December 07, 2007

FLASH: Mortgage CDOs seen as being worth just pennies on the dollar


I seriously can't believe what I'm reading.

The collapse of banks, lenders, financial institutions and hedge funds worldwide is coming.

Everyone head to the shelter, and don't come out for a few months or years. What we're about to witness in 2008 your children's children's children will still be studying.

Markets can stay irrational much longer than you think they can, but at one point... "Mark to Market" anyone? Auditors anyone? This is surreal. Untold billions have already been lost (but not taken) and trillions more are to come.

Wow. If you're not scared now, you will be in a few seconds.

Top CDO Classes May Lose 80 Percent, Barclays Says

Dec. 6 (Bloomberg) -- U.S. mortgage assets in collateralized debt obligations have lost so much value that the top classes of the securities may be worth as little as 20 cents on the dollar in a liquidation, Barclays Plc analysts said in a report.

Initially assigned low investment-grade ratings, about 20 percent to 30 percent of principal would be covered for the ``super senior'' portions of mezzanine asset-backed bond CDOs, which mainly contain mortgage bonds and other CDOs, Barclays said in the report yesterday.

The senior-most classes of CDOs containing highly rated asset-backed bonds would recoup 30 percent to 65 percent, it said.

19 comments:

Anonymous said...

Keith said: The collapse of banks, lenders, financial institutions and hedge funds worldwide is coming.

Everyone head to the shelter, and don't come out for a few months or years. What we're about to witness in 2008 your children's children's children will still be studying.

Keep posting all of the doom and gloom articles Keith. In the end, you will still be a loser who is hoarding all of his gold while none of your "the sky is falling" predictions come true. BTW, haven't you made this same argument for about several years?

Anonymous said...

I said all last spring "it's all about the derivative markets." Only one other person ever got it before the story broke wide open last summer.

Anonymous said...

Citadel already bought E-Trade's CDOs, right? For 27 cents on the dollar.

If you value Goldman Sachs level 3 assets at that rate then they lose $53 billion (of the $72 billion). Since their total capital is $35 billion that wipes them out. Same with Morgan Stanley, but with slightly bigger numbers.

Anonymous said...

Hey, how come no mention on the blog that Bush gave out the wrong phone # at the press conference? Anybody listening who picked up the phone got a wrong number (Christian school in Texas). What is the followup indicative of? You're already screwed!

Anonymous said...

Didn't lots of banks go bust in the 1929 crisis?

It's looking more and more like the system is going to break.

Even the Club of Rome's think tank is predicting a 100% chance that a major US Bank goes bust in the next few months.

LEAP/E2020 now estimates that at least one large US financial institution (bank, insurance, investment fund) will file for bankruptcy before February 2008, sparking off bankruptcies among a series of other financial institutions and banks in Europe (in the UK especially), in Asia and in various emerging countries. According to an expression by Blackstone’s president Tony James’s [1] , a financial « black hole » was formed after the US subprime crisis.

The triggering factors for a major financial institution to go bankrupt are now so powerful and warning clues so numerous that, according to our researchers, the probability that it happens within three month now reaches 100%. Probabilities are as high that the US authorities will try to introduce a reimbursement protection-net in order to avoid panic from spreading throughout the entire US financial system [2]; but the size of the bankruptcy will immediately hit the most exposed financial institutions operating in the US and in the rest of the world. Countries whose financial operators are the most linked to US financial operators will be on the frontline: United Kingdom, Japan, China in particular For more details on the level of exposure to US financial risks, see GEAB N°16, 17 and 18 in particular..


Does anybody have a clue if the FDIC will make good on Billions of dollars in lost deposits?

Anonymous said...

Nice to see the state insurance gambling with the pool's money:

Citizens wants out of troubled investment pool
The state-run insurer is the biggest investor in a troubled investment pool, and it wants to reduce its holdings.

Florida's state-run insurer is looking to reduce its holdings in the troubled investment pool that has been rocked by massive withdrawals in the past two weeks.

Citizens Property Insurance, the largest investor in the Local Government Investment Pool, now has nearly $2 billion of its surplus in this short-term fund.


http://tinyurl.com/yuf8n8

Anonymous said...

Keep posting all of the doom and gloom articles Keith. In the end, you will still be a loser who is hoarding all of his gold while none of your "the sky is falling" predictions come true. BTW, haven't you made this same argument for about several years?

Is that you dumbest guy in the room, Norman?

coke adds life said...

Whisper words of wisdom... "Leverage sucks on the way down."

Good thing so many friendly governments have Oil Dollars (tm) to bail out our failed banking system. Granted, it is only preserving the residual value of the paper they are holding and can't dump.

Coke Out.

Anonymous said...

CDOs was designed as a ponzi scheme to enrich Wall Street. Things will go back to banks holding mortgages. They will want higher interest rates, down payments, a clean credit history. There will not be a recovery for a long long time.

Russ DoGG said...

Make fun of keith for being a conspiracy theorist but these losses are looking real to me.

And the empty houses sitting there are real. He turned out to be a pretty good predictor of these events; but I'm not sure of the severity impacting the financial system.

Anon 8:15 AM; are you sure about the equity and holdings of hte L3 assets at these brokerages? Where can you find those numbers?

Anonymous said...

Citadel already bought E-Trade's CDOs, right? For 27 cents on the dollar.

anon, one commenter pointed out that when the etrade equity stake is included then the citadel bought etrades mortgage holdings for 17 cents on the dollar.

Anonymous said...

I am no financial wizard, but as Rick Santelli often says, the information is out there, between
reading this and other blogs, looking around the area at what has happened in our neck of the woods,southeast Michigan, and listening the more serious folks, like CNBC's Rick Santelli, Pearlstein from WaPo, Peter Schiff, there has to be some serious fallout from all this loss. I found this blog because no one locally was really discussing, except obliquely, what was so obviously occurring.

Anonymous said...

How about dropping in your overused phrase: "This is gonna get ugly."

Are you trying to steer everyone to buy gold? Hmmm...

Anonymous said...

CDOs was designed as a ponzi scheme to enrich Wall Street

The problem with that theory is that the lowest tranches of the CDO's are held by the banks and Wall St because they could not sell them. Look at ETFC MER UBS and the rest who are crapping in their pants. MER is holding $41B of the worst CDO tranches and their entire stockholders equity is $38B accumulated from 94 years of earnings. It will all be wiped out by 5 years of greed and stupidity.

Anonymous said...

russ dogg,

http://google.com/finance?q=GS

Gives Total Equity as a bit over $39 billion.

http://www.marketwatch.com/news/story/goldmanaug-level-3-asset-value/story.aspx?guid=%7BA5F0CE1D-4004-448D-967B-895CC8213FD6%7D

http://tinyurl.com/2mxhgo (for the browser width deficient)

gives level 3 assets at $72 billion. Of course not all of it will be CDOs...

borkafatty said...

Who let the morons wrapped in Idiot suites in the smart room?

Anonymous said...

gives level 3 assets at $72 billion. Of course not all of it will be CDOs...

I am an accountant. There is only one reason to use Level 3. You want to hide big losses on your assets. Unfortunately, it is legal.

LauraVella said...

Hello Accountants-

How many years have companies been able to write off losses under this level 3 catagory?

Are large corporations the only ones can use this type of write off?

Something tells me we are going to hear more about this in the coming months.

Mammoth said...

"Who let the morons wrapped in Idiot suites in the smart room?"
------------------------
Unfortunately, it was the votors.