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D.C.

Aaa 27c On The Dollar Aa 4c On The Dollar

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I've seen those figures posted a couple of times, but I can't find the source.

Could anyone point me in the right direction please?

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So let me get this straight, the banks are valuing properties at or above 2007 levels to pretend they aren't bankrupt, but the market is valuing the end product (securities based on those mortgages) at somewhere between a quarter and a twentieth of the value?

Oh boy, that isn't good. :ph34r:

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So let me get this straight, the banks are valuing properties at or above 2007 levels to pretend they aren't bankrupt, but the market is valuing the end product (securities based on those mortgages) at somewhere between a quarter and a twentieth of the value?

Don't think so

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Don't think so

Could you explain the relationship between house prices, mortgage defaults and MBS for the thicko in the back please? I don't get it :huh:

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Is it more they don't expect these loans to perform to the value outstanding? And are also pricing in the risk of buying these loans which currently appear to be worth jack sh1t?

"As of last week, the ABX index of sub-prime mortgage debt showed that AAA-rated securities from early 2007 were trading at 28 cents on the dollar – AA was at 4 cents, near all-time lows"

I'm not sure how

1.) Liquid the index is

2). Open to manipulation

3). Representative of the mortgages on the books

But TBH I've not looked at this for a long time

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Is it more they don't expect these loans to perform to the value outstanding? And are also pricing in the risk of buying these loans which currently appear to be worth jack sh1t?

But the value recoverable from the collateral should put a floor under the price of the security.

As we've seen (in the USA particularly) some properties really are worth next-to-nothing, the ones where whole blocks are derelict with all the copper stripped out etc.

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But the value recoverable from the collateral should put a floor under the price of the security.

As we've seen (in the USA particularly) some properties really are worth next-to-nothing, the ones where whole blocks are derelict with all the copper stripped out etc.

And the banks are keeping repossessed properties on the books and empty.

If they sell they have to take a hit on the books instead of having it way overvalued in the 'mark to fantasy' regime.

If they don't sell the value deteriorates further as the properties are ransacked/vandalised/burnt out.

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I was sure the 'mark to market' rules have been removed ?

If so then why are these numbers so low ?

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"As of last week, the ABX index of sub-prime mortgage debt showed that AAA-rated securities from early 2007 were trading at 28 cents on the dollar – AA was at 4 cents, near all-time lows"

I'm not sure how

1.) Liquid the index is

2). Open to manipulation

3). Representative of the mortgages on the books

But TBH I've not looked at this for a long time

If it's a liquidity problem the money simply doesn't exist does it to buy up all this toxic crap at anywhere near 100% values if everyone decides to sell at once?

Unless of course you have a printing press.

Although even if they don't all sell at once I can't see how you would find a buyer for this now.

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I was sure the 'mark to market' rules have been removed ?

If so then why are these numbers so low ?

That is what I'm getting at.

The market is still valuing these things as virtually worthless, regardless of what the banks say they are worth.

Which means there is a huge disparity between 'true value' and the bank's balance sheet.

Which is a bad thing.

Or am I not gettin it?

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As I said, how do you know how well the index represents the market?

From 2007:

http://money.cnn.com/galleries/2007/news/0...ndex/index.html

Understanding the ABX At a time when almost nothing about subprime securities seems certain, the ABX index is a key point of reference for investors navigating the world of risky mortgage debt.

The ABX, launched in January 2007, serves as a benchmark of the market for securities backed by home loans issued to borrowers with weak credit.

"Creating visibility and transparency was a goal of the index, but not everyone knew it would be so closely followed," said Ben Logan, a managing director at Markit Group, a London-based company that specializes in credit derivative pricing and administers the index.

Underlying the mortgage mess has been the fact that "no one knows what subprime securities are really worth," said Barry Ritholtz, director of equity research for New York-based FusionIQ, a quantitative research and asset management firm.

How the ABX works The ABX tracks the performance of a basket of credit default swaps based on U.S. subprime home loans. Credit default swaps, which are like insurance contracts, allow buyers and sellers to trade risk.

In the case of the ABX, these financial instruments allow traders and investors to take positions on subprime securities without actually holding them.

The index is by no means perfect - traders use credit default swaps as a betting tool, which can skew prices - and it doesn't reflect the true value of the underlying securities. But it does offer a gauge of the demand for them. A decline in the ABX suggests that the securities have become more risky and that investors have lost confidence in them.

How to read the ABX The ABX has five separate indices based on the rating of the underlying subprime securities, ranging from AAA to BBB-minus. A new series is issued every six months to reflect the 20 largest current deals.

For instance, the inelegantly-named ABX-HE-A 07-2 tracks bonds with a rating of BBB issued in the first half of 2007.

The index prices are updated by Markit at www.markit.com.

What to watch The part of the ABX linked to the riskiest subprime bonds has fallen about 67 percent since the mortgage wipeout began in the summer. Now subprime fears are spreading to segments of the market once considered ultra-safe.

For example, AAA-rated mortgage-backed debt has tumbled on the ABX in the last month, reflecting concerns that even those bond holders higher up in the capital structure - those who get paid first - may also suffer losses.

Citigroup CEO Gary Crittenden referred to the decline in the AAA index when the financial services giant announced on Nov. 5 it would write down as much as $11 billion in the fourth quarter.

"Now the best way to kind of get an outside perspective on this is to look at the ABX indices, which have dropped dramatically since the end of September," Crittenden said.

-----------------------------------------------

So it looks like it is very liquid but reflects sentiment more than actual price. It seems to be speculation on speculation.

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Gambling then?

Bankers don't gamble, they make very difficult investment decisions which require them to be paid very large amounts of money.

Tsk, tsk.

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From 2007:

http://money.cnn.com/galleries/2007/news/0...ndex/index.html

Understanding the ABX At a time when almost nothing about subprime securities seems certain, the ABX index is a key point of reference for investors navigating the world of risky mortgage debt.

The ABX, launched in January 2007, serves as a benchmark of the market for securities backed by home loans issued to borrowers with weak credit.

"Creating visibility and transparency was a goal of the index, but not everyone knew it would be so closely followed," said Ben Logan, a managing director at Markit Group, a London-based company that specializes in credit derivative pricing and administers the index.

Underlying the mortgage mess has been the fact that "no one knows what subprime securities are really worth," said Barry Ritholtz, director of equity research for New York-based FusionIQ, a quantitative research and asset management firm.

How the ABX works The ABX tracks the performance of a basket of credit default swaps based on U.S. subprime home loans. Credit default swaps, which are like insurance contracts, allow buyers and sellers to trade risk.

In the case of the ABX, these financial instruments allow traders and investors to take positions on subprime securities without actually holding them.

The index is by no means perfect - traders use credit default swaps as a betting tool, which can skew prices - and it doesn't reflect the true value of the underlying securities. But it does offer a gauge of the demand for them. A decline in the ABX suggests that the securities have become more risky and that investors have lost confidence in them.

How to read the ABX The ABX has five separate indices based on the rating of the underlying subprime securities, ranging from AAA to BBB-minus. A new series is issued every six months to reflect the 20 largest current deals.

For instance, the inelegantly-named ABX-HE-A 07-2 tracks bonds with a rating of BBB issued in the first half of 2007.

The index prices are updated by Markit at www.markit.com.

What to watch The part of the ABX linked to the riskiest subprime bonds has fallen about 67 percent since the mortgage wipeout began in the summer. Now subprime fears are spreading to segments of the market once considered ultra-safe.

For example, AAA-rated mortgage-backed debt has tumbled on the ABX in the last month, reflecting concerns that even those bond holders higher up in the capital structure - those who get paid first - may also suffer losses.

Citigroup CEO Gary Crittenden referred to the decline in the AAA index when the financial services giant announced on Nov. 5 it would write down as much as $11 billion in the fourth quarter.

"Now the best way to kind of get an outside perspective on this is to look at the ABX indices, which have dropped dramatically since the end of September," Crittenden said.

-----------------------------------------------

So it looks like it is very liquid but reflects sentiment more than actual price. It seems to be speculation on speculation.

I would be very surprised if it were liquid at the moment

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If your basing your decision on speculation no wonder it's difficult.

So speculation on speculation on 'fantasy valuations'.

Is there a term for systemic suicidal stupidity?

Other than 'economics'?

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