I am at a loss as to which allusion better characterizes rating agency behavior: ostriches, as per the headline, or monkeys, as in “See no evil, hear no evil, speak no evil.” But in each case, I think I am being unfair to the animals. I happened to miss skip past an article in Friday’s […]
Read more...This bombshell came courtesy Michael Shedlock, in “Fitch Discloses Fatally Flawed Rating Model“: What follows are excerpts from Absence of Fear, an excellent article written by Robert L. Rodriguez at First Pacific Advisors.We were on the March 22 call with Fitch regarding the sub-prime securitization market’s difficulties. In their talk, they were highly confident regarding […]
Read more...John Authers of the Financial Times thinks the markets got a lucky break this week, and deferred a so-called Minsky moment, which he discussed in a noteworthy piece earlier. By way of background, economist Hyman Minsky observed that creditors become more lax about lending standards during times of stability. He divided borrowers into three types: […]
Read more...Whether you choose to see it as subprime contagion, repricing of risk, or a temporary correction, prices of debt in various markets are falling, which translates into higher yield requirements. At RGE Monitor, Nouriel Roubini took note (as we did) of a Fitch report warning of overheated lending practices in the commercial real estate lending […]
Read more...From the Wall Street Journal: Standard & Poor’s lowered ratings on 498 bonds backed by subprime home loans, comprising the vast majority of the 612 bonds that it earlier this week said it was reviewing for downgrades. The ratings company also said the 612 bonds were originally worth $7.35 billion, not the $12 billion it […]
Read more...As Russ Winter describes the recent runup in margin debt in “Leveraged to the Hilt.” Needless to say, heavy use of margin is considered a sign of speculative excess. I believe much of the market move can be attributed to synthetic leverage (futures). But now we get more evidence that a parabolic move in the […]
Read more...Bloomberg, in “GE Plans to Seek Buyer for Subprime Mortgage Unit,” tells us that for GE, cutting its subprime lending business WMC’s staff by more than 50% wasn’t enough. The parent told staff via e-mail that the business is to be sold. It reportedly contributed $100 million of GE’s total $20 billion profits in 2006, […]
Read more...This post is mainly for those who like data. The Financial Times, citing the Bank of International Settlements, reports that worldwide sales of collateralized debt obligations were $251 billion in the first quarter of 2007, and synthetic CDO sales were $121 billion, both record levels. To give a sense of magnitude, total US rated subprime […]
Read more...That’s the question from Felix Salmon, and like Diogenes looking for an honest man, so far he hasn’t found anyone who has an answer. Salmon is getting close to the dirty secret: no one has an answer. The most they have are some interesting datapoints, factoids, and analyses. At the risk of having someone prove […]
Read more...One of the themes du jour is the overrated reporting that goes on in the Wall Street Journal (and we’ve waxed eloquent on this subject many times before, as the posts tagged ‘Media Watch” will attest). While the Journal’s coverage of company news is generally good to very good, it appears that they put their […]
Read more...The Wall Street Journal, in “Fitch Sees Rising Shakiness In Commercial Mortgage Arena,” tells us that the rating agency issued a warning Wednesday on frothy lending in the commercial real estate arena. The problem with this story is that the WSJ makes it sound as if that’s news. It isn’t. The Financial Times reported on […]
Read more...A Fed and Treasury official both said they don’t see the downgrade of some subprime related debt leading to a broader meltdown, but instead see the repricing of credit working itself through in an orderly fashion. The fact that they felt the need to issue the reassurance in and of itself isn’t a good sign, […]
Read more...Hhhm, “orderly” seems to be the favorite word from the finance officialdom today, and we see yet another reference to systemic risk (in this case, that the SEC remains vigilant on that front). But as regards the Bear situation, the comment from the SEC isn’t much in the way of news (however, “now orderly” would […]
Read more...Readers of this blog know that I have been concerned about the state of the credit markets for some time. We’ve had (until the last month or so), rampant liquidity feeding asset bubbles in virtually every asset class except the dollar and the yen, tight risk spreads (that means inadequate compensation for risk assumption), lax […]
Read more...Bloomberg reports that Moody’s has dropped its ratings on 399 subprime related bonds and is reviewing ratings on another 32. Standard & Poors had announced earlier in the day that it is preparing to cut ratings on 2.1% of the bonds that have subprime exposure, or roughly $12 billion out of a universe of $565 […]
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