And down the rabbit hole we go. Next stop, Uglyville. Strap your shit kickers on. The faithful hope we hold 08 lows. We won't;. whether today or some other day.
Buylo, what is your take on the 16.3 trillion news? Doesn't it just blow away anything we have seem coming out of the IMF, ECB etc as far as an estimate of how many trillions of assets are potentially toxic? Can you believe that no US Financial media outlet has picked up on this?
It's incredible. The fact the scrubbed the headlines of it (they really did - I wouldn't have believed it unless I saw it happen) makes it even more incredible.
Yes, I posted the original article on the WS news thread and have written the author asking why it was altered, no respond yet. When US media outlets start to pick up the story all hell will break loose.
The reason why that number is so large is because many financial institutions are only writing down the bonds that they are being forced to according to their auditors at that point in time.....what hasn't been factored in yet are the next classes that are about to blow up.....even though the writing is clearly on the wall in the form of delinquencies and default rates in the underlying collateral. The OTTI accounting rule is wreaking havic for financial institutions by wiping out their capital for something that hasn't happened yet. Any institution that owns fixed income securities that will not recover the full principal amount is being forced to write down those bonds NOT to the lost principal, but to the current market value. Meaning, if an institution owns a $10 million Sub-prime mortgage ABS security that is definitely going to pay back a total of $9 million in principal, the holder is losing $1 million. If this was a loan on their books and not a security, the institution would set aside $1 million as a loan loss reserve, and move on. But that's not the rule for securities. Instead, the firm has to write off the current unrealized market value loss, REGARDLESS of the intrinsic value of the bond and the fact that they are going to hold the security and recover the $9 million in principal. And in an illiquid secondary market, that security is trading at $4 million. So the firm has to write off $6 million in capital for that security. Now do the same thing for every bond in your portfolio that is projected to not repay every bit of principal. Welcome to capital destruction. So why is it going to get worse? One of the next residential real estate sectors that is a major problem is ALT-A collateral. Now if you owned ABS that had extra protection built in via subordination, over-collateralization, an insurance wrapper etc. - that would be fine, at least you would have somthing standing between you and actual principal default. Here's the catch - when Wall Street packaged the ALT-A collateral to sell them as ABS, they marketed them as being safer by the very nature of the underlying collateral which has a higher FICO score. And as a result, Wall Street was able to sell a ton of bonds WITHOUT a lot of the extra protection for the bondholders that you would normally expect to see. So when things get ugly in ALT-A land, which is starting to happen.....those bonds are going to go down even worse than subprime. Who owns those types of ABS? All of the financial institutions that are currently in trouble. And in my opinion, many firms have yet to recognize the shortfall in principle that is going to occur in the next troubled sectors of the market. Meaning more OTTI is going to hit their capital. That's just ONE sector of the troubled MBS market. So yea, that $16 trillion number does not surprise me at this point.
This and this contradict this A 25% downside is hardly an "abyss" and hardly a "no where to hide" situation. Just play the short-side. Yes, we do seem to be experiencing Act I of "Great Depression: Part II: Revenge of the Leverage" but it's hardly the abyss. Call me when inflation in the U.S. hits 10,000% and IBM declares Ch 7.