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Will The New ABX Prime Index Be The Reason For The Next RMBS (And Thus, FHA/GSE) Collapse?
The worst kept secret on Wall Street over the past few days has been the floating of the ABX Prime index by MarkIt. While previously ABX covered only subprime, with it being fixed within points away from 0 in perpetuity, it appears speculators have decided to move up the food chain into what was formerly considered safe collateral. And MarkIt is more than happy to provide them with the tool to do it. So what will this new index do - well, in addition to making trillionaires out of Paolo Pellegrini and Kyle Bass (in the same way ABX Subprime made them billionaires), the new index may just be the tipping point that finally collapses the trillions in sham GSE holdings at mark-to-myth. Because while Subprime ABX forced funds to have an interest in price discovery in lower rated collateral, so Prime ABX will push the bar even higher. However, funds betting to the tune of hundreds of billions in gross notional will be axed directly against the Fed, the Government, the FHA and the GSEs: the only way they will make money is by prime loans trading down to fair values (as opposed to the artificially propped up par values currently). Just as the ability to bet on the subprime collapse forced the first leg down of the housing crisis, so the prime price-discovery mechanism in the form of Prime ABX, will likely be the last nail in the coffin of sham RMBS marks-to-myth, and firmly ground these in the same sand in which Dubai is about to collapse.
Here is the primer on Prime ABX, as presented by MarkIt:
- The ABX.PRIME indices allow investors to synthetically gain exposure to Prime RMBS collateral
- Synthetic long or short exposure to AAA credit initially. Indices specific to subordinated bonds can be added later depending on market appetite
- Each index will serve as a standardized, diverse, and liquid tool referencing securitized fixed rate or hybrid ARM loans
- Separating fixed-rate and hybrid ARMs allows investors to trade their risks independently
- Markit will initially launch three series of the index referencing the 2005, 2006, & 2007 vintages, and one aggregate index combining vintages and collateral types.
- Between 10 and 20 deals in each sub-index, satisfying a series of concentration and collateral tests
- Multiple AAA bonds from each deal aggregated and included in each sub-index
- Aggregate ABX.PRIME index will combine all 6 sub-indices and include all three vintages and both fixed and hybrid ARM collateral
- Creating an ABX.PRIME aggregate index allows investors to take macro positions on PRIME RMBS across all vintages and collateral types
In other words, this will be a replica of the exposure that both CMBX and, to a lesser extent, Subprime ABX provide. With the difference, that it will now focus on presumably safely collateralized assets.
And here is how deal selection will be determined:
- Deals are selected out of the Bloomberg universe with data compiled from prospectuses as a function of their average or aggregate characteristics:
- A new index rolls every 12 months, provided there are enough outstanding deals to perform the
- selection
- Issued within the year of the index vintage
- Minimum deal size at issuance of $250mm
- The average loan characteristics of each deal must fall within the filters shown in the table
- Deals must pay on the 25th of the month
- The deal’s collateral must be loans. Re-remics and NIMs are therefore excluded, as well RESIF-type synthetic deals
- Deals are separated between fixed and hybrids
- Collateral filters are different between hybrid and fixed-rate paper
- Fixed deals must be 100% backed by fixed-rate
collateral - Hybrid deals must be 100% backed by hybrid ARMs
On what constitutes ABX.Prime bonds :
- Appropriate bonds are selected from each qualifying deal
- Markit will select originally AAA rated certificates that reference the largest loan group(s) in the deal
- Largest loan group is determined by the outstanding principal balance of loans
- Aggregated certificates will represent a “Pass-Through Interest” in selected bonds
- Markit will select originally AAA rated certificates that reference the largest loan group(s) in the deal
On ABX.PRIME Construction
- For both the ABX.PRIME.FRM and ABX.PRIME.ARM
- Initially, each deal will be equally weighted with other deals in the index
- Within each deal, each bond selected will initially be weighted according to its original principal balance
- The bonds selected will consist of the fewest number of certificates possible in order to create the pass-through tranche
- For the ABX.PRIME.AGG, each sub-index will be equally weighted within the index
- Once the reference obligations are in the index, they do not drop out, but amortize as a function of prepayments and actual or implied write-downs
- Interest shortfall payments are not subject to a cap
And here are what specific products Mr. Paulson, PSQR and all the other "bulls" will be going after quite heavily:
- ABX.PRIME.FRM.CDS and ABX.PRIME.ARM.CDS
- Each index references multiple component bonds from 10-20 deals based on collateral characteristics and concentration tests (different criteria for each index)
- FRM deals reference only fixed rate prime collateral
- ARM deals reference only hybrid ARM prime collateral
- ABX.PRIME.AGG
- Index combines all sub-indices, encompasses both FRM and hybrid ARM collateral
- Running fixed coupon
- CDS trading convention:
- Seller pays applicable percentage of Interest & Principal Shortfalls as well as writedowns and implied writedowns on swap notional
- Running fixed coupon:
- Set by the dealers during the roll process prior to launch date
- Upfront PV exchange of the observed market value of risk
And here is what happened to ABX Subprime since its introduction. We all know how the consequences of its trickle-down impacts as it blew out to unimaginable wides ended up destroying the first phase of the housing bubble (the one before the government itself became subprime lender New Century). Can we expect a comparable collapse in Prime prices as a result of the new index introduction? With massive hedge fund behemoths, bigger even than the Fed can control, on the other side of the trade, the likelihood is getting bigger by the day.
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now, if I only had 250mm laying around, I know where I'd put it.
I make that about 10". Is Mama Roach the recipient?
A sizeable injection
that was funny as hell! +10"
Second that... best chuckle of the night!
So will the banks have to show how what they have compares in price to this new market? I'm thinking about FASB 165/166.
If they price their holdings at 95% of par(?) and a very similar asset is trading at 40% of par would we know that?
It's a FASB 157 issue, not the one you mention (i think you mean 166/167, off balance sheet>balance sheet, effective Nov. 15, 2009 for next full quarter).
Ultimately, it is up to our fine corps of financial regulators to make the determination and assessment of how bank's mark their assets.
Unfortunately with the language in FAS-157 (etc), managers are allowed to "use judgement" in determining not only how to price an asset, but which method (Level I-Level III) is applicable.
Yea...
This is a must watch if you have an interest in CRE.
Sternlicht on W NYC and CRE and his relationship with the FDIC (Bloomberg Video). I love this guy and the wreckage floating in the wake of his yacht errrr ice breaker along with one of his latest initiatives, the purchase 2 months ago of Corus thorough his new company Starwood Property Trust with his friends from the FDIC and the American taxpayer. It's too bad about some of his other initiatives such as Temenos Anguilla where Sternlicht partnered with Sillerman and then as the WSJ article outlines pulled the plug on Temenos and sued Sillerman.
Certainly nothing wrong with adding new indices and they do increase transparency into the pricing of illiquid assets. I know too that these indices introduce a lot of volatility to the underlying.
When Leveraged Loan CDS were introduced, loan pricing volatility increased dramatically. Some of that was natural as there were more players in a formerly quiet (though not illiquid) market. However, a lot of the changes were due to long and short strategies playing against each other on leveraged basis.
Since all the pricing changes were not based on underlying fundamentals, many investors were hurt in the process, especially as hot money moved into and out of the product. Didn't do the CLO market much good.
Still that is the way of the market and probably is good in the long term, but the transition can be quite painful.
ok so - given all thats happened - plenty of people will buy the CDS, but who is going to be dumb enough to write them?
depends on the price - this time last year I would have sold protection via CMBX all day long. They were pricing in scenarios multiples worse than the Great Depression or even The Day The Earth Stood Still movie.
OK, I'll take the other side of that hubris.
Geithner will write them, the hedgies will buy them and then eventually sell them back to the Fed after they go bust. Bernanke (or hopefully his successor) will pay the hedgies 100 cents on the dollar.
Oh shit. I've been wondering when someone would create this index under the guise of "innovation". Nail in the coffin of RRE, anyone?
All of this is terribly confusing to me...
But, what you are saying is that once they package these deals, they are going to have to release the mark-to-monkey and actually mark-to-market, which will, in essence, destroy any pretense of value that these securities have, thus giving up the ghost of the extend-and-pretend game.
Am I even close? If so, does that compel in some way the Fed to also mark their "agency paper" along the same lines once some value has been discovered, or can they extend the extend-and-pretend indefinitely?
Thanks.
Oh no, the Fed's paper is backed by the full faith and credit of Fannie and Freddie. The Fed isn't directly exposed to the performance of the underlying mortgages, they are exposed to the performance of Fannie and Freddie.
For about the next 10 years (and officially up to 30 years).
Surely someone in our midst has an old auto-dialer that they used to use when the economy was ripping? We might even get so lucky as to find a commrade located in that area code. Would be nice to hear the story of how they blew up the phone lines listed on page 17?
Tyler, this is a confused piece of gibberish. You really ought to learn something about MBS if you're going to keep writing about it.
You know that guy Jeff Gundlach you've been writing about in approving terms, the guy who put together that "Too Good to Be True" presentation that is bearish on the U.S. economy? The funds he was managing at TCW were virtually 100% invested in agency and private label MBS (prime and Alt-A, a tiny bit of subprime) and he said yesterday on a conference call for investors that there was no reason for them to sell the funds he had been managing at TCW because they were perfectly positioned as of last Friday and his strategies didn't rely on leverage, derivatives or rapid turnover.
What does Gundlach have to do with a Prime (most liquid way to short RMBS prime) index? Also, just because PIMCO says on every conference call and on CNBC every day that everyone should sell MBS, does that mean i should write about them in "approving terms?"
Tyler, I don't know about Gundlach, but it does seem far fetched that another index on non agency collateral is going to force institutions to write down their holdings of GSE paper. Even if it does highlight the discounted value of the backing mortgages, it doesn't do anything to the guarantee from the government and their unrelenting willingness to print more dollars.
“the new index may just be the tipping point that finally collapses the trillions in sham GSE holdings at mark-to-myth”
The creation of a derivatives index is going to collapse one of the largest and most liquid securities markets (GSE MBS) in existence? Virtually everybody, including PIMCO, thinks Fannie & Freddie MBS is effectively full faith and credit in terms of credit quality. Bill Gross’ comments reflect his view that spreads on agency MBS are too tight versus treasuries. A bond that is mispriced by a point or two is a big deal for Bill Gross, who is trying to capture a few basis points of incremental return here and there. He’s not suggesting that agency MBS will “collapse”. If he thought that he wouldn’t have still had 18% of his biggest bond fund in them as of the latest report.
Because while Subprime ABX forced funds to have an interest in price discovery in lower rated collateral, so Prime ABX will push the bar even higher.
There is plenty of price discovery in private label MBS made up of prime mortgages. Gundlach’s old firm TCW auctioned off $450 million of prime and Alt-A private label MBS yesterday to meet shareholder redemptions. They undoubtedly liquidated even a larger amount of agency MBS, because those make up a much greater percentage of their AUM than private label MBS. Yet despite these liquidations, the NAV of their largest fund, TGLMX, was up $.03 per share, about 0.3%, on Tuesday. That suggests that TCW was able to sell an enormous volume of MBS at prices very close to their marks.
the only way they will make money is by prime loans trading down to fair values (as opposed to the artificially propped up par values currently)
When you say prime loans I presume you’re referring to private label prime, because GSE MBS is generally comprised of prime quality mortgages but is not referred to as prime. Most private label prime MBS don't trade anywhere near par. Most private label prime MBS that started out AAA rated have been downgraded to anywhere from B to D and trade well below par. In his September 15 “Too Good to Be True” presentation, Gundlach reviewed the status of his portfolio and at that time the average price of his private label MBS securites was 70.86, about 5 points higher than his cost basis. Gundlach believed that the securities offered very attractive returns from those prices even though he believed default rates will definitely go much higher and severity may also increase.
But at least you didn't refer to all MBS as "worthless garbage", so maybe that's progress.
A ton of price discovery in private label MBS? More like a ton of liquidity chasing very few deals.
Literally hundreds of firms put together funds anticipating the banks were going to throw off all sort of RMBS and CDOs for literally pennies on the dollar. These fools all thought they were going to make out like kings like some of the guys did off of the RTC.
Then we know what happened - mark to market was suspended, and the banks said no way, we aren't selling.
So the vultures are looking for something to do, so are clamoring over each other to get whatever scraps fall off the table. Of course they snapped up the stuff spewing out of TCW - it lets them actually show something, anything on their books at year end, so they can justify their management fees.
Easily half of the guys I know who used to structure deals are now at distressed shops with a pot of money they can't put to use, chasing the same tired old deals from 05/06, it is pathetic.
Check out Penny Mac, that was their strategy, but now Kurland is admitting defeat.
Not that 80% of these funds know how to value these bonds, they all use the same old tired LPRM model and call it done (if that, I swear half of them haven't even coughed up the coin to get that model, God knows how they are projecting losses).
And like any market that is bid only, the market is set by the greatest fool, and there are a lot of them out there.
If they do put together a prime index (why, I don't know, the market isn't coming back for years), it will give more people a chance to bet against those tired old bonds.
But with or without the index, the returns on the bonds at today's prices are going to suck.
As for TBW's agency MBS sales, they sold about what Bernanke buys in an hour, it was a blip on the radar.
Not that 80% of these funds know how to value these bonds, they all use the same old tired LPRM model and call it done (if that, I swear half of them haven't even coughed up the coin to get that model, God knows how they are projecting losses)
Would that not suggest opportunities for people who do know how to value the bonds and use conservative assumptions? Gundlach was a PhD candidate in mathematics. TCW had a mortgage team of 65-70 people. I saw a presentation a while back from one of them; he had a PhD in physics and used to work on missile systems for the Strategic Defense Initiative. Not that degrees and math skills are everything, obviously they have to be combined with experience, common sense, judgment about markets and the economy, etc.
Gundlach has basically been investing in nothing but MBS for 20+ years. His primary fund beat the returns of Bill Gross' biggest fund by 20 basis points annually over the last 10 years with lower volatility. He managed a small positive return in 2008 without being in treasuries, which was quite a feat. He saw the subprime meltdown coming, also saw a collapse coming in prime and Alt-A private label MBS and waited for it before investing. He has put his money where his mouth is alongside the people he manages money for. Maybe he will turn out to be wrong but I wouldn't dismiss him out of hand and make blanket statements like MBS are all worthless crap. And I'm not some kind of permabull or even a bull, I think the S&P 500 is very likely to break the March lows again in the next year or two.
Of course he is going to say that, he is trying to defend his legacy.
So he was buying cash RMBS bonds with no leverage, so what? Doesn't mean they aren't horribly overvalued. And most of them are. the underlying collateral is performing like shit. Do yourself a favor and get educated yourself: sign up for the free registration at absnet.net, and look at the performance of the collateral of some of these stellar deals. they are deteriorating rapidly. Yes, even the jumbo hybrid deals (not sure how they are going to find enough bonds to put together a jumbo fixed index - the old BofA used to suck up every one of those mortgages it could find).
As for your beloved TBW, they were one of the largest CDO sponsors in the market back in the day. They sure fucked that up for their investors.
Doesn't mean they aren't horribly overvalued. And most of them are.
Based on what, hotshot? Take us through an example of where a particular security is priced, what kind of assumptions that implies about default rates and severity rates and prepayment rates, what you think those rates will ultimately be and where you think the security should be priced.
the underlying collateral is performing like shit.
Wow, you mean default rates are going up? Thanks for letting me know!
Of course he is going to say that, he is trying to defend his legacy.
Yeah, I guess he was trying to defend his legacy back in July when he put $667K in a small closed end fund he was managing. He is the largest shareholder of that fund with an investment that is worth more than $4 million at the current share price, even after it got whacked on Monday on the first day of trading after the news he was out at TCW. And he actually bought those shares with his own money, he didn't get them via stock option grants.
http://biz.yahoo.com/t/68/7020.html
We really liked that guy when he was real bearish on the economy, but when it turns out he actually bought some of that stuff we all think is garbage he's probably a crook, huh?
I never liked the guy, I thought he was a crook the whole time, as were all these CDO managers, they had no clue what they were investing in (or worse, did know, but didn't care). Look up the performance of South Coast Funding IX, as one of many examples.
As for evaluating a deal for you, send me a collateral tape and I would be glad to, LEVELS format would be fine.
Well, you've got me there. I don't have access to collateral tapes, don't know what LEVELS format is, don't invest in RMBS myself but do have money in a couple of the funds Gundlach was managing so I guess I'm the dumb money. It has worked out for the 5-6 months I've been invested there but of course virtually all risk assets have done well. I think there's a pretty good chance I'll beat 0-2% on cash which is where the rest of my money is but there is certainly the possibility that I won't.
I've seen a lot of crooks, usually have a pretty good nose for crooks, don't think Gundlach is one. I know nearly nothing about TCW's orginations of CDOs other than that they were a big player in a lot of stuff that blew up. I don't know what Gundlach's involvement with it was, but judging from his track record he wasn't buying that kind of stuff in his funds.
I didn't intend for this to turn into a debate on Gundlach, I just brought him up as a counter to these continuing blanket statements by Tyler and many others that suggest all MBS is garbage that is going to zero or close to it because Tyler had put Gundlach's bearish presentation out there and I was very familiar with the presentation. I don't see the point in these rantfests fueled by hyperbole.
Fair enough, I agree that sometimes the rants are a bit hyperbolic, but that is what makes the posts funny to read. TD isn't always consistent (probably because there are 40 of them, or whatever).
This index won't take down agency MBS, they have their own set of valuation issues (namely their exposure to Fannie/Freddie counterparty risk - is the next guy in the White House going to back them?).
But I think price discovery in the few private label RMBS that are left will crater that market. There is far too much money chasing far too few deals, and far too little expertise.
So you're just upset because an asset
class you're invested in is being
talked down, then?
No, I'm not dumb enough to believe Zero Hedge can talk down an asset class with a current market value of over $1 trillion. ZH has been pounding on the MBS is "worthless garbage" theme for quite a while even as they've been producing pretty decent returns.
I just don't like inane rants where the author feigns expertise and most readers don't know enough to know how half baked the author is on the particular issue. This just happens to be one of the areas I know enough about to recognize that TD has no idea of what he's talking about. Not that most people here care and want anything to get in the way of a good rant.
Any more questions Anonymous?
1. Why are you so rabidly defensive?
We're all just having a conversation.
I'll take ghostfaceinvestah's insights
on the subject, as he seems more
knowledgeable than anyone else in the
comments section on the subject. While
he doesn't seem to suggest Armageddon
for the asset class, his views
seem more realistic - I don't know
why anyone would want to own MBS (Bill
Gross got rid of most of Total Return's
MBS recently), but at least anyone who
wants to sell has a buyer in the Fed.
Gundlach's specialty was MBS, and that's
terrific, and the fund did well because
he was someone who could navigate the
asset class better than most. Otherwise,
looking at the asset class as a whole,
I just don't see what's appealing about
the fundamentals.
There's a lot of space between unappealing fundamentals and "worthless garbage". My point was that Tyler's original post was mostly crap, as is most of his commentary on RMBS. I only referenced Gundlach because Tyler apparently thought Gundlach is a smart guy since he's posted some of his presentations with approving remarks. So when Tyler does his usual RMBS is going to crash rhetoric I pointed out that this smart guy Gundlach thinks some of it (not all of it) is attractively priced and has his money where his mouth is.
Note that ghostfaceinvestah sort of tacitly acknowledges that Tyler's original post was a lot of rhetoric, but he says such rants are "fun". The guy you think is expert in this stuff doesn't go after the empty rhetoric, instead he goes after the person who challenges it with facts.
Better yet, why don't we all just go onto all the mortgage sites and enter in those names, phone numbers and e-mails so that the few mortgage brokers and lead generators in the country can blow up their phone lines and inboxes.
Introduction date would be helpful, if known. It's desirable to know when this train will leave the station......the presentation has a July '09 date.
Isn't this point moot? Mark2Market dialed back in spring...
Given that the index will add volatility to the tincture. The big issue is whether prime will cave like subprime did. How big are ARMs in the prime market?
Ghostface, you out there?
Prime jumbos were almost exclusively hybrids, barely anyone did jumbo fixed, the execution sucked (except for some reason at BofA, who loved them, go figure).
And for the most part the hybrids were IO, at least from 2005 onward. I mean, how else was a jumbo hybrid borrower going to compete with a jumbo Option ARM borrower?
And by "prime", don't think these were DU-approved full doc 32DTI loans. Easily half (or more) were stated income, depending on the originator.
This stuff is deteriorating rapidly. Basically, the weakest borrowers fail first. So subprime went down. Then Alt A. Then prime conforming (good borrowers, almost no safety net). now we are seeing the prime jumbos go down. In some parts of the country (SoCal, Florida), without Option ARM buyers, the prices are just not sustainable. So as these borrowers are looking to move, they are facing negative equity, so are just walking (or the latest rage, trying to negotiate a short sale).
Back in March you could have gotten a decent deal on some of this paper, but today most is way overpriced. You can bet your ass some of the banks will be shorting these indexes to protect their over-marked positions.
Thanks, man! A lot more than PIMCO, CIM, and C will have interest here.
There is a lot of creative money to be had here. Imagine a gamma swap structure that enables dispersion trading.
Thanks for sharing all of your experience and info Ghost...it is appreciated.
Agreed. Very much appreciate your contributions, Ghost.
Robert Shiller's proposal to fix the housing market not clearing is to introduce financial instruments that allow homeowners to go short the housing market.
Quoth the man: “The ability to short is essential to an efficient market, otherwise there’s nothing to stop zealots from pricing things abnormally high.”
So if i'm understanding this correct, this ABX index will allow funds to take the other side of the "prime housing up forever" trade...and since no one without access to the Fed's largess would go long prime MBS this will facilitate the price discovery we've all been waiting for, right?
If that is indeed the case then I am very much looking forward to this all unfolding and will certainly check these indices religiously.
"Markit will initially launch three series of the index referencing the 2005, 2006, & 2007 vintages"
If you look around the country at the great numbers of single family homes selling way under prime loan value with no bids that were originated 05-07 then I believe Markit knows what the implications are of what they are doing with this new index.
Those vintages are fked.
Yeah, I remember in 07 when the shit started hitting the fan, everyone thought the 05 vintage would be OK. Another 20% drop in home prices fixed that.
Now, in many parts of the country, even the 03 vintage (what's left of it) is coming under pressure.
Anyone (including myself) who claims they can predict the ultimate performance of those vintages with any accuracy is full of shit. There is just no historical precedent (and thus no data) for what is in those deals.
A year ago I was pretty damn pessimistic about the performance of those pools, and even that wasn't pessimistic enough.
I get a kick out of people who warn about the "coming Option ARM recast wave". Man, those loans aren't getting even close to recast before they default.
don't know about florida, but calif, and arizona, are non recourse states, that makes it a lot easier to walk away.
Everything these pieces of paper represent a value that currently is standing firm based on so many temporary factors and interventions that seems to be an inevitable losing battle. The median U.S. Home price is round 170k and I am expecting that to fall to 130k in the rosiest of all scenrios placing us back to early 90's prices. The real danger will come when those who purchased during that time period begin to find themselves underwater which is a possibility. When this nation confirms a Depression how many owners will take advantage of the equity they have in their home..sell their home..rent and then repurchase 50%+ lower in a few years if not more.
How many mortgage payments are reliant upon unemployment benefits?
Everything the Fed & the government has done is more along the lines of allowing people to plan their funeral and get their house in order prior to death. The funds to make those payments is vanishing and the rapid removal of consumer credit will compound the problem. When the dust has settled I expect home prices to drop back to the mid 70's or early 80's.What kind of value would you place on the MBS paper then?
To say it is worthless is false because currently it has value. To believe we will not wake up one week to discover they are nearly worthless just like subprime is optimism to say the least. There are no catalysts to elevate home prices and only SHOCK events to drop them and quickly. Not a person today has any conception of what to expect in a modern Depression since it has been so long. What makes this potential depression so frighening is:
* It is the culmination of 3 burst bubbles patched up
* It hs occured after decades of insane consumer leverage and credit
* Our dollar was not diluted in the 1930s
* We did not have the largest generation of retirees in existance retiring
* We did not have so a "State" funded society of welfare reliance
* We actually had a "hungry to work" productive nation. Now we have a nation that spends half their day either on TMZ or watching Dancing with the stars.
* Home prices of the 90's were a bubble in their own league.
In a Depression no one gets out alive.
Who is going to motivate these slugs of America today that want to continue to live in ther ficticious Utopia of celebs, SUV's and Bi-annual vacations?
Not me.I already swallowed the Red Pill.
widespread fraud, could add an additional complication, if enough people seek legal recourse. expensive, and time consuming, especially if evidence was disappeared ( loan doc. alterations, note listed in more than one security.) and some of the banks are generating phony doc.s to process forclosures.
Speaking of subprimer New Century, their lawyer Jeffrey Tidus was found shot to death outside his home. No weapon found. Cops say it could be a suicide. (of course it was, we all know that only rappers that own record labels get murdered).
http://latimesblogs.latimes.com/lanow/2009/12/detectives-try-to-determine-whether-shooting-death-of-prominent-la-attorney-was-homicide-or-suicide.html
the dog, must have dragged the gun away and buried it
Great give and take up there between ghost and Green. We all benefit from this kind of exchange.
What is clear from this article and the comments associated with it, is how badly various forms of intervention have eviscerated the process of price discovery, which should be at the core of every capital market. Whether it is the accounting changes that allowed the banks to keep food off the table of the newly formed vulture funds, Bernanke's incessant hoovering of MBS', or the various schemes to get and keep more people in homes they cannot afford, nothing is as it seems, nor I suspect is anything how it might or will be.
I would guess that this new index, when available, will be used by both banks for protection and by HF's to speculate, and should enhance the market's ability to illuminate true value. I would also guess that the vulture funds, now eager to justify their fees by (perhaps) buying last week's losing lottery ticket just to have some asset other than cash, might take a different tact when supply (the other side of the banks and HF's) materializes with the ABX Prime open for business.
No matter the subject, I remain at a loss as to what the endgame anyone long risk is expecting. I cannot figure if it is liquidity/inflation everyone is betting on, or a "China-led recovery (sic)", or an It's a Wonderful Life Christmas Miracle where suddenly consumers pockets are flush with cash and usable credit cards and a desire for yet another gadget whose genesis might be the US but whose labor is applied in China or Malaysia or South Korea or Taiwan or anywhere where people still put in a full day on the factory floor. Maybe I am a heretic, but I do not think either the Kindle or the iPhone or low grade packaged coffee is to the 21st Century what autos or computers or aircraft were to century twenty. As far as I can see, we remain in the inglorious cycle where no one can afford to buy what they do not need and hence there is no need to employ people to produce what will not be bought.
Yes, fine work fellows. This is what ZH is about. (Tho Robo's posts are diverting)
what, now i am seeing your MO
always at the end of the thread.
damn can we pull you out of this postion?
god you have such a frickin hard against apple.
me too, but it's my life. am an artist apple adobe, that was all we had to express ourselves in the 80's.
are you laughing or engaging?
I'm for transparency and all, and like it if there are market solutions that keep everyone informed, bust up the insider's game, because, its great when technological advancement or innovation break up monolopies or take away parasitical super-profits for protected players (of course computers and the internet taking away cartel protected trading profits from investment banks just sent them parasiting a new host, the US govt, but I digress)...
..but really, is anything "synthetic" that great of an idea? Massive liquidity hopping from one financial instrument to another may not be a big deal if you are an ordirnary guy smart enough to stay out of the casino of markets that have a corrupted "house" running them....but some of the things traded are things regular people need for regular life, like oil, water, credit...I'm not fond of markets that sway with shadowing battles of hedge funds, shorts, sov wealth funds, fund managers but some of this is probably unavoidable...but how much worse is it with leverage and when trading non-fundementally effects price of everyday things.
Maybe housing mania would have happened due to Fed interest rate reductions, regardless..but it seems to me that sliced and diced MBS and then swaps/derivatives allowed increase of leverage greatly, excerbated boom and bust of housing and whole global economy. Used to be when a company died/defualted, only winners and losers were those "longing", or shorting the company stock, or those directly lending money to company. But with the ability of anybody to buy life insurance on a company via CDS, when company died, payout would be well beyond loss in stock value of company, just ask AIG.
Now if this levearge must exist, I'd prefer to be on an open, transparent market. But everytime the price of gas goes up even while demand decreases and inventories swell, just cause somebody with huge money decided to gun the oil market, trading something in a levearged fashion that they will never take delivery on, I get mad. Call me old fashioned. Old dog does not like new tricks.
Of course, it is ironic that leverage will likely eventually take out leverage, if you believe article above. Leveraged shorts took out Lehman but really, Lehman's leverage left them vulnerable...who cares if one insider out foxes another, one gets crushed and another gets richer...
however, this is a very dangerous game to play...as they say, when elephants fight, its the grass that gets trampled...as a little 7 pound dog always scurrying away from clutzy, from big-footed humans, I can relate. Down at ground level, I see no green shoots replacing the crushed grass.
Prime RMBS has been trading at massively distressed levels for months. This will not force the banks to change their marks anymore than the CMBX index has.