Half Trillion Debt Downgrade

[Finster]

Ouch. They just had to go and rain on the Fed's rate cut parade ...

... as you might imagine, the S&P futures and foreign marts are not taking this real well ...

S&P Lowers or May Cut $534 Billion of Subprime Debt

(Update3)

By Jody Shenn

Jan. 30 (Bloomberg) -- Standard & Poor's said it cut or may reduce ratings on $534 billion of subprime-mortgage securities and collateralized debt obligations, the most sweeping action in response to rising since home-loan defaults...

http://www.bloomberg.com/apps/news?p...d=am2Nk1VM5YsA

[Tulpen]

Re: Half Trillion Debt Downgrade

The sh*t has finally hit the fan.

Game over for the USA, no more free lunch.

In a decade the issuance of the new US dollar?

[FRED]

Re: Half Trillion Debt Downgrade

Ouch. They just had to go and rain on the Fed's rate cut parade ...

... as you might imagine, the S&P futures and foreign marts are not taking this real well ...

S&P Lowers or May Cut $534 Billion of Subprime Debt

(Update3)

By Jody Shenn

Jan. 30 (Bloomberg) -- Standard & Poor's said it cut or may reduce ratings on $534 billion of subprime-mortgage securities and collateralized debt obligations, the most sweeping action in response to rising since home-loan defaults...

http://www.bloomberg.com/apps/news?p...d=am2Nk1VM5YsA

Risk Pollution: another 534 billion gallons marked down, 11 trillion to go.

[Andreuccio]

Re: Half Trillion Debt Downgrade

The sh*t has finally hit the fan.

Game over for the USA, no more free lunch.

In a decade the issuance of the new US dollar?

I was thinking about this last night: what happens if they do issue a new dollar? Does my mortgage get repriced in the new currency? Do I go into default because I get paid in new dollars but need old ones to pay?

I imagine it must be part of the official decree: "Any debts/contracts owed in old dollars are now payable only in new dollars at the rate of x". Does anybody have any knowledge of how this plays out? What did they do in Brazil or other countries when they issued new currencies?

[dbarberic]

Re: Half Trillion Debt Downgrade

I was thinking about this last night: what happens if they do issue a new dollar? Does my mortgage get repriced in the new currency? Do I go into default because I get paid in new dollars but need old ones to pay?

I imagine it must be part of the official decree: "Any debts/contracts owed in old dollars are now payable only in new dollars at the rate of x". Does anybody have any knowledge of how this plays out? What did they do in Brazil or other countries when they issued new currencies?

If anything, it would be a dollar exchanged for an Amero.

[Tulpen]

Re: Half Trillion Debt Downgrade

"MBIA Inc. Chief Executive Officer Gary Dunton said the world's largest bond insurer has more than enough capital to keep its AAA credit rating and dismissed speculation the company may go bankrupt. Dunton, speaking on a four-hour conference call after Armonk, New York-based MBIA reported a $2.3 billion quarterly loss, blamed ``fear mongering'' and ``distortion'' for driving the company's stock down more than 80 percent in the past year. " - Bloomberg (http://bloomberg.com/apps/news?pid=2...KjI&refer=home)

If he lies he should be criminally persecuted.

[Finster]

Re: Half Trillion Debt Downgrade

"MBIA Inc. Chief Executive Officer Gary Dunton said the world's largest bond insurer has more than enough capital to keep its AAA credit rating and dismissed speculation the company may go bankrupt. Dunton, speaking on a four-hour conference call after Armonk, New York-based MBIA reported a $2.3 billion quarterly loss, blamed ``fear mongering'' and ``distortion'' for driving the company's stock down more than 80 percent in the past year. " - Bloomberg (http://bloomberg.com/apps/news?pid=2...KjI&refer=home)

If he lies he should be criminally persecuted.

The ratings agencies are already extending a huge level of forbearance in having left so much undeserving credit at AAA already. Much of the debt so rated right now is trading at levels consistent with outright junk. Their credibility is toast. It's basically the bond analog of what happened with the infamous brokerage ratings back in the dot com era. These agencies are not paid by investors, but by the same parties they rate.

If investors want analysts responsive to their interests, they need to hire them. In the topsy-turvy world of bureaucratically managed institutional investing, however, the rules require that bonds be rated "investment grade", or whatever, while the raters work for the sellers of the investments. You couldn't design a more absurd and inherently conflict-ridden system if you set out to.

[Jim Nickerson]

Re: Half Trillion Debt Downgrade

"MBIA Inc. Chief Executive Officer Gary Dunton said the world's largest bond insurer has more than enough capital to keep its AAA credit rating and dismissed speculation the company may go bankrupt. Dunton, speaking on a four-hour conference call after Armonk, New York-based MBIA reported a $2.3 billion quarterly loss, blamed ``fear mongering'' and ``distortion'' for driving the company's stock down more than 80 percent in the past year. " - Bloomberg (http://bloomberg.com/apps/news?pid=2...KjI&refer=home)

If he lies he should be criminally persecuted.

What if he is telling the truth? I expect if he is lying he is subject to prosecution, so why would he be lying?

[metalman]

Re: Half Trillion Debt Downgrade

What if he is telling the truth? I expect if he is lying he is subject to prosecution, so why would he be lying?

anyone here have the stomach to google for all the cases of guys in Dunton's position?

here's the script for ceo dude...

"oh. no. we're fine. no problemo."

then

"recently we've found evidence of BLAH and are down grading our forecast to BLAH... sorry... regrets...

then, skipping ahead 10 announcements...

"ceo dude is leaving to spend time with his lovely wife and kids. next in the barrel is ceo dude 2. good luck, asshole!"

and so on until stock = 0

[Tulpen]

Re: Half Trillion Debt Downgrade

The warning from Moody's is out:

http://www.bloomberg.com/apps/news?p...NA0&refer=home

First the banks, now a round for bond insurers.
The US is getting deeper in trouble.

It's now waiting for the first domino stone to fall.

[DemonD]

Re: Half Trillion Debt Downgrade

This is the biggest question of the moment:

Will the monolines be bailed out? How exactly would they be bailed out?

[c1ue]

Re: Half Trillion Debt Downgrade

This is the biggest question of the moment:

Will the monolines be bailed out? How exactly would they be bailed out?

The answer is the same as the "Super-SIV".

Although SIVs were more Citibank and Barclays, the identical reality is that there is simply not enough money to bail out the monoline insurer's positions, coupled with individual potential sponsors not wanting to neither divulge their own weakness nor subsidize their follow sponsor's screwup.

The toxic derivative overhand is exactly like a company under the asbestos lawsuits; the fun never ends until the liability is bundled into a separate legal entity then allowed to die.

All this talk is just to buy time to divest some of the 'insurance' overhand; at the end of the day it is cheaper to write off your own unpaid obligations from the monolines than to try to clean up the mess at the origin.

A little aside: besides Sir Warren's new monoline business, I'm sure all of you out there are aware of the strong push Geico has been making in the auto insurance market, at least in CA that I am aware of.

I wonder if the reason is identical: that the auto insurance companies had invested into these MBS/CDO crap and are losing enough money that their underlying insurance float is getting eaten away, and thus new policies will see significant rate increases so that claims can still potentially be paid?

[DemonD]

Re: Half Trillion Debt Downgrade

clue, i think the difference between the super siv and the monolines is the monolines insure a LOT of muni bonds, and many cities and states have a vested interest in not losing their AAA bonds. This is why the state of NY is getting involved, whereas with the super siv you didn't see that.

I would like to think these monolines would get hammered down to zero like they deserve to be, but when government gets more directly involved, you know they have a good chance of screwing up the free markets :/.

[GRG55]

Re: Half Trillion Debt Downgrade

Eight banks seek rescue plan for bond insurers-CNBC

Eight banks have formed a consortium to seek a rescue plan for MBIA Inc, Ambac Financial Group Inc and other troubled bond insurers, CNBC said on Friday, citing an unnamed source.

The eight banks include Barclays Plc, BNP Paribas, Citigroup Inc, Dresdner , Royal Bank of Scotland Group Plc , Societe Generale, UBS AG and Wachovia Corp, CNBC said. Wachovia had no immediate comment. Citigroup, Ambac and MBIA did not immediately return requests for comment. The other banks were not immediately available for comment.

Let's see now...Citi, UBS, etc have to sell their own equity to the Middle & Far East to bring in the capital needed to fix their own balance sheets. Now they plan to funnel money into the monolines?

Isn't that a new version of...um... a Conduit?

[c1ue]

Re: Half Trillion Debt Downgrade

DD,

The monolines disappearing do not destroy existing bonds, however, the premiums for said bonds will go down.

However, since the existing bonds are already sold and the money spent by the states, BFD.

This is assuming that the states aren't holding each others bonds, of course.

There is an effect, however, on new bond issuance.

That's where Sir Warren comes in.

Without bond insurance, the premiums received for new bonds issued would theoretically go down.

However, several states are already issuing bonds WITHOUT insurance, so clearly the insurance premium paid by the states for the bonds is itself the factor as opposed to the insurance need.