Wednesday, February 25, 2009

1997 Flashback / Colbert

Thank god we are all "long term investors"....... :-) On top if this i highly recommend Blast From the Stock Market Past ( including a "hairy" Cramer ) via Paul Kedrosky

Zum Glück sind wir ja alle "Langfristinvestoren"....... :-) Zudem noch ein mehr als sehenswerter Titel Blast From the Stock Market Past via Paul Kedrosky. Ein "amüsanter" Blick zurück auf die Wall Street Boomzeiten

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Monday, February 23, 2009

Beijing's Olympic Building Boom Becomes A Bust

Mish has some similar observations ( see Inside China: A Sculptor's View ) . Lets hope that only a tiny percentage of the recent credit explosion ( see Number Of The Day "Credit Explosion In China" ) will find the way into anything related to real estate........

Da Mish ähnliche Erkenntnisse hat ( siehe Inside China: A Sculptor's View ) dürfte klar sein das nicht nur die wetlichen Banken insolvent sind....... Bleibt zu hoffen das zumindest nur ein kleiner Bruchteil der letzten Kreditexplosion ( siehe Number Of The Day "Credit Explosion In China" ) seinen Weg in den Immobilienmarkt findet......

Beijing's Olympic building boom becomes a bust LA Times
Reporting from Beijing -- "Empty," says Jack Rodman, an expert in distressed real estate, as he points from the window of his 40th-floor office toward a silver-skinned prism rising out of the Beijing skyline.

"Beautiful building, but not a single tenant.

"Completely empty.


So goes the refrain as his finger skips from building to building, each flashier than the next, and few of them more than barely occupied.

Beijing went through a building boom before the 2008 Summer Olympics that filled a staid communist capital with angular architectural feats that grace the covers of glossy design magazines.

Now, six months after the Games ended, the city continues to dazzle by night, with neon and floodlights dancing across the skyline. By day, though, it is obvious that many are "see-through" buildings, to use the term coined during the Texas real estate bust of the 1980s.

By Rodman's calculations, 500 million square feet of commercial real estate has been developed in Beijing since 2006, more than all the office space in Manhattan. And that doesn't include huge projects developed by the government. He says 100 million square feet of office space is vacant -- a 14-year supply if it filled up at the same rate as in the best years, 2004 through '06, when about 7 million square feet a year was leased.
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Friday, February 20, 2009

Norinchukin, Owned By More Than 4,000 Shareholders Including Farm, Fishing & Forestry Cooperatives Has To Raise $ 20 Billion.....

WOW! This makes the followoing quote from their Annual Report 2008 even more "amusing"....

Donnerwetter! Die heutige Ankündigung macht die nachfolgende Bemerkung aus dem Annual Report 2008 vom März 2008 noch befremdlicher....

We, therefore, decided to invest our management resources in securities, both in Japan and overseas, under the concept of globally diversified investment.That means that we had decided to switch our business model from that of a conventional nvestor in the Japanese domestic market to a major investor on the international stage and raise our earning ability by carefully controlling our risk exposure.

The fact that the bank is owned almost solely from "cooperatives" makes the whole story even more stunning..... SCARY !

Das ausgerechnet eine Art Genossenschaftsbank hier den Vogel abschießt zeigt einmal mehr das man momentan rein gar nichts auschließen kann..... Beängstigend !

Norinchukin to Raise 1.9 Trillion Yen; CEO Quits Feb. 20 (Bloomberg) -- Norinchukin Bank, the Japanese agricultural lender with Asia’s largest losses on asset-backed securities, plans to raise 1.9 trillion yen ($20.2 billion) in capital and said its chief executive officer will step down.

Deputy President Yoshio Kono will replace CEO Hirofumi Ueno effective April 1, the company said in a statement today in Tokyo. Norinchukin will raise the funds from its members, a nationwide network of agricultural cooperatives with about $875 billion in deposits, by the end of March.

The fund-raising is the biggest in Asia since Industrial & Commercial Bank of China Ltd. collected $22 billion in the world’s largest initial public offering in 2006. Norinchukin lost at least $10 billion on overseas asset-backed securities following the collapse of the U.S. housing market.

“Norinchukin’s capital faces increasing impairment risk due to its relatively large exposure to foreign securitized financial products,” Moody’s Investors Service said in November, when it revised the outlook on the Tokyo-based bank’s Aa2 credit rating to “negative” from “stable.”

> Reed this number twice........ We won´t probably see too many happy Japanese fischers etc for some time to come......

> Dank der nun folgenden schier unglaublichen Zahl wird man den Namen NORINCHUKIN wohl noch öfter im Zusammenhang mit negativen Schlagzeilen hören...... Glückliche japanische Fischer & Förster werden wohl die Ausnahme bleiben......

Norinchukin still had 6 trillion yen of asset-backed securities at the end of December

> Taken from their Presentation Of Capital Positions. For more updates visit their News Release Overview.

‘Material’ Pressure
Standard & Poor’s cut Norinchukin’s financial-strength rating in December, citing “material” pressure on capital. The bank had a Tier 1 consolidated capital-adequacy ratio of 6.83 percent under Basel II standards as of Dec. 31, down from 9.39 percent as of March 31, it said in a statement today.

Profit at the Tokyo-based bank, which was founded in 1923 and makes loans to farmers and fishermen, plunged 95 percent to 7.8 billion yen in the six months ended Sept. 30, from 143.6 billion yen a year earlier, as it posted an 81.5 billion yen loss on asset-backed securities.

Norinchukin was founded as a semi-governmental financial institution and was privatized in 1959, according to its Web site. The company had 4,260 shareholders at the end of March, made up of agricultural, fishery, forestry and related cooperatives.

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Sunday, February 15, 2009

Failed Korean Debt Sale

With tsunamis of sovereign debt being issued around the globe i think news like this will pop up on a regularly basis ( especially for those countries mentioned in So Begin The (Serious) Sovereign Downgrades…? ). This also raises the question what will happen to spreads on corporate bonds ( see Death of Corporate Bonds Is Worth Investigating from William Pesek/ Bloomberg ) .... It will be interesting to see if some countries will be forced to issue debt in foreign currencies if even higher yields are failing to attract enough investors.....And lets all hope that the central banks are resisting the call to be the buyer of last resort ( monetize the debt )..... This would almost definitely lead to trouble down the road......

Mit der nicht enden wollenden Flut an neuen Staatsschulden rund um den Globus dürften vergleichbare Meldungen bald öfter über die Ticker laufen ( verweise in diesem Zusammenhang auch besonders auf die Staaten die in dem folgenden Link angesprochen werden So Begin The (Serious) Sovereign Downgrades…? ). Desweitern muß man sich fragen was solche Ereignisse für Unternehmensanleihen bedeuten ( sieheDeath of Corporate Bonds Is Worth Investigating from William Pesek / Bloomberg ) ..... Entscheidend wird sein ob bestimmte Staaten gezwungen werden einen Teil Ihrer Verbindlichkeiten in Fremdwährungen zu begeben wenn selbst steigende Renditen nicht mehr ausreichen um genügend Investoren anzuziehen..... Bin gespannt ob auch dann die Notenbanken sich dem Druck widersetzen und nicht als Käufer auftreten ( sprich die Notenpresse anzuwerfen )......... Das dürfte eher früher als später zu großen Problemen führen.....

Korea Fails to Meet Target in Bond Sale for 2nd Month

South Korea failed to meet its target at an auction of 10-year bonds for a second consecutive month on concern that the nation will increase debt sales to fund stimulus spending.

The government raised 584 billion won ($415 million) at today’s sale, less than the 800 billion won targeted, after investors offered to buy 604 billion won, the finance ministry said on its Web site. The securities were sold at an average yield of 5.2 percent, higher than the 5.1 percent the market expected, said Kim Do Sung, a futures trader with PB Futures Co. in Seoul.

“The market has shown little interest in longer-dated debt,” Kim said. “The trend may continue for a while as concern about oversupply lingers.”

Investors including Pacific Investment Management Co., which runs the world’s biggest bond fund, and DBS Asset Management Ltd., are avoiding long-term securities as governments fund extra spending by increasing debt sales. Asian nations have pledged an additional $685 billion over the next five years to support growth after recessions in the U.S., Europe and Japan caused exports in the region to collapse.

In a Jan. 19 auction, the Korean government sold 426 billion won of similar-maturity debt, failing to raise a planned 800 billion won. Malaysia attracted bids for 1.46 times the 3.5 billion ringgit ($967 million) of five-year notes sold on Jan. 22, the weakest bid-to-cover ratio since May 2008. The Philippines rejected all bids from investors for 7 billion pesos ($148 million) of treasury bills at an auction on Feb. 9 in Manila.

Curve Steepens

The extra yield that investors are asking to hold 10-year Korean bonds over those maturing in three years widened to 1.63 percentage points last week, the most since November 2001. The spread was 81 basis points at the end of 2008.

Asian local-currency government bonds have handed investors a 4.3 percent loss this year, after rallying 9.7 percent in December, when interest-rate cuts by central banks drove down yields, according to indexes compiled by HSBC Holdings Plc.

Borrowing costs will climb in the region this month as policy makers increase spending to revive their economies, Mirae Asset Investment Management Co. and CIMB-Principal Asset Management said.

India, the Philippines, Thailand, Korea and Malaysia were scheduled to sell at least $3.8 billion of local-currency bonds maturing in 10 to 30 years in February.

“The deeper the recession, the more the stimulus and the more the bond supply,” Kim Sung Jin, head of debt investment at Mirae, South Korea’s biggest asset manager with the equivalent of $43 billion under management, said last week. “The long-end maturities are the most vulnerable.”

Yields Rise
South Korea has already allocated 51 trillion won in tax cuts and infrastructure projects to shore up the economy, and the government needs to increase its budget spending to revive growth, Deputy Finance Minister Noh Dae Lae said on Feb. 12.

The yield on Korea’s 10-year government debt rose one basis point, or 0.01 percentage point, to 5.20 percent today compared with 4.22 percent on Dec. 31, according to Korea Securities Dealers Association. The rate averaged 5.15 percent over the past five years, according to data compiled by Bloomberg.

“Asian local-currency yield curves have bear-steepened so far this year on supply concerns, but more steepening lies ahead as 10-year yields remain below their long-term averages,” said Jens Lauschke, a fixed-income strategist at DBS Group Holdings Ltd. in Singapore.

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Thursday, February 12, 2009

Number Of The Day "Credit Explosion In China"

This almost surreal number is signalling a real panic among the leaders...This time i hope that the sky high published number is as credible as other statistics ( see China´s National Bureau Of Statistics Is Funny..... ) .And if you read the update at the end of the post there is a good chance that at least some of the increase isn´t "real" .....If you want more excellent insight on China the blog China Financial Markets from Prof. Michael Pettis is a must read!

Diese unheimliche Zahl signalisiert ne echte Panik der chinesischen Führung....Muß zugeben das ich beim Ausmaß dieser Steigerungsraten diesesmal sogar hoffe das die Zahlen so wenig glaubwürdig sind wie ansonsten auch ( siehe China´s National Bureau Of Statistics Is Funny..... ). Und wenn man sich das Update am Ende des Postings durchliest sieht es in der Tat so aus als wenn zumindest ein Teil des aberwitzigen Zuwachses nicht "real" ist...... Wenn Ihr mehr Information aus erster Hand betreffend China haben wollt empfehle ich dringend China Financial Markets von Prof. Michael Pettis !

Will China have to choose between social stability and long-term growth?

Reuters has just announced that net new lending may have actually been and even more surprising RMB 1.6 trillion – twice the previous monthly record and an amazing one-third of credit growth in all of 2008. We will know by February 15 at the latest, when the PBoC publishes lending data, but if this is true (and the report was seen as highly credible by one of my friends at Reuters / SEE UPDATE) it will probably goose the stock market up further while making people like me more worried then ever. Since for me much of the Chinese growth explosion of the past several years was caused by a badly allocated credit boom, the idea that the solution to a slowdown is to jack up the credit boom even further is very worrying. It is a little like the idea that the best way for the US to adjust to the decline in its debt-fueled household consumption binge is to replace it with a debt-fueled government consumption binge

I wonder what percentage of the loans will default........ This credit explosion also might shed some light on the recent events we have seen in the Baltic Dry Index ( see Baltic Dry, Winning Streaks, and China via Bespoke )

Möchte nicht wissen welcher Prozentsatz dieser Ausleihungen in 24 Monaten als notleidend deklariert werden muß......Diese Kreditexplosion läßt zudem die letzte erfreuliche Entwicklung im Baltic Dry Index ( siehe Baltic Dry, Winning Streaks, and China via Bespoke ) zumindest in einem etwas anderem Licht erscheinen.....


Looks like his Reuters source was spot on....

Sieht so aus als wenn seine Reutersquelle zeimlich zuverlässig ist .....

China money and credit growth rises sharply / Reuters

BEIJING, Feb 12 (Reuters) - New lending surged at a record pace in January and money growth also perked up as Chinese banks heeded the government's call to extend more credit to support the economy.

Banks extended a whopping 1.62 trillion yuan ($237 billion) in new loans in January, almost a third as much as they lent in all of 2008, the People's Bank of China said.

The surge provided evidence that state-owned banks are doing Beijing's bidding and providing financing for the 4 trillion yuan stimulus package announced on Nov. 9. The central government will fund only 30 percent of the plan itself.

Nearly 40 percent of January's new loans were in the form of discounted bill financing, which firms use for short-term cash needs. Some also reinvest the money, which can be borrowed for just 1.5 percent, in higher-yielding certificates of deposit.

..... economists said January's lending was probably inflated by banks bringing some off-balance sheet loans onto their books since the central bank scrapped quotas late last year in a bid to help the economy.

Here are more details from Prof. Pettis

....there is clearly an increase in lending games aimed at making policymakers happy by showing fat loan books. One of my students just visited me today with an example that involved his father. I don’t want to get into too much detail, for obvious reasons, but the net effect of the transaction involving his father was that an entity was created to borrow money from a bank, the proceeds of which were deposited in a CD, which was then assigned in ownership to the real borrowing entity, which then used the CD as collateral for the “real” loan. Aside from the complications used probably to get around credit restrictions, one single loan was recorded as two loans plus a CD deposit. Apparently the lending bank knew about all the intermediate steps. Surprise, surprise! It turns out that if your career prospects depend on increasing the total amount of loans outstanding, with less focus on the quality or structure of the loans, in fact it isn’t hard to show very nice, fat loan book.

As for the sudden surge in lending, this looks to me to be an accounting exercise, clearing or otherwise funding non-bank debts piled up by SOEs. Many large SOEs (not central ones, regional/local ones, though the central ones win no prize themselves) are behind on paying wages, suppliers etc, and the stimulus provided by this lending surge is really just to ease the log-jam of triangular debts. This implies that there will not be much “bang” for all of this lending

Would be great if only a small fraction of the loans would make sense like financing the Chinalco / Rio Tinto & Russia, China sign $25 billion energy deal deals..... ( well, read the 2nd update and it seems clear that this isn´t the case..... )

Wäre wünschenswert wenn zumindest ein Bruchteil der vergebenen Kredite soviel Sinn machen würden wie die Finanzierung des Chinalco / Rio Tinto & Russia, China sign $25 billion energy deal Deals..... ( verweise auf das 2. Update und es ich nicht wirklich überraschend festzustellen das die sinnvolle Verwendung wie nicht anders zu erwarten mit der Lupe gesucht werden muß .....)

2nd Update :

So Much For Stimulus: Chinese Loans Diverted to Stocks, Feeding Rally Naked Capitalism

Chinese companies may be using record bank lending to invest in stocks, fueling a rally that’s made the benchmark Shanghai Composite Index the world’s best performer this year, according to Shenyin & Wanguo Securities Co.

As much as 660 billion yuan ($97 billion) may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview today, citing money supply figures.

China’s banks lent a record 1.62 trillion yuan in January as part of a government drive to stimulate the world’s third- largest economy, while M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier.

The Shanghai Composite has surged 29 percent since the start of 2009, compared with a 10 percent decline in the MSCI World Index.

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Wednesday, February 11, 2009

Geithner Summary In 30 Seconds.....

I have to admit that even i ( already with ultralow expectations ) was shocked at the poor performance from Geithner. Here is a good summary ( see Geithner Plan Smackdown Wrap ) as usual via Naked Capitalism & The Geithner plan — what the pundits say including some quite "funny quotes" via FT Alphaville. Make also sure you don´t miss Save Us, Jim Cramer, You're Our Only Hope! from Henry Blodget via Clusterstock :-)

Ich muß gestehen das sogar ich ( hatte eh schon fast nicht messbare Erwartungen ) ziemlich geschockt von dem gewesen bin was Geithner da gestern veranstaltet hat. Eine treffende Bestandsaufnahme wie erbärmlich die gestrige Performmnace gewesen ist verweise ich mal wieder an Naked Capitalism ( siehe Geithner Plan Smackdown Wrap ) & The Geithner plan — what the pundits say mit einigen sehr "amüsanten" Zitaten via FT Alphaville. Denke das sich zudem ein Blick auf Save Us, Jim Cramer, You're Our Only Hope! von Henry Blodget via Clusterstock lohnt :-)

Hat tip iTulip

He doesn´t look confident at the end of his first major speech, doesn´t he..... ?

Er strahlt nicht gerade Zuversicht am Ende der Rede aus, oder....?


Hat tip FT via Naked Capitalism

On the other it is probably not the worst sign that bank stocks have tanked yesterday ( part was profit taking / sell the news ) . This might indicate that the high hopes from Wall Street for their "cash for trash" bet is at least "postponed". But this is really giving only a cold comfort..... Also disappointing ( but not unexpected ) to see that Obama ( see Obama on Bank Nationalization via Paul Kedrosky ) is still far underperforming the promise of "change"....... This is even more troubling because it seems he is offering the correct diagnosis but has not the guts for the necessary action ( see comment from Option Armageddon)

Auf der anderen Seite sind die fallenden Bankaktien ( teilweise sicher auch Gewinnmitnahmen bzw buy the rumor, sell the fact...) ein Indiz dafür das die Hoffnungen von Wall Street auf eine massive Überbezahlung Ihrer Schrottpapiere so zumindest nicht kurzfristig aufgeht. Aber das kann natürlich nur ein schwacher Trost dafür sein das erneut wertvolle Zeit ins Land geht und sich immer mehr die Erkenntnis durchsetzt das selbst nach einem Jahr immer noch vollkommen planlos ( das ganze wird nur noch dadurch getoppt das immer noch bewußt die alten Lösungen die bisher nicht funktioniert haben bevorzugt werden - siehe Cartoon & Obama on Bank Nationalization via Paul Kedrosky) agiert wird. Die ganze Geschichte wird umso ärgerlicher wenn man bedenkt das Obama das Problem wohl erkannt hat, Ihm aber offensichtlich der Mumm fehlt das Notwendige zu veranlassen ( siehe Kommentar von Option Armageddon )

More fun with John Steward....

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Thursday, February 05, 2009

Revisiting The Bear Stearns / Maiden Laine Portfolio......A Foretaste Of What To Expect From The "Bad Bank".......

I expect similar outcomes when Geithner is coming up with "cash for trash" overpaying for highly inflated assets & probably leaving the bondholders without any or a significant haircut..... .... See also Bad Bank, Bad Pricing.... & the Update from Naked Capitalism......On top of this add the populism ( see Confirmed: Executive Pay Caps Are A Joke ) from Obama and it is clear that this is change we can´t believe in..... UPDATE: Excellent rant David Sirota: "Obama's Team of Zombies" (Updated: Frank Rich on Geithner) via Naked Capitalism

Denke das dieses Beispiel schon einmal vorwegnimmt was uns ( STEUERZAHLER ) die Bad Bank bringen wird...... Siehe auch Bad Bank, Bad Pricing.... sowie das Update von Naked Capitalism. Das ganze wird noch unerträglicher wenn selbst der Heilsbringer Obama sich immer mehr als ganz gewöhnlicher Populist herausstellt ( siehe Confirmed: Executive Pay Caps Are A Joke ). Bisher muß man bei Ihm leider das Fazit ziehen das eher der Spruch "We Can´t" angebracht ist...... Wenn man sich Leute wie Geithner ins Boot holt muß einen das allerdings auch nicht weiter wundern....... UPDATE: Traurige Bestandsaufnahme von Anspruch und Wirklichkeit David Sirota: "Obama's Team of Zombies" (Updated: Frank Rich on Geithner) mal wieder via Naked Capitalism

Structured finance paramnesia, Bear Stearns edition FT Alphaville

The transaction was not structured with adequate over- collateralization…
Ever was it so.

Point in case: the Maiden Lane/Bear Stearns portfolio, which, since June, has declined by $4.22bn in value. See Bloomberg’s Chart Of The Day.

> Make sure you see the chart ( Go to the GRAPHIC icon ). And it is safe to say that things will get worse.......

> Der Chart ist einen Blick wert ( Auf das Icon Graphic klicken ) . Und es so ncht mutig zu behaupten das die Verluste weiter dramatisch ansteigen werden....

The “equity” tranche of the Maiden Lane deal, by which JP Morgan takes the first hit on any losses, was, at $1.15bn, a pretty flimsy sliver of subordination, even by 05′ vintage CDO standards. And of course, it has been far overrun by the current losses, which are now eating into the Fed/taxpayer-owned tranch.

Amid swap lines and liquidity facilities of many tens, if not hundreds of billions, it’s easy to dismiss $4.22bn as a drop in the ocean. But forget not that we’re talking pure credit risk for the Fed here. These are unchartered territories.

Keep smiling:

The central bank’s Board of Governors wrote in a Dec. 29 report to Congress that it didn’t expect “any net loss to the Federal Reserve or taxpayers” from the Bear Stearns holdings.


Yves Smith over at Naked Capitalism has a scathing criticism of the Obama Administration’s plan to fix the nation’s banks.

“The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting).”


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Sunday, February 01, 2009

Bad Bank, Bad Pricing.........

When you combine my initial thoughts ( see Is There Anybody Out There Believing That There Will Be A "Transparant" Bad Bank........? ) with the latest insight from Naked Capitalism & add the example from the NYT to the mix i think the cartoon describes very well the model that will be used from the governments around the world to justify the inflated "market prices" for the purchases or guarantees of the assets that will cost the taxpayer around the globe trillions.....

Denke wenn man sich meine letzten Vorhersagen ( siehe Is There Anybody Out There Believing That There Will Be A "Transparant" Bad Bank........? ) und das Posting von Naked Capitalism ansieht und das mit dem folgenden Beispiel der NYT kombiniert dürfte klar werden das die Regierungen weltweit "Berechnungsmodelle" analog dem Cartoon nutzen werden um die hyperinflationierten "Marktpreise" zu rechtfertigen zu denen die Positionen letztendlich erworben bzw garantiert werden. Die weltweiten Steuerzahler dürfte diese "Kreativität" Billionen kosten.....

Risks Are Vast in Revaluation of Assets NYT
The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.

The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.

> This conclusion from Calculated Risk & sums it up

> Diese Feststellung von Calculated Risk umschreibt das Desaster treffend.....

To be worth even 38 cents on the dollar, this must be a senior tranche. The lower tranches have absorbed most of the losses so far, and that is why S&P is currently valuing the bond at 87 cents on the dollar, but any higher default assumptions, and the value of this bond will plummet. I'm amazed, given that these are no money down 2nds that the loss severity is only 40 percent.

The bond analyzed by S.& P. is just one of thousands that the government might buy or guarantee should it go forward with setting up a “bad bank” that would acquire $1 trillion or more of toxic assets from banks.

The value of these securities is based on the future cash flow they provide to investors. To determine that, traders have to make assumptions about the housing market and the economy: How high will the unemployment rate go in the coming years? How many borrowers will default? What will homes be worth?

The Standard & Poor’s group, Market, Credit and Risk Strategies, which operates independently from the company’s credit ratings business, has been studying troubled securities for investors and banks. The bond that is trading at 38 cents provides a vivid illustration of the dilemma in valuing these assets.

The bond is backed by 9,000 second mortgages used by borrowers who put down little or no money to buy homes. Nearly a quarter of the loans are delinquent, and losses on defaulted mortgages are averaging 40 percent. The security once had a top rating, triple-A.

> Finally Joseph Stiglitz via Jesse´s Cafe Americain

Obama’s administration is moving closer to buying the illiquid assets currently clogging bank’s balance sheets and preventing them from boosting lending, people familiar with the matter said this week.That amounts to swapping taxpayers’ "cash for trash,” Stiglitz said yesterday


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