Thursday, Jul 19, 2007
When it was cars, it wasn't so bad - but homes?!
Bloomberg: S&P, Moody's masking $200 billion of subprime bond risk
``S&P's actions are going to force a lot more people to come to Jesus,'' said Christopher Whalen, an analyst at Institutional Risk Analytics in Hawthorne, California. ``When a ratings agency puts a whole class on watch, it will force all the credit officers to get off their butts and reevaluate everything. This could be one of the triggers we've been waiting for.''
Investors criticized S&P, Moody's Investors Service and Fitch Ratings because their ratings on bonds backed by mortgages to people with poor or limited credit don't reflect the fastest default rate in a decade. Prices of some bonds backed by subprime mortgages have declined by more than 50 cents on the dollar in the past few months while their credit ratings haven't changed.
Posted by lvmreader @ 10:22 PM (192 views) Add Comment
13 Comments
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1. enuii said...
See LVM's hitting it hard tonight in his extensive 3 hour blogging bender, though I must admit that Sub-Prime is hitting it big time since starting off gently through consumer items in the 80's and gradually getting bigger via mortgage brokers. Though it looks like the Bailiffs and Court officers will be getting very busy when these boys want their money back on default.
2. tyrellcorporation said...
...and yet the DJIA keeps going and breaches the 14000 mark! Can anyone explain to me why this very bad news seems to be ignored by investors?
3. little professor said...
Oh come on lvmreader, that's the tenth article you've posted to the news blog within 2 hours. Many of them dealing with the same subject. How are we supposed to get any discussion going?
4. stillthinking said...
This is fraud. This is not an economic symptom. Just illegal through and through. Organised theft. Perhaps this will change the US model. Worse than that, it makes a mockery of the financial system. Perhaps it is a mockery. I often get very depressed reading this site.
5. paul said...
lvmreader, your contributions are always welcome, but could you go for quality rather than quality?
6. Stoatgobbler said...
I'm not certain that we should take the view of a computer programmer who writes software for auditors as gospel. I'm not saying this isn't a mess, but why on earth does this dude think he's got something to add?
7. dohousescrashinthewoods said...
Stillthinking, chin up. Best to know what's going on, even if it's not pretty. That way, you can make good decisions and not be taken in so easily. Make the mest of what is there and if you get the chance to help someone avoid a pitfall, all the better. This stuff is indeed depressing, but the more people hear about it, the less chance there is the crooks will get away with it.
(Paul, you meant quantity, right?)
8. uncle tom said...
When financial scandals unfold, the usual order of events is understatement and denial are followed by overstatement and panic followed, eventually, by the truth (or something close to it..)
- So where are we with this one?
Probably on the boundary of the first and second phases.
The big question that's being discussed is will there be contagion between financial instruments that are clearly in trouble and others that so far look OK.
The big question in my mind is whether or not a carousel has evolved, whereby financial instruments have become so secured on each other that the web goes full circle and they are actually secured on themselves.
I suspect that something of this sort has happened, because money has become too cheap. If my suspicions are correct, then the relatively manageable issue of poorly judged mortgage lending to high risk individuals could explode into something that makes the asian crisis of ten years ago look trivial.
We shall have to wait and see..!
9. dohousescrashinthewoods said...
I too would like to know why the DJIA is surging when massive impending losses are only a matter of time.
Is it ramping, or have I missed something?
10. tyrellcorporation said...
These complex and dodgy financial instruments have largely been ignored up 'til now and so this 'carousel' has developed. Is it something that can be ignored on a long-term basis or do people now think an unwind is upon us and the game is up? I still can't quite decide whether investors are actually interested in looking in the closet - preferring to just put on those rose-tinted specs and keep spending.
11. paul said...
Yeah, umm quality rather than quantity. :/
12. monty said...
I believe there are a number of reasons for the most recent DJIA surges. As the dollar is goes down the pan, the shares that constitute the index are being revalued in dollar terms. It may also be a reflection of the expected increase in foreign income due to the weaker dollar. I think that any dollar holders are also very keen to turn them into hard assets, gold, stocks etc. before it devalues even further.
13. lvmreader said...
@Paul,
I appreciate your concern, but I had been out of the country for a little while and needed to catch up.
The entire underpinning of this mess lies in CDOs and the markets new found appetite for them. Reasoned analysis and understanding is therefore impossible without a solid grounding in the arcane world of bond yields, spread, credit default swaps and recent economic history.