Friday, February 01, 2008

It's 1:00pm. Do You Know Where Your AAA Rating Is?

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Egan-Jones downgraded Ambac/MBIA to junk today.

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Pressure mounting on S&P, Moody's, and Fitch

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Need to raise $30B to stay AAA for each company. There are 7 companies.

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Egan-Jones was first to identify Enron and Worldcom as problem children.

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Egan-Jones is paid by investors. Moodys/S&P/Fitch are paid by issuers.

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You can bet the securities litigators are dancing naked on the rooftops.

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It's just a matter of time. Very little time.

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CRASH-CON 1 is looming.

13 comments:

Anonymous said...

http://calculatedrisk.blogspot.com/2008/02/fitch-may-cut-monoline-insurers-ratings.html

drip

Eleua said...

Thanks, Jillayne. It's just a matter of a few days before this entire thing blows sky-high.

I think the FED will cut another 50bp within the next two weeks, as the slosh is draining and the EFF is tanking. This might cause a pop in the markets, but it will only be temporary. Eventually, the markets will see the panic for what it is.

The banks are diseased, and the insurers can't hide it anymore. The banks don't have the money to bail them out.

Tick...tick...tick...

Anonymous said...

It is really hard to watch this all happening in slow motion.

If CDOs tank, then the world of residential mortgage backed securities will forever change.

But banks need money to make new residential loans if they can't be sold.

Eleua said...

Yes, and those banks will have to pay dearly for people to loan them money. Consequently, the rate they charge will have to be even higher.

When you are dealing with tight money, rather than the loosey-goosey rates we have today, both bankers and people who loan to banks will be watching the borrowers like hawks.

70% LTV, 20% APR, and genuine pristine credit? Could be...

Picture what price homes will have to sell for in order to get affordability down to historic norms with today's lending paradigm.

Picture it with tomorrow's...

Anonymous said...

Dude yo uare delusional the market is fine.

Jillayne Schlicke said...

Hi Eleua,

I can't make sense out of this Ambac split proposal.

http://calculatedrisk.blogspot.com/2008/02/ambac-considering-split.html

I even read all 100+ comments. I can't tell if the insurance commissioner is really going to do this or if it's just another delaying tactic until the monoline(s) go under.

Your thoughts?

Thanks.

Eleua said...

Jillayne,

I don't think anyone understands what is going on with this potential bifurcation of the monolines.

I see it in these terms: the banks are holding the municipal bond market as hostage. People are seeing the muni-bond market sell off (NY Port Authority borrowing money at 20% in the past week vs. 4%) and the politicians are justifiably worried. The banks are worried that their insurance will end, thus rendering enough of their assets sufficiently worthless so as to cause a likely bankruptcy.

Spitzer can't afford to have all the municipal bonds that keep NYC afloat to go out at 20%+, thus his desire to see a quick kill of the CDO part of the monoline insurance. This is the real deal. Politicians can blather on about all the stupid issues the MSM yaps about, but they will not stand by and allow their funding costs to quadruple in a fortnight's time. Also, muni-bonds are in every money market and retirement plan in the country. Sell offs and downgrades will cause an absolute bloodbath - even by 1929 standards.

The federal regulators are faced with a potential banking crisis. They don't want full disclosure.

So, we are now trying to find the clean end of a turd. I have no idea how regulators can split a company to favor one insured party at the expense of another. To me, the banks have a legitimate argument. Spitzer and his pals should have raised objections when the monolines started insuring mortgage derivatives, rather than now. But then again, nobody wants to fix the hole in the roof until it starts raining.

It's raining in a big way.

This situation cannot end well.

If the monolines get split, the bond market stays intact (for now), but the banks will crumble. How do you have a healthy economy with banks in receivership?

If the banks delay the split, the monolines will get downgraded and the muni market will continue to get disemboweled. The banks get pounded anyway.

The muni market is going to be the acceleration event. It can't be stopped until they are insured by something that isn't insuring mortgage dreck. Even in that situation, the munis are going to face a large write down in their tax base.

The life of this is going to be measured in weeks.

Expect Wall Street to rally right into the crash.

Jillayne Schlicke said...

It's Friday night.
You were right. The market rallied with the late day rumor of the monoline bailout.

It's like instead of a big crash, we are going down via the stair-step method.

Give the monolines cash so that they can secure their rating, so that they can THEN split into two.

The banks will get pounded but they keep delaying the eventual day, don't they?

What are they waiting for?

christiangustafson said...

Burn it all down.

Burn down the banks.

Burn down the repulsive sawdust boxes.

Burn the $100K kitchens. Burn the whirlpool tubs. Burn the walk-in closets. Burn the three-car garages.

Burn it all.

We can build a new civilization from the ruins of this one.

Look around you. Is this one worthwhile? Are the people who drove this to the limit, the financial pig-men, the greedy flippers, the mindless, innumerate masses, the cynical REIC, are they worth saving?

"Someday a real rain will come and wash all the scum off the streets."

Make it so.

Eleua said...

The economic reality will make it so. We are watching it happen right before our eyes.

christiangustafson said...

Hi Eleua!

Not all is Sturm und Drang. Come visit me at Deflation Land, where we celebrate modern chipboard architecture.

http://deflationland.bogspot.com

cg

christiangustafson said...

Oh my.

http://www.kitsapsun.com/news/2008/mar/12/waterfront-condos-to-be-put-up-for-auction/

$920K condo in BREMERTON?!

QUALITY STOCKS UNDER 4 DOLLARS said...

Nice reviews right on topic.