Re: Bear Is Toast!!!!!!!!
The problem with Carlyle Capital and all of the current credit crisis is succinctly stated in the Washington Post article Carlyle Capital Shares Fall as Trading Resumes
Everybody talks of the assets and the valuation of assets -- but nobody points a finger at the degree of leveraging involved -- higher the leverage, more the damage and the pain.
All the models of leveraged investing that I have seen are micro models -- that are only good in small scale investing -- and nobody has ever assessed the impact of the widespread use of leveraged instruments on the economy - particularly if the payment chains hiccup.
Originally posted by jk
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Carlyle Capital is incorporated on Guernsey, an island in the English Channel, and is traded on Amsterdam's Euronext exchange. The company was set up in August 2006 with roughly $670 million in cash from Carlyle's owners and other investors, and about $300 million in additional capital raised from the public sale of stock.
The capital allowed the company to go to banks and borrow far more, leveraging its cash investment some 20 times into the portfolio valued recently at $21.7 billion.
Though focused on AAA-rated mortgage-backed securities issued by Fannie Mae and Freddie Mac -- traditionally considered secure and conservative investments -- the company's prospects have been dimmed by the same doubts that have upended securities linked to riskier subprime mortgages, namely whether the underlying assets were losing value and whether the homeowners would continue to make their payments.
The capital allowed the company to go to banks and borrow far more, leveraging its cash investment some 20 times into the portfolio valued recently at $21.7 billion.
Though focused on AAA-rated mortgage-backed securities issued by Fannie Mae and Freddie Mac -- traditionally considered secure and conservative investments -- the company's prospects have been dimmed by the same doubts that have upended securities linked to riskier subprime mortgages, namely whether the underlying assets were losing value and whether the homeowners would continue to make their payments.
All the models of leveraged investing that I have seen are micro models -- that are only good in small scale investing -- and nobody has ever assessed the impact of the widespread use of leveraged instruments on the economy - particularly if the payment chains hiccup.
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