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Why Pimco's Purchase Of Another $30 Billion In MBS (Much Of It On Margin) May Be Very Bad News For Bank Of America (And Taxpayers)
Bill Gross continues to telegraph that an MBS monetization announcement is just a heart beat away. Either that, or the firm is now fully convinced it will be able to putback every single MBS in its book (and then some) to some soon to be sad shell of a bank (read- Bank of America and/or Wells Fargo). In October, Pimco's Total Return Fund saw its margin cash jump by the most since February 2009: the time when the full QE1 was announced: at $28.1 billion in margin cash, the firm increased it dry leverage powder from $7.6 billion to $28 billion. And where did this money go? Virtually all of its went in Mortgage Backed Securities, which stood at $100 billion as of October 31. This is a $50 billion increase in the past two months, and brings the total to the highest since February 2009, again - just before the Fed started monetizing UST and MBS/Agency debt in earnest. And even as the firm was lifting every MBS offer, it dumped Treasurys: it only had $71.7 billion at the end of Ocotber, down from $83.2 billion a month earlier, and making MBS the top TRF holding (first time since July 2009). As Gross never does anything without a reason (and fundamentals are never a "reason" for the Fashion Island denizens) there are only two possible explanations: either Gross knows that the Fed will have no option but to promptly shift from monetizing MBS in addition of USTs (now that rates have once again started leaking wider), a topic we have covered repeatedly in the past, of the firm is convinced it will be successful in getting the BofA's to accept all of its putback demands, and possibly more. As both outcomes will result in a material profit on all recent purchases, the bottom line is that taxpayers (either via QE or via TARP2) are about to make the GEM (Gross-El Erian-McCulley) even more valuable.
Full spread of TRS per latest October results:
And here is the duration distribution of the TRF: while less relevant to how much lube taxpayers will need to buy, what is notable is that PIMCO now has the most holdings in the 1-5 year space since November 2009, and the least in the 10+ Year bucket since July 2009.
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ben told bill... no wait, bill told ben... whatever.
ben's next job = working at pimco; big, big ben multi-year payday for past services.
Amazing how everyone that runs things around the world, a la Benny and the Jets, are all somehow directly or indirectly connected with Goldman Sacks,, opps Sachs.
Maybe it was a PIMCO sub that launched that missile off the CA coast last week? A warning shot to HellyBenny and the boys not to screw em on these latest MBS purchases?
Seriously, though, I caught just a few minutes of GB this am and he was mentioning this missile deal again. He claims that his military friends...and he has several...all saw in the images a two-stage missile not a jet contrail. Then, when you stop to consider this:
http://www.dailymail.co.uk/news/article-492804/The-uninvited-guest-Chine...
the idea of a Chinese missile test seems very much plausible, if not likely. Not sure what it all means yet but it certainly bears watching and pondering.
Turd. We just moved U.S. bases into Yemen without a whimper from the world. India inked a contract there the same week.
We have all of China's middle east/Africa oil production surrounded (or secured). The Yemen grab puts our bases right along China's oil route. It's absolutely complete. Everyone's okay, no cries of foul, we can shut China down in hours. It's all about the Navy and sea lanes, missles are just M.A.D. China doesn't do that.
I think the media is expanding these ideas to sell papers. I think the banks don't mind it a bit. Conflict scares China. Banks are trying to financialize China this year and float their currency or appreciate it 10-20% for 100 billions in capital-in gain appreciation. Fear doesn't hurt their case.
Your analysis of US strategy is fundamentally flawed. Most of China's oil comes from sources other than the Middle East (same as the USA). They get oil from Russia, Indonesia, Venezuela, etc.
US interest in Yemen has nothing to do with China.
U.S. bases in Yemen, off the Gulf of Aden.. the bottleneck with the Red Sea.. just south of Sudan's shipping point, China's second biggest overseas oil investment, has NOTHING to do with oil/China?
what? Terrorism?
GTFO
Puh-leeze! It's 2010, not 1910. You are thinking in 19th century terms, as if we needed a coaling station nearby to impose a blockade on the Gulf of Aden. Besides, you seem to be reading a heckuva lot into the announcement - nobody said anything about full blown naval or air force bases. This is all about Special Forces forward operating bases; small compounds located inland, not on the coast.
Take a look at how many full carrier groups we ran through the Red Sea in the last 6 months and compare that to the last 6 years.
It's UP.
Special Forces don't control territory, natural resources or protect chosen leadership, permanent bases and garrisons do. We need to control the territory of Yemen. We're not there to take a few guys out. The president of Yemen has foreign private guards. That's how popular he is.
It's ALL about natural resources and energy. We had 50,000 "military advisors" in Georgia for a pipeline when Russia attacked. The Yemen pipelines have been hit twice in the past month.
Special Forces gonna cure that?
Not this BS again! Seriously, find a nice spot on the Pacific coast around sunset. If the conditions are right you can watch dozens of these "missile launches". Same thing on the Atlantic coast at sunrise.
Anybody who is fooled by this crap either doesn't get outdoors much or lives in the woods with no view of the horizon. Or just doesn't pay any attention. Or is just plain stupid. Or watches GB...which pretty much includes all of the above.
Since I've been in the woods sleeping and itching myself, I thought I'd re-post just for fun:
http://www.youtube.com/watch?v=I9GNuW4-JTY
Hilarious to think that any rational person can be fooled by that.
Facts: missiles go really fast. They go faster as they go higher.
Observation: object in video is going slow.
But it's a video clip on Fox News, so...who are we to ask where's the rest of the video? Why bother to question what happened next? Disengage brain, accept that this was a really slow moving missile fired by the Santa Catalina Separatist Army as a warning to Jerry Brown to keep California's dirty hands off their island.
Facts: the higher the moving object the slower it seems.
Your observation is utterly wrong.
A put back to the Fed is a hell of a lot easier than lawyering up for a year or more. Taxpayer funding of Pimco profits either way.
Someone knows something we don't know, me thinks. If gross is correct there will be lots more $$$ coming--Me also thinks there are some very big players in serious trouble in the near future, maybe including Bernie and Timmy. Milestones
Not really. Unemployment among the clockwatchers: 4.7%. Continue looting.
I'd have to differ with you. I think this may,and I emphasize the may, be the first act of a play for the jugular. Sounds daring but with the fraud involved in the MBS thing among other items such as putbacks, 30 Billion is a small bet on a possible 6 Trillion dollar pot. Milestones
I LOVE it! CAPITALISM RUN AMOK BY CAPITALISTS! After what according to Bill Gross "went down vis a vis a White House meeting" concerning "how to rescue housing" a couple months ago and with Mr. Gross' advice being resoundingly ignored it sure seems like the right time to "play the California card."
I stand by my Bernanke QE2 "a la Paulson" bait-n-switch announcement shortly.
I know you all have seen this, but I must have missed it here...
http://www.youtube.com/watch?v=PTUY16CkS-k
I don't want to Nationalize Pumpco. What in the... are they doing buying so much junk? I mean, people can make bad plans, and then people can make BAD PLANS.
Mortgage rates rising this week. They can't have that happen.
The list of things that "can't happen" is longer than Santa's naughty banker list!
Like having 20,000 balls in the air at once. Sooner or later, they are all crashing to the ground.
I still like juggling buzz saws. It has such great visual appeal, but in any case Ben von Numbnutts seems to be losing it.
Their money is on the nationalization of the industry. They know the government will keep supporting housing in any way that they can... even buying junk RMBS.
There are very, very few mortgages in what few homes sales are occurring in residential real estate that do not end up in one of the federal mortgage programs FNMA, Freddie, VA, FHA. The private securitization engine has completely locked up, it's out of the truck, and it's rusting on concrete blocks in the middle of a junkyard of bad debt that has to end up walled up behind the Fed's Black Hole Event Horizon. There's no other place for this stuff to go. If you can't foreclose on it, because the documents are so screwed up (and they are), and the word is out among the suckers to buyer beware on these mod proposals and shady practices, what do you do? Bailout of some sort is coming.
I agree. What's absolutely hysterical about it is that our policy makers think they can keep adding new, sizable liabilities to the balance sheet in such a low growth environment. They continue to think the world will give them time to breathe as if there isn't anywhere else to park capital. They can't see beyond themselves and they can't see past short term solutions. (which is really one in the same..lol)
I think Bill Gross is betting that history will repeat and Q3 will be like Q1: a second round of massive MBS monetization. Either that, or WFC/BAC will be forced to cede to putback demands. Or he is simply betting on some form of recovery in the MBS market via some secret modification program planned for FnF. After all, the government can still move FnF as bishops in this end game.
One of the defenses to putbacks is to say the owners of the securities are co-conspirators. Do you get your money out of Ponzi scheme in which you are a participant? Ask the Madoff investors.
I know ZH readers are so petit bourgeois that they insist SOMEONE must be innocent in the housing Ponzi scheme: those who are paying their mortgages, those who invested in MBS--SOMEONE!!
But there isn't. THERE ARE NO INNOCENT PARTICIPANTS IN A PONZI SCHEME.
Difficult concept to accept. Accept it.
That and how can you purchase securities knowing full well the risks associated with them and then, despite this knowledge, expect to rescind the sale and put them back on the seller? Cat's out of the bag.
Tack on the fact, as you said, that pimco was responsible while riding shotgun on the ponzi train (although far enough for plausible deniability), and you've got a big ol' you'restuckwiththisfuckingshityouassholes burger.
The other issue, of course, is that pimco, like all TBTF, gains more and more security the larger it gets. Meaning, as an institution that has a permanent backstop and cannot fail, the rational decisionmaking process is not as important... this could result in a purposeful dead ass loss... who knows. Not their nickel. <yet>
What Gross is really betting on is that the newly-elected TEA party members of the GOP vote to raise the federal debt ceiling next year.
Look, I like ZH as much as the next fellow, but really, we should all attempt to keep our eyes on the macro ball. In 6 short weeks, the TEA party members, while not having control of any specific agenda, do have sufficient votes to pass/prevent/block certain legislation.
If they stand firm and elect not to increase the ceiling, then this whole house of cards comes tumbling down. If they provide cover by approving incremental changes subject to other conditions, such as repeal of the 'employment' clause of the Fed charter, audit of the Fed, discontinuation of UE, etc, then it becomes somewhat more opaque. And if they cave and 'assume the position', then it's really time to get out of Dodge, because this mofu is all over.
I realize ZH has a Bennie & the Fed fixation; such is the nature of the finblog beast. But when it comes time for the bad boys to rumble, that is, when the King (in this case, The People) and the Bankers face off for the final death match, the King ALWAYS wins. Look it up - not once in thousands of years of recorded history do the bankers win.
Sure, they trundle off to another victim state in which to practice their malodorous deceit, but ultimately, they always lose. Now, that's not to say the banking criminals don't realize this their own selves, which is why they always have a handy 2nd passport at the ready. The law of return is one awesome get out of jail card.
Au Contraire...the bankers beat King Charles; they financed a war and his ultimate execution.
However, for every one of those there is a Hitler or a Putin, some kind of brutal nationalist; the tail risk of a pissing match with the guys with weapons who are not part of your clan is immense.
One can only hope that in the name of sanity that the strongman that comes only decapitates the oligarchs; I know of no larger ethnic purge from Russia. Let the ordinary triber be, but oligarchs of any stripe must be expelled or punished.
I can't wait for the photo shoots of Patreus wrestling a bear, without his shirt on...
I expect some version of "cave and 'assume the position" to occur, but it will be good sport to watch the pre-position assumption squirming.
So DR, I should quitclaim my home that I put down 35% on and have made on time payment on for years into some kind of a trust to compensate victims of the big ponzi? Then I can feel exonerated?
Here's what I think: you should shut the nitrous tank down for the afternoon. Save some for the long weekend next week.
exactly... the problem with asserting that all are to blame is that it ignores our relative transgressions. In other words, ok, so I got nominally more/longer pay than I otherwise would through the printing of dollars so I am somewhat culpable because although participating politically and acting fiscally prudent, I did not drive a fertilizer truck in front of the FED and dispense with it. Some levels of culpability are laughably trivial, so much so that they should be ignored and/or such persons can claim no culpability.
No innocent participants? That logic must serve Bernie Madoff really well. The people who get taken are not innocent, therefor they deserve to be taken.
Anyone who truly believes this cannot be trusted.
Or he just doesn't want to admit that he doesn't know how to garden.
Or he'd rather you do the farming and continue to feed his intellectual black hole.
Or he is trying to amend an old adage, "Nothing is certain except for death, taxes and Bill Gross."
A gamble methinks.
No way you see TARP2.
Big mistake by Pimco.
They would be morons to call it TARP 2, of course. They will have to come up with a new acronym.
The big boys will do TARP 2, by a different name, all day long if they decide too and they will play the "end of the world" joker card just like they did last time should the CONgress critters get it into their silly heads to oppose them. Simple. They did it once, they'll do it again. A few Tea Partiers in the House won't stop them.
Five star information.
How do I buy some MBS for the put-back settlement?
This one can't be settled because the United States is one of the Ponzi participants.
See you in Varennes!
Long MBS or short BAC? Choices, choices...
I do not think Bill Gross will come out ahead on this margined MBS gamble: surprised El Erian is allowing him to do this. Not El Erian's style. Unless there are talks between PIMCO and the government, I would think PIMCO would do better shorting its own muni bond baskets.
Bingo. There are an incredible number of things that would cause pimco do eat these... ranging from stupidity to blackmail.
"Unless there are talks between PIMCO and the govenrment..."
That is exactly the point here. Whatever you may say about Gross, he is not a moron and he doesn't like to take wild, reckless risks, especially not on margin.
The only plausible explanation is that he knows something. I'm willing to wager that Bernanke opens QE2 up to include the MBS that Gross has just purchased.
Gee, I wonder if this will be inflationary...?
More like long toilet paper and short everything else.
He could buy a sack of shit and be okay. We all know that pimpco will never be forced to endure a loss.
You betcha, Buzz. We can rest assured that Pimco will be seen to be much more systemically important than ... wait for it ... General Motors. After all, GM only makes cars, whereas, Pimco makes money. We all know where the priorities lay.
Remember, the FRBNY and Freddie made putback demands too.
But they were weak and it is not at all clear they are going anywhere. Check Naked Capitlaism's coverage on this issue.
hold up.. long the 3x 10 year etf for the little guy ?
PIMCO did not make a mistake. PIMCO will not be allowed to take a hair cut. It would start a revolution of the grey swans.
jal
Nov. 19--America's biggest names in banking have been slapped with a fraud lawsuit in Indianapolis by a home loan bank trying to recover $3 billion.
In a hangover from the 2000s' easy-money spree, the Federal Home Loan Bank of Indianapolis filed the lawsuit on Monday in U.S. District Court.
The lawsuit claims investments bought from 37 banks, including Bank of America, Goldman Sachs and JP Morgan, are based on home loans whose paperwork is riddled with inaccurate appraisals and other flaws.
So the fed has to artificially create more demand for bank services and keep borrowing rates low to make more money in the ponzi for the defendants to pay for the settlement... seems incestuous at best. My guess is the fed is taking a page out of gross' book and "building the record" for plausible deniability post collapse.
When are they gonna try and put back the rest of the toxic mess?
At some point ... I don't care how good Bill Gross is his bond holdings are going to get smoked by the huge hair cut coming to all bond holders. It is a matter of time.
Gary Shilling points out that people have been saying this for years while he's done incredibly well with bond. Sure at some point it'll happen but really we've heard this for years now.
only takes once to be wrong about that bet...
Harry, do you think Ireland will accept a bailout over the weekend and the markets will rocket on the news of "Ireland saved" on Monday?
Unlike GM, I don't think there are union votes to be gathered on the other side of this.
Screw the Unions. There are plenty of fat campaign $'s to be mined --- not to mention the TV ads to be funded through secretly organized shadow groups.
MPE
This fits in with Gross' op-ed from last week where he talked down QE2 and Treasuries which, by proxy, talks down the whole bond market.
I will suggest that Gross knew even then that he planned to buy MBS at a reduced price thanks to his jaw-boning and then pass them on to Bernanke & Co.
PIMPCO started ramping up MBS purchases several weeks (if not more than a month) ago. It was discussed here.
who is selling, China?
I voted for MBS in the recent ZH poll asking what the Fed will buy next, so this actually makes me happy. Feels good to be right. </snark>
Voted for that as well. However, i feel like it might be a whole jumble of feces the Fed is gonna be buying.
Bill Gross is a vulture
"Thanks for the compliment. Like a ripe cheese, those really old, bad, rotting, stinking corpses are my favorite."
- Bill "Really" Gross
They just can't let BAC go under, or can they? Probably the biggest upside-down TBTF, with JPM close behind. Hmmm: I wonder how will Ron Paul and the Repubs handle this in Q1 2011?
This week's playlist in a few words: its like gold duuuuuuuuust :)
isthmus crypticus (a playlist): http://www.youtube.com/view_play_list?p=598FDBCC54AD4860
Follows the theory that BANKS are both pimps for bondholders and running their own book.
The bondholders will squeeze everyone before they take a loss, including banks. I won't touch Wall Street bank stock and will
look at off-Wall Street bank stock for a litigation result.
Banks can't rig courts or Congress against bondholders. Litigation takes TIME.
The courts will reconstruct the landscape by 2012.
I found a video of Bill Gross when he found a way to front run the FED.
Enjoy. I guarantee you laugh.
http://www.youtube.com/watch?v=OQSNhk5ICTI
Holy shit! I laughed so hard I have tears in my eyes!
"Tell me what it means!!"
Sounded like Gross was jackin' it for a while there.
The boy don't get out much does he?
Off topic:
I went to my bank today to withdraw $5,000 in cash (a TD Bank branch in southeast Pennsylvania). I figure if the Europeans are going to try to crash their banks on December 7, I want to start withdrawing some of mine well in advance if there's any risk of it happening here.
Turns out I nearly single-handedly caused a bank run with that withdrawal. The teller had to make $3k of my $5k with $50 bills instead of $100s, and for quite a while there, she wasn't sure if she could do it at all. I have a feeling a $6k or $7k withdrawal would have been a no-go.
I mean, are you SHITTING me? I have $100k in that bank, and just a $5k withdrawal is enough to very nearly cause a bank run?
Sorry, Regis and Kathie Lee ... I have a feeling "America's most convenient bank" suddenly won't be so convenient if there's ever the slightest hint of a bank run.
If the Europeans' banks are anything like ours -- and they seem to be worse by all accounts -- I have no doubt the planned December 7 crash will succeed. Think ahead, and be prepared for anything ...
I pulled 5K of cash out of a WF branch a couple of weeks ago and the teller had the 5K in her drawer in 100s and she did not even bat an eye at the withdrawal.
Exactly. Different strokes for different folks. Anyone can post their anecdotal evidence and claim something.
I cashed a check for around 5-6K last year.. You would have thought I was the first to ever do it.. I was told I was lucky that she had the money and that normally they require 2-3 days notice for such a large amount of money.. She also tried to talk me out of it and into a cashiers check.. She asked me a million questions as to get an idea of why I was doing it. Finally I told her I was diversifying out of digits..
If we are going to tell bank stories, I guess I'll tell mine. Today I recieved a registered and certified letter in the mail from my mortgage servicer(JPM) telling me I am two months behind(I have the funds in escrow), but get this it states your total payment due for the two months is $0.00 with late fees due in the amount of $0.00, please send these payments by November 30, 2010.
I think I'm going to send in a check for $0.00 along with a copy of the letter and ask them to make sure they show my account as current.
What incompentence
Yeah, JP Morgan. Given how recently they were founded, you have to cut them some slack, 'cause it's not like they've had time to learn how to do this whole "banking" thing ...
... oh, wait.
MERS showed that $444 was paid out of my $1360 mortgage for November. And back in March when I stupidly gave them my TD bank info to withdraw two payments they took four (bouncing my account at TD of checks written on it to the moon). Two weeks later a collection agent called saying I owed four payments. My mortgage doesn't even show up at the MERS website database itself (my business partners does show as Feddie and Frannie).
Why are you confusing the banks by sending them money?
I think your expectation that a bank branch stocks huge amounts of cash is unreasonable. Most people making a large withdrawal take it in the form of a cashier's check, not paper money. Handling cash is a cost to the bank, so they only hold as much as needed for typical operations.
Most banks publish a cash withdrawal limit (read that fine print, people) and generally impose a 7-day advance notice requirement for large withdrawals. Federal law requires the bank to file a currency transaction report for any cash in excess of $10K, which means you get to fill out some forms even after the 7-day notice.
In other words, if the bank doesn't have sufficient cash on hand they can say "sorry" and in no way is the bank's operation impaired. You cannot break the bank by asking for your $100K all at once. Lesson learned from the last Great Depression.
For fuck's sake.
"Huge amounts of cash?"
I am talking about *** $5,000 ***!!!
There is this thing called a CAPITAL REQUIREMENT, OK? It's part of the banking regulations. Look it up.
The banks are supposed to keep a MINIMUM PERCENTAGE of ALL DEPOSITS on hand at all times.
If I'm a single customer ... and I have $115,000 in the bank ... and I can't even withdraw 1/20th of that without the bank running out of cash ... what does that tell you about what will happen when there's a major crisis and a lot of people suddenly need a lot of cash?
'scuse me, but you were talking about a run on a bank bringing down the house, and you are wrong. Your $5K adventure is utterly meaningless, because if the bank didn't have enough cash on hand they could have told you to stuff it and come back when they did.
The bank reserve requirement has nothing to do with cash! The idea that because you have $100K deposited the bank is somehow required to hold minimum percent of that as cash at your local branch is just idiotic. You are completely mistaken (and doubling down on your stupidity by arguing the point).
You can go to the bank, close your account, and take your money as a check. No problem. If you want it in cash money you will have to inform the bank in advance, fill out the forms, and take delivery when THEY say. The bank can shut the door and reopen when the local Fed Reserve delivers the hot-off-the-press Benjamins.
As for what this says about what will happen if everyone wants their cash right now? They won't get it. That should not be a surprise to anyone (read ZH much?).
So, how many customers have to get stiffed BEFORE someone starts grumbling about goin' postal? FRNs are only backed by faith at this point, lose the faith and an angry mob could be had for a pittance!
I have tax free muni's with putnam - should i be getting out of these - they've taken a hit over the last 10 days - Thanks
LOL
I've never seen this building before. A lot of my brothers and sisters are marching into it ahead of me, but I can't see where they are coming out. It smells a little like death.
What should I do?
Bernanke just ordered stress tests for the banks. Since the banks are the Federal Reserve, he already knows they're insolvent. So, the only reason for the stress tests is to put the banks into receivership. Bill Gross knows this, so he knows that the U.S. Government will have to buy the MBS from him. Nice little guarantee!
Ding ding ding! Pay the man.
Last time they made the results public, because there were no bad results.
This time, the results will not be made public.
Interesting that the TRF is positioned right into the belly of the curve where the Fed will be purchasing Treasuries. (note the 20% exposure in 10-20 years and 20+ years a month ago to less that 10% at the end of October 2010).
Another prescient windfall call! A short in the 20-30 year of 40 bps with a 15 year duration = +6% saving and a drop of 20 bps in the belly with a 5 year duration = +1% profit for +7% in total on 20% = 1.4% to the Fund.
Investors in the TRF are benefitting at least!
Remember recent history:
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/07/AR200912...
Pimco hires former TARP chief KashkariBy Associated Press Tuesday, December 8, 2009 ...
The hire will help cement Pimco's status as one of the firms closest to the Treasury Department and Secretary Timothy F. Geithner. Geithner's calendars from the early months of the Obama administration show multiple contacts with Pimco founder and co-chief investment officer Bill Gross.
While Geithner was president of the Federal Reserve Bank of New York, it awarded Pimco contracts to help manage the response to the financial crisis. Pimco has helped oversee a program that guarantees on assets owned by Citigroup and Bank of America, and helped run a Fed program to buy $1.25 trillion in mortgage bonds, according to the Government Accountability Office.
...
and we wonder if Mr. Gross has an inside track?
......he owns the track. For the machine of crony capitalism to operate properly there are inside guys and outside guys. And all moving parts are interchangeable.
BINGO!
Putbacks are a mirror for mainstreet.
But, bc the bondholders have deeper pockets - they may inspire even faster roll-ups of private assets by fiat banks.
What needs to happen is for these liability issues to cycle down to mainstreet, fast. Via litigation.
The defaulting mainstreet asset owner needs to bring a similar legal theory to court.
A success would shake up both banks AND bondholders. It would rock PIMCO if he thinks the banks have the assets for a putback, but they suddenly don't bc of mainstreet legal success on substance, not procedure.
That would be something to behold. That's the real tsunami because Congress can't touch it without complete overthrow of state law.
Lets change the term 'taxpayers' to 'inflation payers', since none of these ever get paid with taxes. The interest on the debt takes care of those payments by itself.
It's only a matter of time before Uncle Gorilla steps up and:
1) Nationalizes the entire McMortgage market
2) Void all MBS derivatives contracts between the big banks, essentially "cancelling" each other out.
"Don't worry, I'm here with you!"
I mean really, they have already taken over every other facet of the economy, especially the stock market. Why would they stop now?
LOL...
I have been saying since this whole debacle started that they should make null and void all derivative contracts on any MBS. Even unravel all these "securities," give them back to their rightful owners and move on.
It certainly would make the most sense. The only people who get a haircut are the high-flying Wall Streeters...
Yeah. That won't work. Screw the taxpayer!
"Jailed counterfeiters aren't a patch on the Bank of England" - http://www.telegraph.co.uk/finance/comment/jeffrandall/8147849/Jailed-co...
Sure, but the 'Old Lady of Threadneedle St' has abrogated redeemability on many occasions in her 400 odd year history & when have the British people woken up?
In fact in 1914 the Old Lady abrogated her responsibility yet scores of young men flocked to the recruiting stations to enlist to be blown to bits, while being paid in her chits!
The world needs a haircut!
The rationale for a putback is that the issuer knew the MBS were swill but the buyer didn't. Since everyone now knows that MBS are swill, how could Pimco claim to have been taken?
Guess the court will have to measure the average IQ of PIMCO MBS officers.
its about time for Pimpco to finally lose one, this may be it.
I know my grandchildren will like paying for all of this mess.
There is really no need for your legacy to be wasted on US mal-investment.
Unfortunately, for US citizens, at present, there is no overall capacity to pay the debts incurred in their name. In recognition of this, one must conclude that, any legacy must include diversification outside US owned assets.
US debts are not necessarily an obligation of your grandchildren. Nor are you tied to asset class debasement as a matter of US ownership, and exposure to FED cyclic losses.
The message is clear, any legacy strategy must look at the world dynamics for maintaining real worth, and by extension, the reduction in costs, which include taxable income incurred by any worker.
----------
US diversification becomes even more important when one looks at the FED cyclic challenges in relation to reaching a limit on world sovereign debt capacity. Meaning, the next bust cycle could be unrecoverable in the traditional sense.
Start by asking, as compared to past bubble corrections, what is different this time around. Well there are significant differences. So much so that they must now be part of any comprehensive wealth strategy.
A logical question is, after QE2 is complete, how will the FED will ever tighten on its massive Treasury holdings without losing control of rates. It must control rates at all costs, or the churn will make interest expense reach a political impass. QE3 actually makes more sense in elevating the FEDs buy to closer to 50% of total issuance, and hence basically control of the buy.
Partly, in respect to futher MBS buy, to me it makes more sense for the FED to just buy more Treasuries. But, in friendly discussion, the argument of offsetting deflation is always voiced, and towards greater manipulation of real estate price. However, this presupposes that the FED MBS buy was put into place to fight some economic principle, when it really was a way to protect bank balance sheets.
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Often we debate cause and effect in the historical sense, while somehow ignoring the fundamental differences we are now presented with.
Overall it is interesting to read ZH and notice that a lot of energy and investment is being expended to address US systemic banking corruption. It is perhaps this unproductive use of resource which is the real waste. A creation of a country devoted, through political extension, to bankers. Truely a waste. When we should be moving the country forward in minimizing the dependence on oil and improving our infrastructure.
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The dynamics are now driven by debt, in the context of not having the capacity to pay. This is now the focus. However, without a clear statement on maintenance of debt, in regards to a plan to remove it.
So we should ask what happens when a debt capacity is reached? What will be done? What can be done? Who in government has presented a viable plan? It seems even the CBO warnings are ignored.
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So we see this latest FED driven cycle as different. Given the undercapacity to pay, the FED must monetize the debt, and will continue to do so until currency debasement is recognized politically. Adequate resolution is not possible in response to crisis.
We ask then who will pay? What is our exposure to actual costs in terms of compensation for labor. How does one position for default?
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Hopefully what is recognized is that investing now must include the mitigation of systemic collapse.
Your grandchildren will be protected if you take action to make it so.
Mark Beck
Thanks for your thoughtful statement. The core problem, as you outline it, will be the undoing of the entire nation:
This cannot be done, of course, without extreme hardship, and it seems that the Powers are intent on having the working classes bear the burden. In the long run it will be futile. Whether any of us consciously realize it, the injustice of it all is going to be the undoing of a lot of prominent people. We can talk of personal debt default, or even revolution of sorts, but the end will inevitably be the enormous decrease in living standards. In that sense all our descendants will "pay" for this debacle. Family jewels can be spared but the framework for the nation as a whole will be shabby. What good is my fancy chariot on pot-holed streets?
Really, it is not that difficult.
All the Fed has to do is "flip the switch", and instantly nationalize the MBS market.
Why else would Bill "Drawbridge" Gross and Mohammed "Sugar High" El-Erian go on margin to buy MBS?
Benny flips it on and my pain be gone. Flip it off and I'm.....
Here's a socal money maker for you, Robo......except a few years late. Some real homes of genius in Culver City. Little hooches generating hundreds of thousands in housing ATM profits. Banks continue to keep the big bad beatings secret for now..... tucked away in the shadow inventory.
www.doctorhousingbubble.com
TD, well done.
FrontPoint is gone.
Didn't anyone read Bruce's piece on Muni arbitrage this morning?
Pimpco's deal works like this.
Buy MBS securities at 50 cents on the dollar, so that you can...
Short 3 or 4X that value in the CDS markets, with AIG or some other idiots.
Heads Pimpco wins big. Tails, they win humongous.
Gross is betting on volatility, and so am I;)
sorry guys -Pimco buying agency MBS has nothing to do with putbacks -will not impact em one bit. More to do with the FED about to impose fail charges in the agency MBS space and PIMCO likely squeeze of coupons that have little float away from FED holdings. The "crime" here is the stupidity of the FED imposing fail costs while holding so many of the bonds that are in short supply - the will be complicit in a squeeze. Actually very smart of PIMCO part.Size matters
Remember Mondays are gap up on the open days. Also it's a Holiday week so you no it's going to float higher on little to no volume. Shound be some easy money.
Expect the usual ramp up Sunday night.
Gross must be betting on a particular outcome; in the meantime, he's acquiring bonds in a thinner market due to QE1.
I can't imagine he believes he can put all of those MBS back; that's a HUGE risk. But, if FNM goes after BAC and FHLB does too, it's clear that this will be an all-out feeding frenzy on the carcasses of BAC and WFC, which will have to be reduxed like 2008, either nationalized via AIG methods (which didn't receive the type of negative publicity that TARP did) or else another QE2.5 will be forced to sop up BAC's negative position.
ALL OUT. I felt this in my bones for a year.
Too many deep pockets on the other side of the fraud.
When BOA swallowed CW, I couldn't believe so many big name 13F's were buying it up.
Shocked me. Thought I missed something. Not now. Perhaps they tried to set this up, a few bad banks to sacrifice, all the way back to Paulson/Lewis force-feeding. I'd need to know the entire exposure of all big banks to draw a conclusion.
Based on the data you are presenting, I'd argue the opposite conclusion. If he's buying vanilla MBS then he's paying over par and any form of putback is going to not just shorten his duration but give him par, immediate losses on highly levered positions. Is he buying POs? maybe discounted cash bonds from the 22 BOA-led deals that seem most likely to be putback at par? That would support your conclusion, but you're just saying he's buying MBS. AND he IS PIMCO - even if he bought all 22 of the BOA shelves and a lot of POs, he's so big he also had to buy another 1,000 or so deals - so you are correct, he's just buying a lot of MBS, and most of it is not trading at a discount...
I think he went to DC in August pushing hard for wholesale government-forced refinancing in resi land, and ultimately received a stark reminder that his little idea was A) stupid B) the government is stupider (sic) and wouldn't be successful making any market-stabilizing decision in the near term and C) now that he created enough chaos in MBS world it provided a good buying opportunity.
Interesting perspective. But couldn't it be a mix of POs and IOs? In which case, he is hedged either way since you just know he's got his other pocket full of CDSs..
I wonder if they've checked inside the MBS box before taking delivery.
http://www.nakedcapitalism.com/2010/11/countrywide-admits-to-not-conveying-notes-to-mortgage-securitization-trusts.html