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Fly In The Bear Ointment

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The subprime fallout isn't going to be the rout that I expected, little did I know that the leners had been real cute and protected themselves with insurance!!! :o

Get this.........

http://bakersfieldbubble.blogspot.com/

Barron's has a big piece today on ACA Capital ( 27 percent owned by BSC by the way 1 ) Here are the highlights : 1) ACA has a market cap of 260 million but has insured 15.7 billion of mostly subprime securities. Notably , 9.3 billion of this waste is in mezzanine subprime CDOs ; 2) ACA"s total CDO exposure is 61 billion ( subprime and commercial mortgage debt ) on their capital base of 326 million , which equates to leverage of 180 to one : 3) ACA has been criticized by some as being a warehouse ( or perhaps toilet ) for the risky obligations of big boys such as MER , LEH ,BSC and RBS Greenwich Capital ---billions of such obligations have been parked in ACA by these big boys : 4) If ACA collapses, these risky obligations come cascading back onto the books of the big boys and some of ACA's 25 other counterparties; 5) Barron's further notes a high level of risk of the 9.3 in mezzanine risk exposure being pancaked with just a 7 percent collateral impairment spread across the pool underlying the mezzanine CDOs (note the mezz CDOs consist of BBB slices of MBS pools ; 6) S&P has forecast 11-14 cumulative losses for 2006 vintage subprime mortgages ; Half of ACA 9.3 billion in mezz guarantees consists of 2006 paper , while the balance is 2005 and 2007 paper that has not performed much better ; Finally , ACA has 5 billion in "high grade" subprime CDOs of which 2/3 is Single A tranches .. a 10 percent collateral loss wipes out the single A tranches and 2/3 of any high grade CDO they are a part of... ACA thus has a 3 billion exposure on this 5 billion exposure.... capped off with about a half billion more risk from CDO squared products which get snuffed with a 4.5 collateral loss. ... The mess just keeps expanding and the opaque risks are becoming visible. I wonder if BSC , MER and LEH will disclose this by way of a 10Q August 9th , which is when I understand 10 Q'a are due for the second quarter ? Thoughts ? ?

:lol:

Simply unbelievable.

Why did they bother?

Was it all show?

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The subprime fallout isn't going to be the rout that I expected, little did I know that the leners had been real cute and protected themselves with insurance!!! :o

Get this.........

http://bakersfieldbubble.blogspot.com/

Barron's has a big piece today on ACA Capital ( 27 percent owned by BSC by the way 1 ) Here are the highlights : 1) ACA has a market cap of 260 million but has insured 15.7 billion of mostly subprime securities. Notably , 9.3 billion of this waste is in mezzanine subprime CDOs ; 2) ACA"s total CDO exposure is 61 billion ( subprime and commercial mortgage debt ) on their capital base of 326 million , which equates to leverage of 180 to one : 3) ACA has been criticized by some as being a warehouse ( or perhaps toilet ) for the risky obligations of big boys such as MER , LEH ,BSC and RBS Greenwich Capital ---billions of such obligations have been parked in ACA by these big boys : 4) If ACA collapses, these risky obligations come cascading back onto the books of the big boys and some of ACA's 25 other counterparties; 5) Barron's further notes a high level of risk of the 9.3 in mezzanine risk exposure being pancaked with just a 7 percent collateral impairment spread across the pool underlying the mezzanine CDOs (note the mezz CDOs consist of BBB slices of MBS pools ; 6) S&P has forecast 11-14 cumulative losses for 2006 vintage subprime mortgages ; Half of ACA 9.3 billion in mezz guarantees consists of 2006 paper , while the balance is 2005 and 2007 paper that has not performed much better ; Finally , ACA has 5 billion in "high grade" subprime CDOs of which 2/3 is Single A tranches .. a 10 percent collateral loss wipes out the single A tranches and 2/3 of any high grade CDO they are a part of... ACA thus has a 3 billion exposure on this 5 billion exposure.... capped off with about a half billion more risk from CDO squared products which get snuffed with a 4.5 collateral loss. ... The mess just keeps expanding and the opaque risks are becoming visible. I wonder if BSC , MER and LEH will disclose this by way of a 10Q August 9th , which is when I understand 10 Q'a are due for the second quarter ? Thoughts ? ?

:lol:

Simply unbelievable.

Why did they bother?

Was it all show?

Not being real sharp with these big words, but what does this mean in simpleton terms?? ie they are insured? or the insurance is worth caca?

thanks

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Not being real sharp with these big words, but what does this mean in simpleton terms?? ie they are insured? or the insurance is worth caca?

thanks

Imagine your mate Jim from down the Crown & Anchor decided to set up an insurance company specialising in homes with high flood risk on the basis of 'it doesn't flood very often round here and, by the time it does, I'll have made enough money to retire and be well out of the way' and you're about there. Basically what it's saying is that a tiny insurance company is providing guarantees against insolvency for billions of dollars worth of bonds and hasn't a hope in hell of paying up if even a relatively small number go bust.

However....I'd want to see more details of how they've laid off the risk before saying this means much. It's quite possible they've re-insured the bulk of the risk with real insurance companies who, on the whole, aren't interested in lots of little deals but will look at one or two really big ones.

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The subprime fallout isn't going to be the rout that I expected, little did I know that the leners had been real cute and protected themselves with insurance!!! :o

Isn't this what's known as credit default swaps? Insurance it may be, but come paying time, it will hurt many of the institutions who took these products onto their books for zero cost.

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Not being real sharp with these big words, but what does this mean in simpleton terms?? ie they are insured? or the insurance is worth caca?

thanks

Caca, the insurance isnlt worth the paper it is written on as there is not even a fraction of the funds availble to cover the potenital liabilities (in a market where a vast number of liabilities seem to be becoming actual claims). Take a single set of losses from one huedge fund - $100m's and not even one can be covered.

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