Asset-Backed Securities

The Dumping Begins: Chinese Reserve Managers Notified That Any Non-USG Guaranteed Securities Must Be Divested

It appears that this time China's posturing is for real. Following up on our earlier post that Chinese military officials want to "punish" America by selling Treasuries, Asia Times Online is reporting that an explicit directive by the Chinese government has notified reserve managers to sell all risky US assets, including asset backed and corporates, and just hold on to explicitly guaranteed Treasuries and Agency debt. And from following TIC data we know that China's enthusiasm for MBS/Agencies over the past year has been matched solely by that of one Bill Gross.

Dear Senator Corker: Meet The HVol 4 And Basis (Prop) Trades That Destroyed Merrill Lynch

In the past Zero Hedge had respect for Ten. Senator Bob Corker due to his opposition to the nationalization of the bankrupt automakers and making them yet another ward of the ever larger central-planning state. However, after today's hearing with Paul Volcker on the Prop trading ban, any respect we may have had for the Senator has promptly dissipated. While we understand that the pointless bashing of Volcker's proposal by Corker was predicated by his sizable lobby interest (over $21 million raised in the course of his career) and his talking points were undoubtedly a transliteration of a memorandum submitted by one of the Too Big To Fail banks that stand to experience substantial losses should the Volcker proposal pass, one line of argument in Corker's speech that is flagrantly flawed was Corker's naive rhetorical question whether there has been a single instance during the financial crisis where a commercial bank engaging in proprietary trading led directly to that institution failing or having to be bailed out by the taxpayer. Corker assumed the answer is no and kept pouncing on that answer. Well, Senator, you are wrong - meet Merrill Lynch, incidentally one of your biggest financial backers. Also, please meet Merrill's prop basis trade and its prop HVOL4 trade, which combined were the primary reason for the firm's $15 billion writedown in Q4 of 2008 and the subsequent bail out of the firm by Bank of America.

SIGTARP Releases Quarterly Report To Congress

The SIGTARP has been busy - a 224 page report just released provides an update of his activity to date, and covers everything from the ongoing investigation into whether the closure of Chrysler dealers was politically motivated, to the SEC's complete humiliation in regard to the BofA-ML settlement, to the dismal permanent modification rate in the HAMP program, to the firing of alleged sex-tape fiend Jeff Gundlach, to how the Fed is the New Century of the new decade.

January FOMC Statement - Hoenig Dissents To "No Change" Vote

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period...To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter.

Stop the Presses! Deep Thoughts From Jeremy Grantham

Everyone in Congress, and anywhere else for that matter, knows prop desk trading (banks trading their own capital like a hedge fund) is a conflict of interest. They may or may not think it important or that it caused this or that problem, but they know it’s a real conflict.  Congressmen, since when wasn’t conflict of interest and poor ethical standards reason enough to change the law? But since we bring it up, of course prop trading was indeed the rot at the heart of our financial problems (see last quarter’s Letter). Watching traders take home their $28 million bonus sent a powerful message to lowly salesmen and packagers of asset-backed securities, for example, to get out there and really take some risk. This rot spread to the very top, and pretty soon chairmen of boards were exhorting CEOs to leverage up and look more like some much more profitable rival that resembled a hedge fund rather than an investment bank. Thus encouraged – or intimidated – some CEOs just kept on dancing right off the cliff. Let’s
learn from our near disaster. Viva Volcker!

Cursive Geithner To Hell

The latest AIG fiasco may well be the straw that breaks Geithner's "public service" back. The question of Tim's involvement in the purposeful cover up has now attained epic proportions as even the White House claims the Treasury Secretary and former NY Fed governor had recused himself and was not involved in the discussions of the biggest bailout in US history. By doing so, the White House has transferred an ever greater amount of political risk to itself by continuing to back Geithner at increasing costs to its popularity. Whether or not Geithner was intimately involved procedurally seems irrelevant: he certainly was aware of the broad strokes and was thus complicit by implication. Nonetheless, one of the allegations that is circulating the blogosphere is that the handwriting on the "smoking gun" cover up memo belongs to Timmy. While we do not have a certified graphologist in our ranks, this assumption appears to be patently false.

Origins of an American Kleptocracy

Some days ago we wondered aloud after the blank check extended to Fannie and Freddie along with the suspiciously convenient timing of those announcements on Christmas Day.  Back then we wondered if we had been told the entire story. Recent news not only tells us that we had not, but points astute observers to what might well be one of the largest financial frauds in the history of... well, ever.

FOMC Statement: "Exceptionally" And "Extended", Liquidity Swap Arrangements Coming To An End On February 1, 2010

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

TCW Gundlach Update: 30% of MBS Team Has Resigned

"Over the weekend, key MetWest professionals assumed portfolio management responsibilities for all of TCW’s high-grade fixed income client accounts. This transition has been orderly and seamless, a testament to the professionalism and enthusiasm of both MetWest and TCW employees.

Attached please find a complete list of our high-grade fixed income products and the respective portfolio managers, effective today. We expect you will notice a more collaborative, team-based approach to portfolio management. We believe this culture of cooperation will facilitate a quick, effective integration of our fixed income teams into a single unit.

We anticipated possible resignations as a result of this announcement. However, as of today, we have retained 70% of our mortgage-backed securities team." - TCW

Extension Of TARP Now Official: TARP Maturity To Suspiciously Coincide With Mid-Term Elections

"I am hereby extending [TARP per] the authority provided under the Act to October 3, 2010. This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats, as described above." Tim Geithner

Threat #1 - landslide change in the political landscape in 12 months

Reggie Middleton's picture

Yesterday, I commented on Goldman's CMBS offering through the government's leverage program known as TALF. I was very nice and diplomatic, yet despite that I still received what I would consider, inappropriate feedback. Okay, let's take the politically correct gloves off - they never fit me anyway. This deal probably flew because Goldman Sachs underwrote it. Goldman thrives off of brand name value primarily. Contrary to mainstream media inspired belief, they are not better than everybody else at everything. I posit, they are probably not better than anybody else at anything other than marketing and lobbying.

Reggie Middleton's picture

The world's most handsome and charismatic blogger stands outside his beloved friends at Goldman Sachs headquarters at 85 Broad (see pic) to congratulate them on the outstanding CMBS offering made through TALF government leveraging for Developers Diversified Realty (notice the funny looks that I am getting from the women in the background, haven't they seen a handsome and charismatic blogger before???). A few questions still linger, though...