Wednesday, January 30, 2008

S&P Lowers or May Cut $534 Billion of Subprime Debt

Looks like the rating agencies have finally updated their model for subprime.... Next stop Monolines ( see MBIA: Another morning, another monoline crisis… or Open Letter On Bond Insurer Transparency From A Short Seller. )....

Es sieht so aus als wenn zumindest im Bereich Subprime die Schadensmodelle der Ratingagneturen endlich in der Realität angekommen sind.... Nächster Halt dürften dann wohl die Kreditversicherer sein ( siehe MBIA: Another morning, another monoline crisis… oder Open Letter On Bond Insurer Transparency From A Short Seller. )......

This comment from Calculated Risk sums it up

Dieser Kommentar von Calculated Risk faßt das Ausmaß wunderbar zusammen
According to the Fed Flow of Funds report, household have $10.4 rillion in mortgage debt. S&P's announcement today alone is for about 5% of that debt.

Jan. 30 (Bloomberg ) -- Standard & Poor's said it cut or may reduce ratings of $534 billion of subprime-mortgage securities and collateralized debt obligations, as home loan defaults rise.

The downgrades may extend losses at the world's banks to more than $265 billion and have a ``ripple impact'' on the broader financial markets, S&P said.

The securities represent $270.1 billion, or 47 percent, of subprime mortgage bonds rated between January 2006 and June 2007, S&P said today in a statement. The New York-based ratings company also said it may cut 572 CDOs valued at $263.9 billion.

The downgrades may increase losses at European, Asian and U.S. regional banks, credit unions and the 12 Federal Home Loan Banks, S&P said. Many of those institutions haven't written down their subprime holdings to reflect their market values and these downgrades may force their hands, S&P said.

``It is difficult to predict the magnitude of any such effect, but we believe it will have implications for trading revenues, general business activity, and liquidity for the banks,'' S&P said. The ratings company will start reviewing its rankings for some banks, especially those that ``are thinly capitalized.''

S&P downgraded $50.1 billion of subprime-mortgage securities, none rated higher than A+. More than 69 percent of the AAA rated subprime securities from 2006 and 46 percent from the first half of 2007 were placed on review.

Didn't See It
``This one, I didn't see coming,'' said Mark Adelson a consultant at Adelson & Jacob Consulting LLC in New York, and a former asset-backed bond analyst at Nomura Securities.

Some of the largest global banks have already taken ``significant'' losses and they aren't likely to have more writedowns, S&P said.

Under accounting rules, many smaller banks haven't been required to write down their holdings until the credit ratings fell, enabling them to avoid the losses that have crippled Citigroup Inc., Merrill Lynch & Co. and UBS AG. The world's largest banks have reported losses exceeding $133 billion related to mortgages, CDOs and leveraged loans.

``If you're holding a AAA piece and it's now downgraded to AA, you might have to write it down, even if you're holding it for an investment,'' Gary Gordon, a bank stock analyst at Portales Partners LLC in New York, said. ``The longer it goes on and the higher the credit rating of the instrument downgraded, the wider the pain.''

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Anonymous eh said...

Bernanke's Rate Cut, Growth Outlook Align Fed With Investors

"This is a case now of Bernanke realizing that he really has to be exercising very strong leadership."

Of course here "strong leadership" is a euphemism for cutting rates; if Bernanke had not cut rates, or not cut them by so much, then he would not have been "exercising strong leadership".

BTW, those "investors" wouldn't be, in many cases, the same people who created this mess in the first place, would they?

And from what I see it is deflating asset values that is the biggest problem right now. And I don't really see what lower rates will do about that.

This kind of stuff is hard to stomach.

2:43 AM  
Anonymous eh said...

Investors Want More Interest Rate Cuts

"The markets felt the Fed had fallen behind the curve. That caused a loss of credibility," said David Jones, chief economist at DMJ Advisors. "Once the Fed loses credibility, it can be hard to regain it."

That's right -- the only way for the Fed to retain its "credibility" is to cut rates.

I hope we are all straight on that now.

2:49 AM  
Blogger jmf said...

Moin Eh,

exactly this behaviour was one major reason that i am and was so bullish on gold.

At least the 10 year has done nothing despite the 125 basis point cut.

I´m stunned that there are still people and especially other central banks and countries willing to buy this garbage ( especially the currency ).

From an Austrian point of view we are headed for deflation.

Too bad that on the way they have judged the topic inflation/deflation for obvious reasons on the phony CPI number.

It´s now harder or impossible for them to declare that they are on a fight against deflation.


3:22 AM  
Anonymous eh said...


Speaking of Schadenfreude:

Somebody in this equation is amazingly stupid...

...the phony CPI number.

Even the reason behind that is a kind of greed: certain government entitlement payments are indexed to inflation, so it is in their interest to report a low CPI.

4:49 AM  
Blogger jmf said...


"And I don't think it was the
"poor homeowner" who lost his home to foreclosure"


4:54 AM  
Anonymous eh said...

An interesting interview with Philip Manduca.

Note: the interview won't be on this page for long -- you might have to search for it later.

5:28 AM  
Blogger jmf said...

The nice think on Maduca is that he has been consistant on gold, $ etc for years now.

5:40 AM  

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