Although it’s merely talk at this point, international regulators are considering how to reform rating agencies’ role in structured finance, which in hindsight contributed to many parties buying paper that was considerably riskier than they realized, One notion is to limit their their role in advising issuers on the design of structured finance products, which […]
Read more...A very good, accessible article, “CDS market may create added risks,” by Satayjit Das appears in today’s Financial Times. We’ve sometimes discussed the fact that credit default swaps, which effectively are insurance policies against defaults, suffer from considerable counterparty risk. A policy is only as good as the entity that wrote it, and many of […]
Read more...As many reader likely know, the Markit CMBX indices are commercial real estate mortgage-backed securities default indexes, However, unlike the more familiar subprime indexes, the ABX, which is based on bond prices (so down is bad), the CMBX is based on spreads. When spreads go up, bond prices go down, so for the CMBX, up […]
Read more...In today’s post, “The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster,” the bearish and prescient professor Nouriel Roubini sets forth how a systemic financial crisis could play out. The most troubling thing about this piece is that it is quite plausible. Of Roubini’s twelve steps, the first eight are […]
Read more...Standard & Poor’s issued a research report today that stresses that bond insurer downgrades would hurt banks and in some cases could lead to reductions of their debt ratings. This report is in contrast to the comparatively cheery view of Morgan Stanley yesterday, that bond guarantor downgrades (presumably to AA; note further downgrades are possible) […]
Read more...Bloomberg reports that CDO trading has ground to a virtual halt, which isn’t surprising given the number of pending downgrades and the propensity for CDOs to be downgraded by multiple notchhes. From Bloomberg: Buying and selling of collateralized debt obligations based on mortgage bonds, high-yield loans or preferred shares has ground to a near-halt, traders […]
Read more...Th announcement by Fitch of tis intent to downgrade as much as $220 billion of CDOs is in keeping with an announcement by Standard & Poor’s of its plans to downgrade or put on review up to $534 billion of CDOs. Both are the result of new, more negative default assumptions in the underlying assets. […]
Read more...The bond insurer front was quiet, with the only major news item the release of a report by Morgan Stanley’s credit analyst that argues that bank losses from a bond insurer downgrade would be only $5 to $7 billion, and it therefore isn’t worth their while to stump up for a rescue. At this point, […]
Read more...While the New York Times gives plenty of caveats, its story,”Economy Fitful, Americans Start to Pay as They Go,” says the American love affair with debt has gone sour: But now the freewheeling days of credit and risk may have run their course — at least for a while and perhaps much longer — as […]
Read more...Fitch was warning of lax lending practices in commercial real estate in the US starting in April of last year. The typical pattern, of going from unduly generous terms to stringent ones, with nary a stop in between, is occurring now, and with a vengeance. By happenstance, I had dinner with a colleague whose family […]
Read more...The refusal of private equity firms to join in the salvage of bond insurers being orchestrated by New York state insurance superintendent Eric Dinallo comes as no surprise. In fact, it is shocking that this idea was ever regarded as a serious possibility. Nevertheless, the headline in the Financial Times reads, “Setback for monoline rescue.” […]
Read more...The Financial Times reports that selling group discipline broke down on a $14 billion loan syndication for the acquisition of Harrah’s by Apollo Group and Texas Pacific Group. Buyers are unresponsive, a big problem for Wall Street, which is sitting on $150 billion of inventory that is already considerably underwater. Ironically, the interest rate cut […]
Read more...We have been skeptical about the possibility of a private-sector rescue of the troubled bond insurers. Nevertheless, both the Wall Street Journal and the Financial Times reported progress on discussions to shore up Ambac, the number two insurer, and that efforts were underway to assist the smaller fry. From the Financial Times: US and European […]
Read more...Spain has been in the throes of a housing bubble that is arguably worse than ours, since housing (narrowly defined) accounts for 5% of US GDP versus 18% of Spain’s. And like the US, Spain’s mortgage banks have entered a financial crisis and are making heavy use of the ECB’s discount window. But oddly, this […]
Read more...An excellent post by Elizabeth Warren at Credit Slips reviews some of the canards that have been successfully presented to promote the interests of various business interests against hapless consumers. The latest involves payday lending. The very fact that the Pentagon has come out against payday lending (they’ve proposed a usury ceiling of 36%) should […]
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