1, 2005, and July 31, 2007; and have an initial interest rate reset date between January 1, 2008, and July 31, 2010. JPMorgan Chase has adopted the Framework, and during the three and six months ended June 30, 2008, had modified $649 million and $836 million, respectively, of Segment 2 subprime mortgage loans. In addition, during the three and six months ended June 30, 2008, $483 million and $524 million, respectively, of Segment 3 loans were modified, $302 million and $377 million, respectively, were subjected to other loss mitigation activities, and $43 million and $76 million, respectively, were prepaid by borrowers. For additional discussion of the Framework, see Note 16 on pages 108109 of this Form 10-Q and Note 16 on page 145 of JPMorgan Chases 2007 Annual Report.
(a)\t \t
Included credit card and home equity lending-related commitments of $736.4 billion and $66.7 billion, respectively, at June 30, 2008, and $714.8 billion and $74.2 billion, respectively, at December 31, 2007. These amounts for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. For credit card commitments and if certain conditions are met for home equity commitments, the Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law.
(b)\t \t
Included unused advised lines of credit totaling $34.0 billion at June 30, 2008, and $38.4 billion at December 31, 2007, which are not legally binding. In regulatory filings with the Federal Reserve Board, unused advised lines are not reportable. See the Glossary of Terms on page 130 of this Form 10-Q for the Firms definition of advised lines of credit.
(c)\t \t
Represents contractual amount net of risk participations totaling $29.7 billion and $28.3 billion at June 30, 2008, and December 31, 2007, respectively.
RE the 22c vs 5c discussion. INCONCEIVABLE.
Inigo Montoya: You keep using that word. I do not think it means what you think it means.
The fact that the buyers put up the 1.5 Billion for the "5c" valuation shouldn't be discounted. They lose their entire investment if they are unable to recover more than 22c, unless I missed something. They are therefore highly motivated to work to do so. Therefore, dismissing the purchase as less than 22c out of hand is a pretty tall stretch.
Now we may indeed find that the buyers were falling knife catching, and that they will lose their investment, but their loss starts at any recovery of less that 22c.
One-Third of U.S. Homeowners Owe More Than Houses Are Worth, Zillow Says
One Third of New Owners Owe More Than House Is Worth (Update1) - Bloomberg.com
Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth, according to Zillow.com, an Internet provider of home valuations.
"NEW YORK (Reuters) - Wachovia Corp increased its previously reported second-quarter loss to $9.11 billion to cover costs to settle a probe of auction-rate securities sales, and said it will cut more jobs as the housing market deteriorates."
yaks, what is the job cuts toll in the finance industry, is it 200K yet?
So 67% of the time the house is worth more every time? Where do I sign?
I think we might have another couple of years to wait for the financial rapture we are all waiting for. People at my work are still upbeat, buying houses, acting like there's no recession, telling me "unemployment is only 5%". One co-worker looking at a house feels that "housing is local". I tried to explain that "local means Southern California", but he rebuffed me, "local mean's the city" (Camarillo).
Despite the fact that DQ shows something like a 20% YoY loss in our city, he's telling me that "As soon as the price hits $380k, 5 offers". Okay, that might be true but 1 year ago someone was saying, "As soon sa the price hits $450k, 5 offers", and if the trend continues in another year its, "As soon as the price hits $300k, 5 offers!". So there are other towns where the price declines have hit a bit more (Oxnard, 40% YoY per DQ)... but apparently Oxnard is not going to have an impact on Camarillo or Ventura. I've never lived through a bust but I find that a bit unlikely... although its true that Oxnard is a dump and the other two cities aren't... I find it hard to believe that all those low prices houses in Oxnard are not putting any pressure on the next towns over.
Anyway, I think 401(k) plans are great indicators for how average American's are thinking... until we see some drastic changes in retirement planning, and some other metrics I'm not going to hold my breath. I'm gonna still hold onto my gold and buy some more "bear market" type of investments...
Covered bonds will fix this, as we take this debt and repackage it then restructure it, reorganize it, re-rate it, re-hype it, re-sell it, re-hedge it, re-upgrade it, re-spin it, re-ignite it, socialize it, re-tax it...
Looks like UBS is going to divide itself up. Now Citibank has a press realease to copy from.
UBS Posts Fourth Straight Loss on Writedowns, Settlement Costs
UBS Posts Loss on Debt Writedowns, Settlement Costs (Update1) - Bloomberg.com
The bank plans to separate its business divisions into three autonomous'' units to increasestrategic flexibility.'' Chief Executive Officer Marcel Rohner faces pressure to stem losses, shrink the investment bank and limit damage to UBS's wealth management business, the world's largest. Rich clients removed 17.3 billion francs more than they added in the second quarter, the first net withdrawal in almost eight years.
Badgerboy,
I don't think either side wants to hit the pipeline (it hasn't been, yet, to my knowledge), although with the "fog of war", accidents WILL happen.
Re: Georgia being admitted to NATO....they applied, but I haven't heard of any groundswell of support for it, even before this latest flare-up (which effectively kills it, for the immediate future, at least).
I am curious, however, what China's oil demand will look like, post-Games, given the restrictions vehicular travel, and industry/commerce, in an effort to cut the air pollution during the Games. (Yes, I know that a lot of their power generation is coal-fired).
just ruminating..
Confused,
Face value of the deal was 22 cents on the dollar. However Merrill had to raise the money to do the loan. They did this by selling more shares but there was a ratchet provision from shares they sold in January. The ratchet provision to the original purchasers in Singapore required that if shares were sold again withen a year Merrill had to make up the difference in price from what they paid in January. This amounted to an additional 2.5 billion. That makes this deal worth at best 13 cents on the dollar and at worst a loss of 4 cents on the dollar if they get the CDOs back after they are WORTHLESS.
Like oil this week, neutral on the dollar long term very bearish, hate the Pound.
Anyone have a good B pound short???
Re: The first net withdrawal in almost eight years.
I'm thinking Bush Era here, but maybe The Ownership Society Fairy Tale is coming to an end, and a new story for a new generation will open with:
Once Upon A Time, Before, before debt, before monetization, before CDOs and QSPEs...
Japanese annual wholesale price inflation jumped to 7.1 percent in July, a 27-year high and well above expectations, adding to fears that high energy and commodity costs are squeezing firms and pushing the economy into recession.
The soaring wholesale inflation comes as worries grow that Japan's longest post-war recovery may have ended as exports -- the main engine of growth in the world's No.2 economy -- sputter as the global economy slows.
Re: world's No.2 economy ... is that China as first?
Collateralized Debt Obligations vehicles
Exposures to collateralized debt obligation (CDO) warehouse VIEs at June 30, 2008, and December 31, 2007, were as follows.
Total exposure(b)\t$10.4 Billio
Dead Horse stuff, but as an FYI:
The total purchase price to complete the Merger was $1.5 billion.
The Merger was accomplished through a series of transactions that were reflected as step acquisitions in accordance with SFAS 141. On April 8, 2008, pursuant to the share exchange agreement, JPMorgan Chase acquired 95 million newly issued shares of Bear Stearns common stock (or 39.5% of Bear Stearns common stock after giving effect to the issuance) for 21 million shares of JPMorgan Chase common stock. Further, between March 24, 2008, and May 12, 2008, JPMorgan Chase acquired approximately 24 million shares of Bear Stearns common stock in the open market at an average purchase price of $12.37 per share. The share exchange and cash purchase transactions resulted in JPMorgan Chase owning approximately 49.4% of Bear Stearns common stock immediately prior to consummation of the Merger. Finally, on May 30, 2008, JPMorgan Chase completed the Merger, and as a result of the Merger, each outstanding share of Bear Stearns common stock (other than shares then held by JPMorgan Chase) was converted into the right to receive 0.21753 shares of common stock of JPMorgan Chase. Also, on May 30, 2008, the shares of common stock that JPMorgan Chase and Bear Stearns acquired from each other in the share exchange transaction were cancelled. From April 8, 2008, through May 30, 2008, JPMorgan Chase accounted for the investment in Bear Stearns under the equity method of accounting in accordance with APB 18. During this period, JPMorgan Chase recorded reductions to its investment in Bear Stearns representing its share of Bear Stearns net losses, which was recorded in other income and accumulated other comprehensive income.
In conjunction with the Merger, in June 2008, the Federal Reserve Bank of New York (the FRBNY) took control, through a limited liability company (LLC) formed for this purpose, of a portfolio of $30 billion in assets acquired from Bear Stearns, based on the value of the portfolio as of March 14, 2008. The assets of the LLC were funded by a $28.85 billion, term loan from the FRBNY, and a $1.15 billion, subordinated note from JPMorgan Chase. The JPMorgan Chase note is subordinated to the FRBNY loan and will bear the first $1.15 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, the JPMorgan Chase note and the expenses of the LLC, will be for the account of the FRBNY.
For further discussion of the Merger, see Note 2 on pages 8083 of this Form 10-Q.
This Statement also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with this Statement). In accordance with Statement 141 and related interpretative guidance, an entity that acquired another entity in a series of purchases (a step acquisition) identified the cost of each investment, the fair value of the underlying identifiable net assets acquired, and the goodwill on each step. Statement 141 did not provide guidance on measuring the noncontrolling interests share of the consolidated subsidiarys assets and liabilities at the acquisition date. The result of applying Statement 141s guidance on recognizing and measuring assets and liabilities in a step acquisition was to measure them at a blend of historical costs and fair valuesa practice that provided less relevant, representationally faithful, and comparable information than will result from applying this Statement.
FASB: Financial Accounting Standards Board
NOTE 2 BUSINESS CHANGES AND DEVELOPMENTS
Merger with The Bear Stearns Companies Inc.
In conjunction with the Merger, in June 2008, the Federal Reserve Bank of New York (the FRBNY) took control, through a limited liability company (LLC) formed for this purpose, of a portfolio of $30 billion in assets acquired from Bear Stearns, based on the value of the portfolio as of March 14, 2008. The assets of the LLC were funded by a $28.85 billion, term loan from the FRBNY, and a $1.15 billion, subordinated note from JPMorgan Chase. The JPMorgan Chase note is subordinated to the FRBNY loan and will bear the first $1.15 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, the JPMorgan Chase note and the expenses of the LLC, will be for the account of the FRBNY
The unaudited pro forma combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined...
Re: November 30, 2006: As a primary dealer, Bear Stearns bids directly on all auctions of US government securities. Additionally, Bear Stearns furnishes periodic
reports of its inventory positions and market transactions in US government securities to the FRBNY. Bear Stearns also buys and sells
government securities directly with the FRBNY as part of the open-market activities of the FRBNY.
Summary of Terms and Conditions Regarding the JPMorgan Chase Facility
March 24, 2008
Summary of Terms and Conditions Regarding the JPMorgan Chase Facility - Federal Reserve Bank of New York
The Federal Reserve Bank of New York ("New York Fed") has agreed to lend $29 billion in connection with the acquisition of The Bear Stearns Companies Inc. by JPMorgan Chase & Co.
The loan will be against a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as marked to market by Bear Stearns on March 14, 2008.
The rate due on the loan from the New York Fed is the primary credit rate, which currently is 2.5 percent and fluctuates with the discount rate. The rate on the subordinated note from JPMorgan Chase is the primary credit rate plus 450* basis points (currently, a total of 7 percent).
Repayment of the loans will begin on the second anniversary of the loan...
BlackRock Financial Management Inc. has been retained by the New York Fed to manage and liquidate the assets.
Re: manage and liquidate the assets
New Details from Fed Minutes on Bear Stearns Rescue
New Details from Fed Minutes on Bear Stearns Rescue « Emac's Stock Watch | Fox Business
Lets recap. Bear Stearns had $389b in assets and $387 bn in liabilities at the time it went belly-up. It had $11.9 bn in shareholder equity, or net worth, to support that book of business.
The bonds on its books were getting crushed by the subprime crisis, so much so that two of Bears own hedge funds went belly-up last July, with the two former hedge fund managers subsequently arrested for alleged securities fraud and conspiracy, among other things. A cash run on the bank leading up to its St. Patricks day rescue put Bear Stearns on the brink of bankruptcy.
JPMorgan Chases chairman and chief executive Jamie Dimon initially balked at the thought of his bank taking on Bears colossal balance sheet, and rejected a deal. I tell people that buying a house is not the same as buying a house on fire, Dimon testified before Congress later (Dimon sits on the board of governors of the New York Federal Reserve).
The Fed then stepped in with an initial $30b loan, and then JPMorgan agreed to buy Bear Stearns for $2 a share, or $236m. JPMorgan increased its offer to $10 a share a week later amid a revolt by the smaller firms shareholders. JPMorgan is now digesting Bears massive $360 bn balance sheet.
Back to the $30b loan JPMorgan got from the Fed to seal the deal, supported by Bear securities that the two sides say were valued, or marked to market, at $30b as of March 14.
The Fed came up with as novel a rescue as it could. Using a creative read of section 13A of the Federal Reserve Act, the New York Fed agreed to lend JPMorgan $30 bn over 10 years at a small 2.5% rate, a loan backed by a similar amount of Bear Stearns assets. Never before had the Fed taken on mortgage-backed securities as collateral. The Fed is now holding those assets to maturity and is not marking them to market, analysts note.
JP Morgan subsequently agreed to absorb the first $1b of losses on that $30b if the value of the assets backing its loan declines. Again, if that portfolio drops in value, JP takes the first $1b in losses. If the portfolio zeroes out, the Fed takes a $29b hit. The assets now sit in a Delaware limited liability company.
The Fed minutes show that JPMorgan had requested assistance in financing a specific pool of assets that Bear Stearns had difficulty financing in the market and that JPMorgan Chase believed added significant uncertainty to the level of risk it would assume in its acquisition of Bear Stearns.
To seal the deal, the minutes show that the Fed gave JPMorgan Chase, among other things, an 18-month exemption from the Feds statutes requiring banks to hold a certain amount of capital on its books against its risk-weighted assets. Banks also must adhere to international debt to capital ratios under the Basel accords. The capital ratio is the percentage of a banks capital to its risk-weighted assets.
The Fed let JPMorgan exclude the assets and exposures of Bear Stearns from its risk-weighted assets for purposes of applying the risk-based capital requirements at the bank. The Fed also let JPMorgan exclude the assets of Bear Stearns from the denominator of its tier 1 leverage capital ratio requirements, noting that each exemption would be reduced over time.
Ah crap, here is the rest of that:
Now the debate is just what is in that $30b pool of assets, given that the Fed is taking on this credit at a time when the government is already levered to the hilt, what with what is going on at Fannie Mae and Freddie Mac. The New York Fed hired Black Rock, 49% owned by Merrill Lynch, to cherry pick the best assets off of Bears books to use as collateral. Both sides signed a confidentiality agreement covering those assets-why tip your hand to the market and invite unwanted arbitrage?
Only broad descriptions are available. The Bear assets are collateralized mortgage obligations, the majority of which are obligations backed by the likes of Freddie Mac, as well as asset-backed securities with things like adjustable rate mortgages, as well as commercial mortgage-backed securities, collateralized bond obligations, and cash assets consisting of investment grade securities rated BBB- or higher.
But how sound is that $30b worth of collateral?
JPs Dimon testified: We could not and would not have assumed the substantial risks of acquiring Bear Stearns without the $30b facility provided by the Fed.
That comment led Sen. Robert Menendez to ask: JP Morgan would have never gotten involved [in the deal] but for your [the Fed's] guarantee that it would swallow $29b in Bears assets and not hit up JPMorgan for other collateral if those Bear assets zero out. Menendez wondered, is that a vote of confidence in these assets?
And remember what Geithner said in testimony before Congress, in defending the central against criticisms that it should have opened its Fed window to investment banks, not just commercial banks, to help Bear Stearns survive. We only allow sound institutions to borrow against collateral at the Feds discount window, he testified, adding, I would have been very uncomfortable lending to Bear given what we knew at that time.
What suddenly turned Bears assets golden as collateral for the Feds $29b loan to JPMorgan, what turned those sows ears into silk purses over night?
Ok, I give up, but I'm still confused, so can someone explain how this $30 Billion loan is collateral that needs liquidated by Blackrock? I'm still fuzzy on that, i.e, this seems like JPMorgan Chase and The FED bought Bear for $30 Billion, but JPMorgan Chase had to put up $1 Billion for the right to own Bear, while The Fed hides $30 Billion in shit loans, which seem to be worthless, which brings up Blackrock, who apparently is going to liquidate this shit over the years and then hand the keys over to JPMorgan Chase?
Toxic analogy?
This "miracle material" is now known to be highly toxic. The inhalation of asbestos fibers can cause serious illnesses, including mesothelioma and asbestosis. Since the mid 1980s, many uses of asbestos have been banned in many countries.
The Bear Family has a house built of asbestos; they lived in this for years, but during a pleasant Spring week, rumors swell like thunder storms that problems are in the wind, and trouble is brewing at The Bear House. Seemingly out of nowhere, along comes news on a Friday afternoon that The EPA has issued an Asbestos Ban. Panic overtakes the neighbors and the mayor of MafiaCity declares that something must be done to save their house from being condemned as a health hazard -- and unless something is done before the brokers open shop on Monday, The Bears house and others like it, may be considered worthless.
What to do? The Mayor in an emergency meeting declares that the city of Fraudville will buy all the homes that may be impacted by The Asbestos Ban, but due to technical problems The City can't buy all the houses, so The Mayor calls the local mortgage company, and placing a laserbeam gun to the head of the loan clerk (over the phone) dictates the terms of the blackmail request, regarding the transfer of The Bear Mortgage to a pool of asbestos subprime loans that will be added to a larger pool of toxic waste at the subsidiary of The Covered Bond Entity Association run by SIFMA that will help liquidate all this shit, and I really can't go on.......... However, the point here was related to a third party helping The Bears liquidate the house, which although toxic is now collateral for The Bears new and nicer home, and BlackBeak is going to sell The Bears asbestos-filled home for big bucks and then pay off the mortgage company and The bears will live happily ever after....amen!
They will receive the 22 cents IF all goes well and the value of the CDO's does not deteriorate."
"plus interest, right?"
anonymr. | 08.12.08 - 12:40 am
Discounted to present value, right?
How do you figure out what your house is worth if there are no sales? How are appraisals being done these days? Hard to make a financial decision with nothing to base it on.
McKona: control yourself.
Lawyerliz,
I was just trying to be nice and understand why Blackbeak is involved in this charade and maybe vent just a little.. I'm sorry if I ruffled your feathers, but it was slow, and things of this nature occur from time to time...
"Face value of the deal was 22 cents on the dollar. However Merrill had to raise the money to do the loan. They did this by selling more shares.."
No they (Merrill) didn't. They had to sell more shares to bolster their quickly deteriorating capital position.
"Face value of the deal was 22 cents on the dollar. However Merrill had to raise the money to do the loan. They did this by selling more shares.."
No they (Merrill) didn't. They had to sell more shares to bolster their quickly deteriorating capital position.
Re: The Level 3 valuations and substitution.
Has anyone ever heard of floating lien?
Fibre Glass Boat, 324 F. Supp. at 1056 ("Surely the creditor would not enter into a financing arrangement secured by collateral fixed on a particular date, when the collateral by its
nature would be constantly changing.").
Essentially, a floating lien on inventory and accounts receivable is presumed because the collateral is viewed in aggregate as a shifting body of assets. See Nickerson & Nickerson, 329 F. Supp. at
Fraudulent Conveyances.
Constructive Fraud:
Conveyance made by a person who is insolvent or will be rendered insolvent by the conveyance is fraudulent as to creditors without regard to intent, if made without fair consideration. Md. ComL. § 15-204.
Insolvent for business = engaged or is about to engage in a business transaction for which the property remaining in his hands is an unreasonably small capital. Com.L. § 15-205.
Entity has an unreasonably small amount of capital. Com L. § 15-205.
About to incur debts beyond his ability to pay. Com. L. § 15-206
Fair consideration = received in good faith, in an amount not disproportionately small. Md. ComL § 15-203. Not disproportionately small depends on the circumstances.
Conveyance in anticipation of future debt can be fraudulent. Com.L. § 15-206. Future creditors may avoid transfers if:
Person is or will be insolvent because of the transfer; and
The insolvent intends or believes that he/she will incur debt that he/she will be unable to pay.
Solvent or Insolvent That is the Question
Solvent or Not?
The fair value of an asset is usually determined based on a market approach and/or an income approach. The income approach involves discounting the future cash flows from the assets at a risk-appropriate discount rate.
If using a market approach, the valuator must determine what the assets could be sold for to a ready and willing buyer. That is a different standard from either (a) a forced liquidation sale, which assumes transaction costs, substantial discounting for third-party risk and a profit margin for the buyer; or (b) what could be obtained in the ordinary course of business if the debtor were allowed to take what ever time was necessary to sell the assets at their customary prices and profit margins.
See: Balance Sheet Test
The balance sheet test determines whether the companys asset value was greater than its liability value at the time of the transaction in question.
Cash Flow Test
The cash flow test determines whether a company incurred debts that were beyond its ability to pay as the debts matured.
Adequate Capital Test
wwwwaitaminnit --
Was this in the news somewhere?
Anyone watching duct tape futures?
was it 22c/$ or 5c/$?
i've heard both... any sleuths have the straight dope?
confused | 08.11.08 - 11:49 pm | #
The price was $0.22 on the dollar, but they lent the buyer most of the money to buy the crap. Once the "vendor financing" is taken into consideration its more like $0.05 on the dollar, hence the 2 numbers.
despite rumour mongering of worst sorts & credit crunch ensued by some greed, the major US indices are not even down 20% (despite 2 yrs of incessant chatter of doom & gloom)
A major event has happened. USD has broken the multi yr long downtrend. This will make US stocks more desirable to the foreigners. In fact one can make the argument that US stocks are one of the chepest in the world . This brings in much needed capital into US finance.
Yes there are credit issues. But the market is telling me, things are getting better from here.
S
Sebastian,
why don't you have a look and compare the SPX, DAX, FTSE, CAC from the 2003 "bottom" to today
What I can see is that from 2003 to the 2007 top the SPX rose about 90%. During the same time interval the FTSE rose over 100% and the DAX over 200%.
.... and I won't even bring up the currencies because it hurts
Considering the time frame 1999 to today also suggests that the DAX and CAC may be more volatile so they may correct by a higher percentage this time again (as they did from 2000 to 2003)
boo hoo
down with AIG
down with BoA, JPMC, and GS next