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  • Is THIS REAL TROUBLE?

    http://market-ticker.denninger.net/2...ight-must.html

    Everyone seems to be excited by this, but only being a Layman from Liverpool i can't see why they do.

    What's a Trillion or so with ALL the cash the US has printed already?
    Mike

  • #2
    Re: Is THIS REAL TROUBLE?

    Mega,

    Excellent find, thanks for the link.

    Comment


    • #3
      Re: Is THIS REAL TROUBLE?

      Quite easy to find, most other BBs have it..............Ok...........its sounds like big news.

      So would you "Smart guys" like to tell me what it means?
      Oh BTW Batclays bank lost $400 Million on that Bear sterns fund
      Cheers
      Mike

      Comment


      • #4
        Re: Is THIS REAL TROUBLE?

        Sapiens -

        I noticed Aaron Krowne posted there as well and has checked this out. Would you guys care to discuss it among yourselves and provide some interpretation of this data for I-Tulip readers?

        If it's a number directly attributable to cumulative bank liabilities in mortgage backeds and has just been quietly introduced, it's potentially quite significant?

        Comment


        • #5
          Re: Is THIS REAL TROUBLE?

          If I look at JK's comment in " The Desperate Optimism of the Invested " it may be really bad news for the banks in question. And if I couple it up with "Money is Also Destroyed", I really don't know how things will progress.
          Last edited by Rajiv; July 22, 2007, 12:42 PM.

          Comment


          • #6
            Re: Is THIS REAL TROUBLE?

            Originally posted by Lukester View Post
            Sapiens -

            I noticed Aaron Krowne posted there as well and has checked this out. Would you guys care to discuss it among yourselves and provide some interpretation of this data for I-Tulip readers?

            If it's a number directly attributable to cumulative bank liabilities in mortgage backeds and has just been quietly introduced, it's potentially quite significant?
            The "issue" is the appearance of the securitized mortgage liabilities line item "Securitized real estate loans" in the "Memo Items" section, page 13, of the July 20 statistical release "Assets and Liabilities of Commercial Banks in the United States." We received several notes on this over the weekend. Here's our take.

            From charts in our Mortgage Swamp piece last week, the following facts are clear, keeping in mind that 75% of $7.8 trillion in outstanding mortgage debt is securitized:

            1) The percentage of mortgages held by commercial and savings banks has declined from a peak of 54% in 1972 to 20% in 2006
            2) The percentage held by Freddie and Fannie increased from a low of 10% in 1981 to a peak of 50% in 2002
            3) Starting in 2002, the percentage held by Freddie and Fannie decreased from 50% to about 42%, while the percentage held by ABS issuers increased from less than 10% to nearly 30%, compensating both for the decline experienced by the GSEs and growth in mortgage lending over the period

            Most of ABS issuers' capital was provided by commercial banks, according to Jim Finkel of Dynamic Credit. Estimates range from 40% to 65%. This capital was typically leveraged 100:1 (e.g., "$10 million in capital produced $1B in ASB CDOs."). The quality of the mortgage loans issued against these CDOs was typically to less credit-worthy borrowers and via less traditional products, such as low-doc/no-doc loans. Therefore the net exposure of commercial banks may be higher than in 2001. However, it is clear from these two graphs from Mortgage Swamp that the most severe exposure is to Fannie and Freddie.


            The loans are not new. The Fed appears here to merely be reporting old data in a new way.

            Furthermore, as described in Risk-Based Capital and Basel II: "The most obvious risk that ABS issuance poses to banks’ balance sheets lies in direct exposures to residuals and other lower-level noninvestment grade tranches of the securities that remain on balance sheet. Hence, Basel II currently provides that banks hold 100 percent capital against exposures to ABS pieces that have credit enhancement levels lower than the bank’s own internal risk-based capital requirement."

            Assuming they followed the guidelines, the banks appear to have significant reserves against losses.
            Last edited by FRED; July 22, 2007, 12:24 PM.
            Ed.

            Comment


            • #7
              Re: Is THIS REAL TROUBLE?

              << However, it is clear from these two graphs from Mortgage Swamp that the most severe exposure is to Fannie and Freddie. >>

              Isn't that actually fortunate for the Government's ability to manoeuver?

              Concentrated exposure in one or two principals (especially Govt. sponsored entities) simplifies eventual Govt. mandated taxpayer-funded bailout ...

              Actually I just realised it's likely not even to be taxpayer funded. At some point the Govt. will gain the quiet legislative consensus to simply wipe these liabilities off the agencies books with newly issued funds. That would be a pretty neat trick.

              Comment


              • #8
                Re: Is THIS REAL TROUBLE?

                Banks have loaded up on CDOs that previously garnered triple-A rating, owing to capital rules promulgated by the Bank of International Settlements, which is the central bank for central banks. Rodriguez notes that banks have had to hold a mere 0.6% in capital against triple-A securities, one-eighth as much for triple-B securities. U.S. banks have invested 10% of their assets in triple-A rated CDOs, according to an estimate cited by the money manager.
                http://www.itulip.com/forums/showthread.php?t=1656

                it appears likely that impairment will extend up to highly rated tranches of cdo's. 0.6% is mighty thin capitalization.

                Comment


                • #9
                  Re: Is THIS REAL TROUBLE?

                  Originally posted by Lukester View Post
                  Sapiens -

                  I noticed Aaron Krowne posted there as well and has checked this out. Would you guys care to discuss it among yourselves and provide some interpretation of this data for I-Tulip readers?

                  If it's a number directly attributable to cumulative bank liabilities in mortgage backeds and has just been quietly introduced, it's potentially quite significant?

                  Lukester,

                  I remember reading how many bank loans were additionally collaterized with real assets…Ah, here:
                  Large Portion of Bank Loans
                  Backed by Commercial Real Estate
                  Are Not CRE Loans
                  http://www.mortgagebankers.org/files...otCRELoans.pdf
                  I think the Fed is just changing the memo item to reflect the fact that although they are bank loans for operating capital they are still backed by real assets:

                  http://www.federalreserve.gov/releases/h8/notice12.htm
                  Special Notice
                  Changes to Items Reported on the Release for July 4, 2007

                  Effective with this release of data for July 4, 2007, several changes have been made to the balance sheet items reported for large and small domestically chartered commercial banks: [snip]

                  For memo items of large domestically chartered banks (page 13), former item 34, "Securitized business loans," has been discontinued. On the same page, new item 34, "Securitized real estate loans," has been added to the memo items for both large and small domestically chartered banks.

                  Comment


                  • #10
                    Re: Is THIS REAL TROUBLE?

                    Originally posted by Sapiens View Post
                    I think the Fed is just changing the memo item to reflect the fact that although they are bank loans for operating capital they are still backed by real assets:
                    What real Assets? Derivatives that are highly leveraged? With poor paper trails of ultimate hard assets that were overvalued at time of acquisition?

                    Comment


                    • #11
                      Re: Is THIS REAL TROUBLE?

                      http://www.mortgagebankers.org/Newsa...nter/55116.htm
                      Commercial banks continue to hold the largest share of commercial/multifamily mortgages, with more than $1.3 trillion, or 43 percent of the total. Many of the commercial mortgage loans reported by commercial banks however, are actually "commercial and industrial" loans to which a piece of commercial property has been pledged as collateral. It is the borrower's business income - not the income derived from the property's rents and leases - that drives the underwriting, pricing and performance of these loans. A recent MBA Research PolicyNote found that among the top 10 commercial real estate bank lenders, 48 percent of their aggregate balance of commercial (non-multifamily) real estate loans were related to owner-occupied properties.

                      Comment


                      • #12
                        Re: Is THIS REAL TROUBLE?

                        Originally posted by Rajiv View Post
                        What real Assets? Derivatives that are highly leveraged? With poor paper trails of ultimate hard assets that were overvalued at time of acquisition?
                        You got me there, damn if I know.

                        Comment


                        • #13
                          Dequity

                          Originally posted by Sapiens View Post
                          You got me there, damn if I know.
                          http://www.reri.org/research/article_pdf/wp126.pdf
                          Dequity
                          The Blurring of Debt and Equity in Securitized Real Estate Financing

                          Synopsis: This paper explores the legal differentiation of equity and debt in subordinate real estate financing. Various financing vehicles that occupy a gray space between true debt and true equity have replaced traditional asset secured debt lending. This paper investigates the legal rights and responsibilities of parties functioning in the gray area. The goal of this examination is to identify potential conflicts and unforeseen consequences of investments possessing attributes of both equity and debt in the event of default.

                          Comment


                          • #14
                            Re: Is THIS REAL TROUBLE?

                            er.............So you don't know!
                            So much for this being the "Bright boys web site".......am going to Fax Peter S!
                            Mega

                            Comment


                            • #15
                              Re: Is THIS REAL TROUBLE?

                              Originally posted by Mega View Post
                              er.............So you don't know!
                              So much for this being the "Bright boys web site".......am going to Fax Peter S!
                              Mega
                              Mega,

                              Call the Fed and ask, you won't get a straight answer, the many people you will talk to will give you conflicting answers.

                              Give it a shot and let's know your results.

                              Comment

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