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Category Archives: bonds and loans
What’s a CDO?
I could tell you, but it’s more fun to show you.
Posted in bonds and loans, housing
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Subprime Prescience at MetLife
Lavonne Kuykendall quotes Steven Kandarian, MetLife’s CIO: Mr. Kandarian said MetLife identified the risk from subprime loans early and stopped buying subprime mortgage-backed securities rated single-A and below in late 2004. Note that MetLife’s fund managers aren’t the kind of … Continue reading
Posted in bonds and loans, housing, investing
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Cuomo Stalks Wall Street, Mortgage Edition
Andrew Cuomo is on a fishing expedition for mortgage-related malfeasance on Wall Street, specifically sins of omission: The inquiry raises questions about the extent to which securities firms are obligated to dig into the mortgages before slicing them up to … Continue reading
Posted in bonds and loans, housing, law
1 Comment
The Weakness of Marking Subprime Bonds to Market
In the case of subprime bonds, marking to market is a pretty crappy way of working out how much those bonds are worth.
Continue reading
Posted in bonds and loans, housing
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Which Bondholders Benefit From the Paulson Plan?
Last week, when the Sheila Bair subprime-modification plan became the Hank Paulson subprime-modification plan, I tentatively suggested that junior bondholders might be winners, while senior bondholders could lose out: In reality, it’s almost certain that some bondholders would benefit from … Continue reading
Posted in bonds and loans, housing
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Scenes From the Credit Crunch, UK Edition
It’s really bad out there right now. If you took a snapshot of financial conditions, especially in London, you’d have to conclude it’s now much worse than during the worst days of the summer – the only thing missing is … Continue reading
Posted in bonds and loans
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Why is Warren Buffett Buying $2.1 Billion of Super-Junky TXU Debt?
Warren Buffett just bought a huge chunk of TXU debt at a $125 million discount to face value: Berkshire bought into two issues by TXU. It purchased $1.1 billion of 10.25% bonds at 95 cents on the dollar to give … Continue reading
Posted in bonds and loans
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The Real Problem with Securitization
One of the more annoying memes spreading virulently during this subprime-mortgage crisis is the idea that securitization itself is a ridiculous idea. Subprime borrowers have higher default rates, that’s obvious, and so anybody who honestly thought he owned a AAA-rated … Continue reading
Posted in bonds and loans
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Meme of the Day: Liquidity Puts and CDOs
Are you sick of the liquidity put yet? You shouldn’t be, because it’s only getting more and more interesting. There are three articles worth reading on the subject today, starting with David Reilly’s WSJ column on whether Citigroup should move … Continue reading
Posted in banking, bonds and loans
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Leveraged Super Senior Trades and the Liquidity Put
On Wednesday I said that the notorious "liquidity put", which was allegedly responsible for tens of billions of dollars in Citigroup losses, was "really nothing more than a CP backstop". Today we’re learning a lot about something known as leveraged … Continue reading
Posted in banking, bonds and loans
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Why The Safest Banks Saw the Biggest Losses
Jenny Anderson today runs down the list of winners and losers in terms of subprime losses. Winners (or at least banks with relatively small losses): Goldman Sachs; Credit Suisse; Lehman Brothers; JP Morgan. Losers: UBS; Merrill Lynch; Citigroup. Anderson concludes: … Continue reading
Posted in banking, bonds and loans
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The Entity Quote of the Day
From an anonymous fund manager, via John Carney: "B of A is the Stupid Bank. Citi is the Incompetent Bank. JP Morgan is Villainous. The super SIV is Stupid, Incompetent and Villainous."
Posted in banking, bonds and loans
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Sam Jones Explains the Liquidity Put
The FT’s Sam Jones puts two and two together today and finally explains what the notorious liquidity put is. You might recall that a couple of weeks ago he told us about CDOs which issued commercial paper. I noted at … Continue reading
Posted in banking, bonds and loans
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CDO Datapoint of the Day
Aaron Johnson of Total Securitization reports: The first CDO-squared (a CDO of CDOs) has now defaulted. Lancer Funding II was issued by ACA Capital, an insurance company you’ve never heard of but which still managed to record a $1.7 billion … Continue reading
Posted in bonds and loans
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Expensive ARMs: An Answer
On Friday I asked why ARMs were so expensive. I got a few responses, but the best was from an anonymous commenter on Seeking Alpha, "User 122506". His or her comment is worth quoting in full: It seems the lending … Continue reading
Posted in bonds and loans, housing
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Why Are ARMs So Expensive?
A friend of mine is shopping for a mortgage right now, and I just had a very frustrating conversation with her mortgage broker. What I’d like to do is be able to choose between a fixed-rate mortgage and an adjustable-rate … Continue reading
Posted in bonds and loans, housing
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Unsecured Personal Debt: The Next Shoe to Drop?
HSBC has been one of the biggest subprime lenders in the US ever since it bought Household International for $15.5 billion in 2003. It was one of the first major banks to take big subprime-related losses, too, and it doesn’t … Continue reading
Posted in bonds and loans
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When is a Hedge Not a Hedge?
Allison Pyburn has some numbers on just how much the notorious "super-senior" tranches of subprime-backed CDOs are actually worth in the market. It’s probably no surprise that the junior tranches are changing hands in "the high single digits," but more … Continue reading
Posted in bonds and loans
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Carina: The 18-Notch Downgrade
You wondered what would happen when a CDO was forced to liquidate? Now you know: The ratings on the most senior class of Carina CDO Ltd. were lowered to BB, two levels below investment grade, from AAA, while another AAA … Continue reading
Posted in bonds and loans
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Negative Convexity at Morgan Stanley
Morgan Stanley was short subprime. Subprime went down. Morgan Stanley lost $3.7 billion on the trade. How is that possible? Morgan Stanley’s CFO, Colm Kelleher, explained it thusly: “We began with a short position in the subprime asset class, which … Continue reading
Posted in bonds and loans
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Toxic Waste Watch: Beware CDO-backed ABCP!
Since when do CDOs borrow money? I’m obviously rather behind the curve here, since I thought that a CDO was basically an unlevered entity which invested in debt. When it got income from that debt, the income would go first … Continue reading
Posted in banking, bonds and loans
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Citi: In Defense of Gary Crittenden
Brad DeLong takes a cheap shot at Citigroup’s CFO, Gary Crittenden, who on the Citigroup conference call tried to explain where all those extra write-downs were coming from. Crittenden explained that much of Citi’s subprime exposure was in so-called super-senior … Continue reading
Posted in banking, bonds and loans, housing
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How Sowood Went Bust
The WSJ this weekend came out with its post mortem of Sowood Capital, the hedge fund started by former Harvard high-flyer Jeffrey Larson which imploded spectacularly in July. There’s nothing particularly surprising in the story (too much leverage, not enough … Continue reading
Posted in bonds and loans, hedge funds
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Subprime: It’s Still Really Bad
Countrywide shares gained more than 32% today: that must mean the market thinks the subprime crisis is over, right? Not at all. For one thing, today’s close of $17.30 a share puts the company’s share price at pretty much exactly … Continue reading
Posted in bonds and loans, housing, stocks
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Watching SIVs’ Assets Decline
Sam Jones has a fascinating chart showing the evolution of SIVs’ net asset values over the past three months. The best SIVs are doing fine, no problem there at all. The worst are doing atrociously: "Axon Financial, managed by TPC-Axon … Continue reading
Posted in banking, bonds and loans
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