if I understand this right, the bond insurers going under is a "nuclear meltdown" type scenario.
All the risks involved in holding bonds that these apparently undercapitalized insurers hold goes ricocheting back on the balance sheet of those entities holding the bonds (for example, banks). Facing losses on these bonds, there is a dire need for capital. The credit crunch goes to another level. Is this right, or am I missing something?
What I am completely in the dark about is CDSs....there is so little on these pesky derivatives and how they are treated from an accounting pov. They are gray matter in the financial universe.
S&P is looking up the skirt of MBIA & Ambac... Moody's is looking up the skirt of Ambac only... If I recall Fitch has already peeked and given them a pass, right? [I read that in one of the comments earlier I believe].
So what happens if we have a split decision? Say S&P gives Ambac the thumbs down but Moody's gives'em the thumbs up. Who wins? They do rock-scissors-paper or what?
Fitch Ratings downgraded Northern Rock PLC's (NR) individual rating to 'F' from 'C/D', citing its view that although NR has not defaulted and is not in breach of regulatory solvency requirements, the difficulty in putting in place a private sector solution means that NR has relied on guarantees -- to an increasing extent and for an extended period of time -- from the UK Treasury and on funding from the Bank of England.
The F rating indicates that Fitch believes NR would have defaulted if it had not received the external support.
The agency also downgraded NR's hybrid capital to long-term 'BB-' from 'BBB' and other subordinated debt to 'BBB-' from BBB+', and maintained these ratings on negative watch.
Fitch affirmed NR's other ratings at long-term issuer default (IDR) 'A-' with stable outlook, senior unsecured 'A-', short-term IDR 'F1', support '1' and support rating floor 'A-'.
Ratings keep piling in. This is wierd!! Deposits downgrade? And lets all remember this is a US Bank of some substance.
Moody's comments on Citi's 4Q07 results (dated Jany 17th)
Moody's Investors Service commented that it had already incorporated in its rating analysis the 4Q07 loss of $9.8 billion that Citigroup reported today. Moody's rates Citibank, N.A. B for financial strength and Aa1 for deposits. Citigroup's senior debt is rated Aa3. Moody's said that its analysis of Citigroup's potential loss and the impact of that on Citigroup's capital was consistent with today's announcement and had prompted Moody's to downgrade Citigroup's financial strength rating by three notches to B from A
The F rating indicates that Fitch believes NR would have defaulted if it had not received the external support.
No visible sign of support... there's a joke there but I'll pass it up... anyway my guess is before this is all done we'll see lotsa these - institutions that are deemed TBTF getting help from Big Brother. The RTC model is going to get a serious test here and abroad.
Even more..S&P reviews Citi w/ negative? Did'nt this just happen? And
Ratings agency Moodys announced Wednesday it downgraded the ratings of 25 tranches and has placed under review for possible downgrade the ratings of six tranches from eight transactions issued by Countrywide in 2007.
One downgraded tranche remains on review for possible downgrade. The collateral backing these classes primarily consists of first lien, adjustable-rate negatively amortizing Alt-A mortgage loans.
Also downgraded were the ratings of five tranches from two transactions issued by Lehman XS Trust in 2007. One downgraded tranche remains on review for possible downgrade.
The ratings were downgraded primarily based on higher than anticipated rates of delinquency, foreclosure and REO in the underlying collateral relative to credit enhancement levels, Moodys explained in a statement.
iceman, you've gotten it about right, but you are missing the secondary and tertiary effects.
Many institutional investors are required by their investment guidelines to own only investment grade paper. If the paper gets its rating via renting the insurer's credit rating, an insurer rating downgrade means the paper must be dumped, not sold in an orderly fashion, but dumped. This will screw up a lot of portfolios.
The muni market is very inefficient will lots of small issues with innumerable entities issuing. As a short-hand, buyers who do not have the resources to analyze every issuer and evaluate every security with all of their covenants rely on credit ratings and insurance when picking bonds. If credit ratings and insurance goes, the muni market will tend to seize up. Impact: think of the CDO market last summer to the nth power.
States, counties, cities, schools, etc. might find it difficult or much more expensive to borrow to smooth out cash flows between the annual, semi-annual, or quarterly tax payments and their weekly, semi-weekly, or monthly payrolls.
S&P is looking up the skirt of MBIA & Ambac... Moody's is looking up the skirt of Ambac only... If I recall Fitch has already peeked and given them a pass, right? [I read that in one of the comments earlier I believe].
So what happens if we have a split decision? Say S&P gives Ambac the thumbs down but Moody's gives'em the thumbs up. Who wins? They do rock-scissors-paper or what?<
It seems to me that the first issue is whether they can write new business -- and although I haven't read anything explicitly on this, I would assume that the markets are not paying for 'enhancement' from these companies.
So that puts them in a runoff situation. As long as they were AAA, they could be booked at par with no questions. As the rating on the insurance subs drop, they will still get the enhancement -- but will have to start looking at the credit. Once they drop below investment grade, the enhancement value would be low.
The holding company can lose all its equity, but the insurance subs might hold up for quite a while.
I also don't know where the stuff is .... that is, some stuff might be at the holding company level (CDS?) and they have more then one monoline -- so it is hard to say.
Anyway... the big advantage of just having being able to wave your hand over it and book it at par will be gone soon.
INDEX VALUE CHANGE %CHANGE TIME
CSI 300 INDEX 5,335.14 -170.58 -3.10% 22:30
Jan. 17 (Bloomberg) -- Asian stocks declined, reversing earlier gains, on concern China's economic growth will slow at the same time as the U.S. economy, the world's largest, heads toward a recessio
Where are we going to find enough competent credit analysts to analyze all this paper when we no longer "able to wave your hand over it and book it at par..."
Fugly!!!
Auto and homeowners insurance premiums are headed up once the valuation impact on portfolios dings their surplus.
iceman, you've gotten it about right, but you are missing the secondary and tertiary effects.
Many institutional investors are required by their investment guidelines to own only investment grade paper. If the paper gets its rating via renting the insurer's credit rating, an insurer rating downgrade means the paper must be dumped, not sold in an orderly fashion, but dumped. This will screw up a lot of portfolios.
The muni market is very inefficient will lots of small issues with innumerable entities issuing. As a short-hand, buyers who do not have the resources to analyze every issuer and evaluate every security with all of their covenants rely on credit ratings and insurance when picking bonds. If credit ratings and insurance goes, the muni market will tend to seize up. Impact: think of the CDO market last summer to the nth power.
States, counties, cities, schools, etc. might find it difficult or much more expensive to borrow to smooth out cash flows between the annual, semi-annual, or quarterly tax payments and their weekly, semi-weekly, or monthly payrolls.
Fugly!
NorkaWest | 01.16.08 - 11:58 pm | #<
This is where I think Berkshire might have a great business. They can skip the structured finance and go back and insure the formerly 'enhanced' bonds, re enhancing them.
Sort of like going back for that second or third breast enhancement.
It could easily be worth a profitable premium to get your bonds re enhanced if the option is selling into a difficult market or dealing with other inefficient mechanisms.
In other words, a crappy business at 15bp but a great one at 60bp. There are trillions of these things out there.
There will be plenty of undrwriters and analysts looking for work.
Anyway... the big advantage of just having being able to wave your hand over it and book it at par will be gone soon.
Zigurrat | 01.17.08 - 12:00 am | #
But if Moody's says they suck and S&P says they're fine... then what?
Does it only take a bad mark from one agency to nuke'em? That's what I'm trying to figure out. If so why in hell would they let two firms even near them? Just do one...
States, counties, cities, schools, etc. might find it difficult or much more expensive to borrow to smooth out cash flows between the annual, semi-annual, or quarterly tax payments and their weekly, semi-weekly, or monthly payrolls.
It could easily be worth a profitable premium to get your bonds re enhanced if the option is selling into a difficult market or dealing with other inefficient mechanisms.
I wouldn't be surprised to see a GSE like insurance contraption come out of this...
dryfly - You plan to go on a date. One friend says the person who asked you is a creep but you go anyway. And a second friend says the person was a creep and will assault you but you still go out on the date....Avoid the date!Go to the sidelines and wait for a better offer.
Washington policymakers mulling steps to jolt the economy need to strike fast if they hope to succeed, leading economists said Wednesday.
"If legislation is signed in the next two months, you're doing great," former Treasury Secretary Larry Summers told lawmakers at a hearing of the Joint Economic Committee. Measures must be implemented by spring to have the most effect, he added.
Hard to imagine Scrub, Housecritters and the Senate of both parties finding agreement on a economic package and add in a election cycle for flavor. Maybe we will be lucky and they will disband and leave us alone.
Speaking of ugly...based on the lengthy post by cr, I actually read their 10q and in the process, noticed they had a decent chunk of credit enhanced assets.
I don't remember the details or whether they were mortgage insurers or credit insurers.
dryfly - You plan to go on a date. One friend says the person who asked you is a creep but you go anyway. And a second friend says the person was a creep and will assault you but you still go out on the date....Avoid the date!Go to the sidelines and wait for a better offer.
Barley | 01.17.08 - 12:18 am | #
Barley.....
The problem is that you already WENT on the date.
It's more like you went on the date and are now waiting on the HIV tests to come back.
dry.....I'm still trying to figure out how to make money on this disaster. I have had modest luck with puts so far. I'm looking for a chip shot, but nothing in life is ever that easy.
I'm still trying to figure out how to make money on this disaster. I have had modest luck with puts so far. I'm looking for a chip shot, but nothing in life is ever that easy.
Find a cure for RDD - Ratings Downgrade Disorder - the depression all these financial types are experiencing (and a few of us around here too)... Big Pharma will be all over you with money.
I fear we are passing the point to make money on this disaster and will have to shift from worrying about return ON investment to return OF investment.
I am wondering about capacity of investment companies to keep bailing out their money funds by buying degraded paper in order to preserve the $1 NAV.
I hope the US treasury starts issuing a lot more T-bills soon or the Treasury Only money market funds are going to have scramble to find a home for all the cash heading their way. Yields already suck. Real yields, we won't even discuss them in polite company.
Ya. Big woop. The dollar rose today, in case you missed it, which was no shock, since the CPI was hot, and said, well, maybe not 75 bips. Dollar rises against yen, Japan exporter stocks go up. Dont think it's a trend...we've got cuts a plenty coming, in fact, death by a thousand cuts (measured in bips, we're well on our way)
Isn't Ambac the same group of yo-yos who posted per share losses greater than the current share price, or was that some other doomed insurer? I suppose it doesn't matter from the viewpoint of the rating clowns - they only downgraded Enron after it was basically doomed.
No doubt the gubermint will step in with socialized insurance to keep housing unaffordable and the taxpayers on the hook for everything.
Someone needs to say something about this! http://www.fakepaycheckstubs.com IS THIS LEGAL? No wonder why we have the subprime mess we have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through Quickly SO THAT EVERYONE DOWN THE FOOD CHAIN (from loan processor to the loan officer to the actual lender) can make the commissions they "WERE" making during the booming 90's!!! Now we are BAILING OUT THESE CROOKS....SOUNDS LIKE the good ol' 1980's Savings and Loan BAILOUT DAYS to me! http://www.fakepaycheckstubs.com see it with YOUR OWN EYES!
if I understand this right, the bond insurers going under is a "nuclear meltdown" type scenario.
All the risks involved in holding bonds that these apparently undercapitalized insurers hold goes ricocheting back on the balance sheet of those entities holding the bonds (for example, banks). Facing losses on these bonds, there is a dire need for capital. The credit crunch goes to another level. Is this right, or am I missing something?
okay...so we believe these?
ah, maybe first
What I am completely in the dark about is CDSs....there is so little on these pesky derivatives and how they are treated from an accounting pov. They are gray matter in the financial universe.
S&P is looking up the skirt of MBIA & Ambac... Moody's is looking up the skirt of Ambac only... If I recall Fitch has already peeked and given them a pass, right? [I read that in one of the comments earlier I believe].
So what happens if we have a split decision? Say S&P gives Ambac the thumbs down but Moody's gives'em the thumbs up. Who wins? They do rock-scissors-paper or what?
Speaking of ratings this just in:
Fitch Ratings downgraded Northern Rock PLC's (NR) individual rating to 'F' from 'C/D', citing its view that although NR has not defaulted and is not in breach of regulatory solvency requirements, the difficulty in putting in place a private sector solution means that NR has relied on guarantees -- to an increasing extent and for an extended period of time -- from the UK Treasury and on funding from the Bank of England.
The F rating indicates that Fitch believes NR would have defaulted if it had not received the external support.
The agency also downgraded NR's hybrid capital to long-term 'BB-' from 'BBB' and other subordinated debt to 'BBB-' from BBB+', and maintained these ratings on negative watch.
Fitch affirmed NR's other ratings at long-term issuer default (IDR) 'A-' with stable outlook, senior unsecured 'A-', short-term IDR 'F1', support '1' and support rating floor 'A-'.
re-insurance? insurance ^2
Reinsurance, meet CDO ^2
btw, I hear buffet is opening an insurance ^3 outfit, in omaha.
Ratings keep piling in. This is wierd!! Deposits downgrade? And lets all remember this is a US Bank of some substance.
Moody's comments on Citi's 4Q07 results (dated Jany 17th)
Moody's Investors Service commented that it had already incorporated in its rating analysis the 4Q07 loss of $9.8 billion that Citigroup reported today. Moody's rates Citibank, N.A. B for financial strength and Aa1 for deposits. Citigroup's senior debt is rated Aa3. Moody's said that its analysis of Citigroup's potential loss and the impact of that on Citigroup's capital was consistent with today's announcement and had prompted Moody's to downgrade Citigroup's financial strength rating by three notches to B from A
The F rating indicates that Fitch believes NR would have defaulted if it had not received the external support.
No visible sign of support... there's a joke there but I'll pass it up... anyway my guess is before this is all done we'll see lotsa these - institutions that are deemed TBTF getting help from Big Brother. The RTC model is going to get a serious test here and abroad.
Even more..S&P reviews Citi w/ negative? Did'nt this just happen? And
Ratings agency Moodys announced Wednesday it downgraded the ratings of 25 tranches and has placed under review for possible downgrade the ratings of six tranches from eight transactions issued by Countrywide in 2007.
One downgraded tranche remains on review for possible downgrade. The collateral backing these classes primarily consists of first lien, adjustable-rate negatively amortizing Alt-A mortgage loans.
Also downgraded were the ratings of five tranches from two transactions issued by Lehman XS Trust in 2007. One downgraded tranche remains on review for possible downgrade.
The ratings were downgraded primarily based on higher than anticipated rates of delinquency, foreclosure and REO in the underlying collateral relative to credit enhancement levels, Moodys explained in a statement.
iceman, you've gotten it about right, but you are missing the secondary and tertiary effects.
Many institutional investors are required by their investment guidelines to own only investment grade paper. If the paper gets its rating via renting the insurer's credit rating, an insurer rating downgrade means the paper must be dumped, not sold in an orderly fashion, but dumped. This will screw up a lot of portfolios.
The muni market is very inefficient will lots of small issues with innumerable entities issuing. As a short-hand, buyers who do not have the resources to analyze every issuer and evaluate every security with all of their covenants rely on credit ratings and insurance when picking bonds. If credit ratings and insurance goes, the muni market will tend to seize up. Impact: think of the CDO market last summer to the nth power.
States, counties, cities, schools, etc. might find it difficult or much more expensive to borrow to smooth out cash flows between the annual, semi-annual, or quarterly tax payments and their weekly, semi-weekly, or monthly payrolls.
Fugly!
So what happens if we have a split decision? Say S&P gives Ambac the thumbs down but Moody's gives'em the thumbs up. Who wins? They do rock-scissors-paper or what?<
It seems to me that the first issue is whether they can write new business -- and although I haven't read anything explicitly on this, I would assume that the markets are not paying for 'enhancement' from these companies.
So that puts them in a runoff situation. As long as they were AAA, they could be booked at par with no questions. As the rating on the insurance subs drop, they will still get the enhancement -- but will have to start looking at the credit. Once they drop below investment grade, the enhancement value would be low.
The holding company can lose all its equity, but the insurance subs might hold up for quite a while.
I also don't know where the stuff is .... that is, some stuff might be at the holding company level (CDS?) and they have more then one monoline -- so it is hard to say.
Anyway... the big advantage of just having being able to wave your hand over it and book it at par will be gone soon.
Telegraph UK
Anna Schwartz blames Fed for sub-prime crisis / the revered economist shares her views on the credit bubble with Ambrose Evans-Pritchard
Anna Schwartz blames Fed for sub-prime crisis - Telegraph
And here we go:
INDEX VALUE CHANGE %CHANGE TIME
CSI 300 INDEX 5,335.14 -170.58 -3.10% 22:30
Jan. 17 (Bloomberg) -- Asian stocks declined, reversing earlier gains, on concern China's economic growth will slow at the same time as the U.S. economy, the world's largest, heads toward a recessio
Zigurrat:
Where are we going to find enough competent credit analysts to analyze all this paper when we no longer "able to wave your hand over it and book it at par..."
Fugly!!!
Auto and homeowners insurance premiums are headed up once the valuation impact on portfolios dings their surplus.
Many institutional investors are required by their investment guidelines to own only investment grade paper. If the paper gets its rating via renting the insurer's credit rating, an insurer rating downgrade means the paper must be dumped, not sold in an orderly fashion, but dumped. This will screw up a lot of portfolios.
The muni market is very inefficient will lots of small issues with innumerable entities issuing. As a short-hand, buyers who do not have the resources to analyze every issuer and evaluate every security with all of their covenants rely on credit ratings and insurance when picking bonds. If credit ratings and insurance goes, the muni market will tend to seize up. Impact: think of the CDO market last summer to the nth power.
States, counties, cities, schools, etc. might find it difficult or much more expensive to borrow to smooth out cash flows between the annual, semi-annual, or quarterly tax payments and their weekly, semi-weekly, or monthly payrolls.
Fugly!
NorkaWest | 01.16.08 - 11:58 pm | #<
This is where I think Berkshire might have a great business. They can skip the structured finance and go back and insure the formerly 'enhanced' bonds, re enhancing them.
Sort of like going back for that second or third breast enhancement.
It could easily be worth a profitable premium to get your bonds re enhanced if the option is selling into a difficult market or dealing with other inefficient mechanisms.
In other words, a crappy business at 15bp but a great one at 60bp. There are trillions of these things out there.
There will be plenty of undrwriters and analysts looking for work.
Anyway... the big advantage of just having being able to wave your hand over it and book it at par will be gone soon.
Zigurrat | 01.17.08 - 12:00 am | #
But if Moody's says they suck and S&P says they're fine... then what?
Does it only take a bad mark from one agency to nuke'em? That's what I'm trying to figure out. If so why in hell would they let two firms even near them? Just do one...
dryfly....
I think it would depend on your auditors. This has already happened with ACA, right? Maybe with one AAA and one AA you get the mulligan and round up.
States, counties, cities, schools, etc. might find it difficult or much more expensive to borrow to smooth out cash flows between the annual, semi-annual, or quarterly tax payments and their weekly, semi-weekly, or monthly payrolls.
It could easily be worth a profitable premium to get your bonds re enhanced if the option is selling into a difficult market or dealing with other inefficient mechanisms.
I wouldn't be surprised to see a GSE like insurance contraption come out of this...
dryfly - You plan to go on a date. One friend says the person who asked you is a creep but you go anyway. And a second friend says the person was a creep and will assault you but you still go out on the date....Avoid the date!Go to the sidelines and wait for a better offer.
ot
Washington policymakers mulling steps to jolt the economy need to strike fast if they hope to succeed, leading economists said Wednesday.
"If legislation is signed in the next two months, you're doing great," former Treasury Secretary Larry Summers told lawmakers at a hearing of the Joint Economic Committee. Measures must be implemented by spring to have the most effect, he added.
Hard to imagine Scrub, Housecritters and the Senate of both parties finding agreement on a economic package and add in a election cycle for flavor. Maybe we will be lucky and they will disband and leave us alone.
Speaking of ugly...based on the lengthy post by cr, I actually read their 10q and in the process, noticed they had a decent chunk of credit enhanced assets.
I don't remember the details or whether they were mortgage insurers or credit insurers.
Either way, they don't have excess capital.
Either way, they don't have excess capital.
Zigurrat | 01.17.08 - 12:19 am | #
Kinda sums up the whole situation everywhere... we're gonna get the Mother of All RTCs before this is done.
dryfly - You plan to go on a date. One friend says the person who asked you is a creep but you go anyway. And a second friend says the person was a creep and will assault you but you still go out on the date....Avoid the date!Go to the sidelines and wait for a better offer.
Barley | 01.17.08 - 12:18 am | #
Barley.....
The problem is that you already WENT on the date.
It's more like you went on the date and are now waiting on the HIV tests to come back.
dry.....I'm still trying to figure out how to make money on this disaster. I have had modest luck with puts so far. I'm looking for a chip shot, but nothing in life is ever that easy.
The problem is that you already WENT on the date.
It's more like you went on the date and are now waiting on the HIV tests to come back.
LOL... bankers in love.
I'm still trying to figure out how to make money on this disaster. I have had modest luck with puts so far. I'm looking for a chip shot, but nothing in life is ever that easy.
Find a cure for RDD - Ratings Downgrade Disorder - the depression all these financial types are experiencing (and a few of us around here too)... Big Pharma will be all over you with money.
zigurrat:
I fear we are passing the point to make money on this disaster and will have to shift from worrying about return ON investment to return OF investment.
I am wondering about capacity of investment companies to keep bailing out their money funds by buying degraded paper in order to preserve the $1 NAV.
I hope the US treasury starts issuing a lot more T-bills soon or the Treasury Only money market funds are going to have scramble to find a home for all the cash heading their way. Yields already suck. Real yields, we won't even discuss them in polite company.
Fugly!
Happy news.
Nikkei 225 is up 261 or 2.05%
|:-)
FWIW in most bond portfolios, an issue with a split rating goes into the worse bucket.
Ya. Big woop. The dollar rose today, in case you missed it, which was no shock, since the CPI was hot, and said, well, maybe not 75 bips. Dollar rises against yen, Japan exporter stocks go up. Dont think it's a trend...we've got cuts a plenty coming, in fact, death by a thousand cuts (measured in bips, we're well on our way)
"I wouldn't be surprised to see a GSE like insurance contraption come out of this...
dryfly | 01.17.08 - 12:17 am | #"
Buffett could easily handle the muni side of the business, and will be happy to at the right price. He has plenty of capital.
Structured finance is inherently uninsurable in my opinion.
Sports books have no problem with the NFL, but will never be able to come up with lines for Madden NFL.
Isn't Ambac the same group of yo-yos who posted per share losses greater than the current share price, or was that some other doomed insurer? I suppose it doesn't matter from the viewpoint of the rating clowns - they only downgraded Enron after it was basically doomed.
No doubt the gubermint will step in with socialized insurance to keep housing unaffordable and the taxpayers on the hook for everything.
? They do rock-scissors-paper or what?
Hide the paper under a rock so the scissors don't cut it to $0.30 on the dollar...oh wait they tried that already
careful of paper cuts there though....
Someone needs to say something about this! http://www.fakepaycheckstubs.com IS THIS LEGAL? No wonder why we have the subprime mess we have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through Quickly SO THAT EVERYONE DOWN THE FOOD CHAIN (from loan processor to the loan officer to the actual lender) can make the commissions they "WERE" making during the booming 90's!!! Now we are BAILING OUT THESE CROOKS....SOUNDS LIKE the good ol' 1980's Savings and Loan BAILOUT DAYS to me! http://www.fakepaycheckstubs.com see it with YOUR OWN EYES!