Subprime CDOs. VIES Feb 29, 2008

NY Times :-

"Investors were also spooked by a report from UBS that predicted financial companies will face an additional $350 billion in losses tied to the subprime mortgage collapse. That figure would be on top of the approximately $160 billion in losses that have already been disclosed by financial firms worldwide."

Hmmm... Hope to meet the DOW at 11500 in coming months ;-)

NYtimes - Bond Insurer Plans a Split to Protect Ratings

Here is the link to New York Times story...

http://www.nytimes.com/2008/02/23/business/23bond.html

When Ambac is split up, should the credit rating agencies keep the AAA ratings on the CDO business. Absolutely not. Will this happen though? Absolutely not. It is well known that credit rating agencies generate business by providing "good" ratings to the loans and exotic instruments that banks invent. A little dishonesty can go a long way in this business.

The banks are infusing $3b to save almost $300b that Ambac insured. Isn't that a joke... Still the credit rating agencies will not downgrade the CDO business after Ambac is split... In fact the opposite will emerge and they will paint a rosy picture after they keep the AAA ratings on these instruments.

I also think SEC should investigate people on the news network channels. Friday's call on Ambac on CNBC looked like a rip-off of all the people who were shorting for some personal gains. There is no other explanation for this; entire days 200 point loss recovered in 1/2 an hour and that too on a Friday... difficult to chew ;-) And a breakup plan is reason to fear not cheer... Remember Buffet already made clear his intentions of cherry-picking the profitable muni business...

Two things in denial

There are two things in the state of denial : Hilary Clinton and the banks. Both are in deep s*&t ...

"Moral Hazard" - Taxpayers funded bailout of banks and bond insurers

New York Times is reporting this story:

http://www.nytimes.com/2008/02/23/business/23housing.html?_r=2&ref=business&pagewanted=all&oref=slogin

- $739 Billion loan-defaults in the next five years
- Bank of America wants Government to bail them out of these bad loans (Read you and me will pay through our noses for this bail-out)

There is definitely more to it than looks on the surface. The problem is more pronounced and these banks are capital-impaired and some will fail. So why not let them fail because they created this mess through greedy practices like predatory lending in the first place and such exotic debt instruments as CDOs. And these were off-balance sheet entities they have to carry on their balance sheet. And oh! they carry them on their balance sheet as "mark-to-market" (read we tell you is the fair value :-) Remember the Enron titans Andy Fastow, Jeff Schiling and Ken Lay who invented/used this term to give us the great "Enron"!!

Also why are bond insurers so afraid of being split up and why do banks want to rescue them?
Well, its simple really. The bond insurers split. Their muni bond business will be safe. However the business insuring CDOs etc will go to dogs and hence things will come crashing for the banks, because these "mark-to-market" CDOs on their balance sheets will be almost worthless. And this will cause market crash.

But should govt. rescue these guys with your and my money. Well I think not. Govt. should let some of these guys go to dogs. This will set a good precedent to the inventors of such exotic instruments as CDOs etc. And a govt. bailout is only going to be an incentive for inventing more exotic instruments and more asset bubbles.