July 11, 2007

CNBC educational video on subprime loan CDOs and derivatives - a must-watch for HP'ers

So if you're a hedge fund, how can you lose everything investing in subprime mortgages?

Now you know.



43 comments:

Anonymous said...

amazing how the whole process works. This goes well with the fraud from the independent agencies that set the bond ratings.

Funny how the the "AAA" paper can only lose if the lower classes lose over 24%. But, we have already seen that subprimers are foreclosing at over 20%. So now "AAA" paper is close to losing money and we are treading on toothpicks as to how close we are to a meltdown of these securities.

VERY VERY dangerous times right now.

HauspocalypseNow said...

dood IT REALLY IS OVER

who will buy cdo/mbs now?!?

Even the Chinese must know about it.

Maybe you should have a chinese language version of HP. Why not all languages?!?

En-a-ma said...

But...but..W..will save us..

Anonymous said...

I have always liked Liesman and his charts, breaks it down so the everyman can understand it.

I do however predict a 150 point gain for the Dow today since it is obvious fundamnetals are completely ignored these days by Wall St.

Anonymous said...

Very well done, I've been a bit confused on that last Tranche step, now I understand that its nothing more than a house of cards & Las Vegas style betting in regards to sub-prime loans going bad. So if Las Vegas style betting was the creator/underpinning of demand in the housing market & its now going south then demand is going with it and the housing market will follow. Good Luck!!

Anonymous said...

Laura Vella said: Nice...making quality from crap.

This is why I stayed away from all financial mutual funds in my portfolio, just for this very reason.

Anonymous said...

HauspocalypseNow said...
dood IT REALLY IS OVER

who will buy cdo/mbs now?!?

Even the Chinese must know about it.
-------------------------------------------


I've thought about this many times, I'm just joe blow from minnesota and I read this stuff all the time, Dont the people buying this crap read what I'm reading?

Anonymous said...

Isn't it amazing how CDOs got no attention and now they've come out of nowhere?

Anonymous said...

Peter Schiff was saying this shit YEARS AGO. nice of those CNBC deniers to give him credit.

SPECTRE of Deflation said...

Looks like the PPT is hard at work this morning as the $INDU is up 45. LOL! Unfrigging real is all you can say. I checked TOMO yesterday at the FED, and it wasn't until this AM that I saw they posted $2.5B in securities lending yesterday.

We are being lied to by everyone in authority to keep the flying pig from turning into the slaughtered hog.

K.W. - Southern Ca. said...

You got it - the REAL value of
these are now being exposed to the broader market.

There is no choice but for things to go even lower and lower.

HauspocalypseNow said...
dood IT REALLY IS OVER

who will buy cdo/mbs now?!?

Even the Chinese must know about it.

Maybe you should have a chinese language version of HP. Why not all languages?!?

K.W. - Southern Ca. said...

The "AAA" paper was very risky to begin with - it too will suffer losses.

Interesting, how they "sliced-up" a pool of primarily high-risk mortgages to create classes of low-risk ones.

Anonymous said...
amazing how the whole process works. This goes well with the fraud from the independent agencies that set the bond ratings.

Funny how the the "AAA" paper can only lose if the lower classes lose over 24%. But, we have already seen that subprimers are foreclosing at over 20%. So now "AAA" paper is close to losing money and we are treading on toothpicks as to how close we are to a meltdown of these securities.

VERY VERY dangerous times right now.

showmenouns said...

Keith, why did you cut out the following segment about the beach?

I could get some sheeple coworkers to watch this if I told them it's a spot about "If the beach is your idea of fun...", but it just has some silly finance intro.

Anonymous said...

Is it a similar situation in Britain with regard to CDOs? I understand the speculation bubble is larger on the other side of the pond.

Anonymous said...

He forgot to mention that the hedge funds were buying those mortgage backed securities using borrowed money, like the Bear Stearns hedge fund that took $600 Million in cash and bought $6 Billion worth of mortgages with it. 90% margin, that's some serious leverage.

Anonymous said...

OK I was wrong, it was only a 80 point jump for the dow.

Anonymous said...

Warren Buffett famously described derivatives bought speculatively as "financial weapons of mass destruction."

Anonymous said...

WTF!? Massachusetts repeals free markets? Now I have to pay for other's mortgages?????

Subprime Lender To Cease Foreclosures
State Reaches Deal With Fremont Investment And Loan

POSTED: 10:56 am EDT July 11, 2007
UPDATED: 11:25 am EDT July 11, 2007


BOSTON -- The state has reached a deal with a subprime lender that has agreed to immediately halt foreclosures on its mortgage loans in Massachusetts.

Attorney General Martha Coakley announced a preliminary agreement with Fremont Investment and Loan.

The lender will halt foreclosure proceedings to provide the attorney general's office a 90-day period to review individual cases. The state can then object to any foreclosure where it finds evidence of unfair or deceptive lending practices. Fremont would pay the costs of the loan review process under terms of the agreement.


Coakley's office warned Fremont weeks ago of its intent to take action against the lender if it failed to address allegations that some of its practices violate state law.

Meanwhile, Gov. Deval Patrick's administration is expected Wednesday to release details of a $250 million fund to help subprime mortgage borrowers avoid foreclosure.
Copyright 2007 by The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.



http://www.thebostonchannel.com/money/13661578/detail.html?rss=bos&psp=news

Anonymous said...

hey, has the troll finally seen the light?

Anonymous said...

Steve Leisman got The Burning Down the House part right, but didn't identify Freddy Krueger & Jason's role in the slicing, dicing, and reconstituting of the paper...

Anonymous said...

1 800 bar none. they are using your puppet puppy in there tv commercials

PhoenixSucks said...

Well now that history has repeated itself all over again, what do you do. I'll tell you Hp'ers you hoard your cash and bunker down, then buy prime assets at pennies on the dollar. Let the fun begin.

Anonymous said...

Losses at 24%? I thought that many of them was more like 50%.

Foreclosure rates of at 20% doesn't mean loss of 20%, unless every single forclosure sold for literally $0.00.

What matters is the loss from loan value. Let's say that's 25%, which could mean a 35% loss in home price (in the worst places only), and a roughly 90% loan to value ratio.

Then at FC rates of 20%, you would be impaired at 0.2 * (1-0.75%) or 5%. That's a 5% loss to be absorbed there. The first loss tranches are destroyed, sure. But the AAA tranche?

I think there is more padding---in the AAA tranches---than people think. To really kill AAA we would need literally nuclear war (rendering property values zero on account of radioactive fallout) or a huge Great Depression. If the pension funds or Chinese bought AAA and hold to maturity, they will take zero to small losses.

What will certainly happen is that those hedge funds who levered up on BBB tranches will have their candy taken away and they're already being spanked.

SPECTRE of Deflation said...

Anonymous said...
OK I was wrong, it was only a 80 point jump for the dow.

On lower volume on up days I might add. We are triple topping, but you keep clicking your heels Dorothy.

Jerj said...

"To really kill AAA we would need literally nuclear war"

Nope, the reason AAA is rated AAA is because it has that padding below. If that padding is wiped out completely (as it may on many of these since we all know losses on subprimes will be far greater than anyone is predicting because no one is even factoring in the MASSIVE amount of fraud that was going on) the value of the AAA plummets.

bickerer said...

Meanwhile, Gov. Deval Patrick's administration is expected Wednesday to release details of a $250 million fund to help subprime mortgage borrowers avoid foreclosure.

Oh shit! Glad I don't live in Mass.

Anonymous said...

"triple topping"

...what is this, some kind of technical market analysis? What if you're a Virgo, does that make it an extra special time to buy? What a joke - triple topping... lol!

Dale said...

Thanks Keith- very informative and easy to understand video.

Anonymous said...

KW said:"Interesting, how they "sliced-up" a pool of primarily high-risk mortgages to create classes of low-risk ones".

LauraVella said: What a bunch of retards! It's the same old sh*t, just a lot more now!

Anonymous said...

Jerj said:"Nope, the reason AAA is rated AAA is because it has that padding below".

lauravella said: I can't help but picture a pyramid in my head...I wonder why??

kitchenstove said...

Anon 5:06,

Interesting article. I figured some states would attempt to bailout homeowners, so I'm not suprised. Still, I have to wonder in this instance if FBs who lied about their income on their loan applications will also be considered victims of "unfair or deceptive lending practices". Will the flippers, some of whom probably don't even live in the state, also be considered victims of "unfair and deceptive lending practices"? I also wonder how many angry emails Deval Patrick will receive from citizens who don't want their tax money used to rescue gamblers. I also wonder if he hopes to ever get re - elected. Ms. Coakley is opening Pandora's Box and doesn't seem to know it.

chris g said...

Love the picture of the nuke mushroom cloud on Steve Leesman's flipchart --- very HP.

wawawa said...

This ia magic, form garbage sub-prime mortgages, they create AAA prime paper.

jorghis said...

While the BBB tranche may be superbad news, that doesnt necessarily imply that AAA is in any danger. You would have to have 25% losses in order for that to lose any value.

Take Casey Serin for example, just about the worst investment a lender could possibly make. He borrowed 2.2 million and lost somewhere between 200-300k. If this extreme circumstance isnt even enough to crack 25% how could all subprime in aggregate be adequate to start hurting AAA?

lunatic fringe said...

Don't forget your CDO Squared's, which are CDO's securitized on other CDO tranches, if I understand them right.

Imagine 10 to 1 leverage on a CDO Squared of a BBB tranche. I'd say bye bye hedgie, bye bye pension fund.

Shakster said...

How about some $401k ,some junk bond boiler rooms,state propositions passed(backdoor),and congressional resolutions?
Lookout Mr Taxpayer/Voter.That raise was just eaten.So will the next one too.
Treasuries?Some say the gains will never be realized there,only option is to borrow against them.
Same ole same ole,boring.
The Housing Smash-up is still two thumbs up though.

Anonymous said...

>>>>I've thought about this many times, I'm just joe blow from minnesota and I read this stuff all the time, Dont the people buying this crap read what I'm reading?<<<<

well the only way things work correctly is when the system has integrity and honesty is practiced at all levels. this is not the case now, and perhaps never was. the rating companies rated this stuff way too high and they did this on purpose. they knew very well that this could happen. so if a agency that is in the business of rating paper, calls something triple A, then what do you do? you either accept their appraisal or you don't get in the game. so many people believe in the system. they think the markets are one big capitalistic place where people make money by their wits, and their luck. this is simply not the case. the stock market is and always was , one big con game, and it is run by criminals too....my advice to all......get out while you still can.

Anonymous said...

>>>SPECTRE of Deflation said...

Anonymous said...
OK I was wrong, it was only a 80 point jump for the dow.

On lower volume on up days I might add. We are triple topping, but you keep clicking your heels Dorothy.

July 11, 2007 9:05 PM <<<


it is funny to me how so many analyst, try to explain the markets by using technical terminology. how can this be? when the markets are constantly manipulated and nothing is as it seems, how can anything be explained in technical terms. all things happen because they are made to happen that way. take today for instance...bad news everywhere, yet gold and silver go flat and the market goes up.....but the time is coming and soon, when this big play pin of the rich shall become their hell.......and for many, it will be worse than black friday in 1987, when men were committing suicice and jumping out of buildings and going nutts.......this time ladies and gentlemen, there is no coming back..........there will be no business as usual after the coming crash........there will be no tomorrow for amerika....wake up now and smell the coffee folks. its almost over......do what you have to do to prepare for the coming bad times...

Anonymous said...

No one will believe housing is crashing until the DOW takes the big hit. Then we will see some interesting economic news.

Anonymous said...

It might not be that bad owning existing AAA paper if held until maturity. It is possible that losses won't hit 24%. If what Anonymous (July 11, 2007 7:12 PM) says is true, even a 40% foreclosure rate where the MBS holders can only recoup 50% of value should only bring 20% losses That wouldn't affect AAA. I really don't care much about whether AAA loses money. What will be interesting is when BBB- and BBB become impossible investments. When these are viewed as unfathomable investment vehicles, this whole crazy mortgae derivative system should end. If no one buys the BBB-, no one can buy the AAA, right? If that's the case, the would be subprime buyer won't be able to compete with those of us with down payments, good credit, and income. With the financially irresponsible out of the picture, the real estate market should reset to what it was before these new fangled investment concepts. How long do you think it will take?

Anonymous said...

Hearing with 'Plunge Protection Committee;' Where were the Democrats?
Increase DecreaseJuly 11 (LPAC)--Democratic Representatives Maxine Waters (Calif.)
and Barney Frank (Mass.) acknowledged the growing risk of a
financial crash, at a hearing today on ``Hedge Funds and Systemic
Risk'' in the House Financial Services Committee. All the
representatives of the `Plunge Protection Committee' (officially
the President's Working Group on Financial Markets)--Treasury,
Federal Reserve, SEC, and Commodity Futures Trading
Commission--were before Frank's committee; all denied that any
systemic risk existed in the current mortgage-bubble meltdown,
and opposed any regulation or even registration of hedge funds.
Representative Waters was blunt in her questioning of
Treasury Undersecretary Robert Steele: ``What can you tell me
about other hedge funds that may be in trouble, and about to fail
like these [Bear Stearns hedge funds] from excessive investment
in these mortgage based securities?'' Waters asked. ``Can we
expect, as some are predicting, a collapse in financial markets
as a result of these developments?''
The current edition of EIR carries just such forecasts, in
two articles in its Economics section.
Earlier, in opening the hearing, Representative Frank had
said, regarding hedge funds and financial markets: ``There is a
problem here, that we wish we were sure how to approach....
Nobody can be confident that all is well here. It is a cause for
unease.... And yet, it's not at all clear what we should do.
There is a potential for systemic risk.'' Frank added, ``There is
a great deal of potential for pension funds to get involved [in
hedge funds] beyond what they can handle,'' a warning repeated by
several other committee members. Republican Rep. Richard Baker
(La.) warned, ``Another Amaranth matter might lead to an avalanche
of pension fund losses, because their managers don't understand
the risks. This is no casual warning...''
This was one of four Congressional hearings on July
11-12 alone, dealing with private equity funds, hedge funds, and
growing risks to the financial system from repeated failures of
these speculative funds.
Treasury and Fed officials, some Republicans, and media
financial commentators spent the day waxing apocalyptic about the
grave threat, that private equity fund and hedge fund managers
might have to pay taxes like other American businessmen and their
employees.

Anonymous said...

tripple topping...chocolate, caramel and walnuts, delicious

Keyser Soze said...

It appears that Liesman is talking only about MBSs and derivatives consisting solely of sub-primes.
I am under the assumption that MBSs consisting of subprimes only, are also packaged with good commercial credits and prime mortgages in what they call CDOs.

I wouldn't want to hold any paper consisting solely of subprimes, be it the AAA tranche or the BBB-. Can you imagine the hedgies which borrowed 90% of their purchase price?

I don't think this subprime mess, in and of itself, is going to be as bad as some predict.

The longterm effect of trade and gubment deficits are far more damaging.....that, and the nutty price of houses.