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NEW -> Contingent Buyer Assistance Program
Graphrix - I honestly don't know whether the holders of a CDS or other derivative have to show a loss based on risk assessment or a ratings change by one of the agencies who might rate product or company. I tend to think the initial basis was suspect. And when does it become a loss? What if the other party to the contract doesn't pay when a threshold is met or a term is realized? Is a loss determined then? Or can unrealized amounts just be included in accounts receivable and maybe even counted as earnings?<p>

Does anybody have a realistic idea what the over all effect of the over the counter derivative market is? Can it continue in it's present form? Will defaults lead to a collapse, and if so, how many defaults?<p>

It may just be paper money, but what I think those who say this don't consider is that all this paper money is actually just credit or debt, and credit can contract. If they can't borrow more, they have to pay back what they owe.
 
<p>More on CDOs and how sucker pension funds like CALPERS are investing in the garbage. <a href="http://www.bloomberg.com/apps/news?pid=20601109&sid=aW5vEJn3LpVw&refer=news">Bloomberg Link.</a> What disturbs me the most about this is my grandmother received CALPERS retirement funds and I think of all the people who will be grandmothers and grandfathers who will need these funds later in life. The other thing that disturbs me is this is the same garbage investment that OC invested in and the reason why OC went into BK.</p>

<p>Major hat tip for Tanta at CR to add <a href="http://calculatedrisk.blogspot.com/2007/06/reelin-in-suckers.html">these points to it.</a></p>

<p>The fact that the fund manager for our California teachers has been sold garbage by these IBs is embarrassing and when they find out it is garbage the fund manger will be disgraced. They were turned on by the high returns of the CDOs when if they made good investments and were not underfunded by investing in Standard Pacific they wouldn't need to chase the dream. It may seem arrogant that I criticize the investment decisions of a pension fund manager but there are ways to invest that would not be as risky but would have overall better returns. If they were more conservative they wouldn't have this need to make up for their losses and now in the need to chase a dream. What happens when CALPERs is broke and can't file for BK? </p>
 
Arrogant to criticize CalPers? I hope not, because I am a member and have criticizing their decisions for years.



My guess is the State of California, (taxpayers), will make up the shortfall when CalPers cannot make it's payable.
 
<p><a href="http://biz.yahoo.com/rb/070606/usa_subprime_realtors.html?.v=1&.pf=real-estate">http://biz.yahoo.com/rb/070606/usa_subprime_realtors.html?.v=1&.pf=real-estate</a></p>

<p><a href="http://biz.yahoo.com/ap/070607/mortgage_rates.html?.v=1">http://biz.yahoo.com/ap/070607/mortgage_rates.html?.v=1</a></p>

<p> </p>
 
<a href="http://realestate.msn.com/buying/Article_bankrate.aspx?cp-documentid=4946646">http://realestate.msn.com/buying/Article_bankrate.aspx?cp-documentid=4946646</a>





interesting quote:





<em>You have a 1-in-3 chance of losing your house to foreclosure if you got an adjustable-rate mortgage, or ARM, in 2004 through 2006 that had an initial teaser rate of less than 4%</em>
 
<p><strong><a href="http://biz.yahoo.com/y/pfoneclick/48012/:http://finance.yahoo.com/banking-budgeting/article/103102/Credit-Rating-Standard-Tightens">No More "Piggybacking": Credit Ratings Stricter</a></strong></p>

<p><strong></strong></p>
 
<p>Funny how back in Feb they were saying that the subprime implosion would "have little impact on the overall market" yet now it's getting blamed for OC's slowest May in 20 years:</p>

<p><a href="http://www.ocregister.com/ocregister/money/homepage/article_1729469.php">http://www.ocregister.com/ocregister/money/homepage/article_1729469.php</a></p>

<p><strong><em>May home sales in O.C. slowest in 20 years</em></strong></p>

<p><em>Sales fell nearly 29 percent from the same month a year ago, but prices still are holding. The median price of home in the county was $500 more than the same time last year.</em></p>

<p> Does anyone in the REIC have any credibility left?</p>

<p><em></em></p>
 
Bear Stearns announced today they are trying to sell 3.8 billion dollars worth of bonds, a huge amount of which are mortgage backed structured derivatives and not real bonds. I will give you even money they don't net one billion from the whole bunch. They have been carrying this financial toxic waste on one of their hedge fund's books at the initial value. And to top it off, all this mess will compete with new mortgage paper for buyers. How can it not get ugly? Folks have gotten so used to thinking that the goverment or the Fed can do something that they have no idea what is coming. It's our pension plans that invested in this "hedge fund".
 
Warning PDF:


<a href="http://www.billcara.com/CS%20Mar%2012%202007%20Mortgage%20and%20Housing.pdf">


Mortgage Liquidity du Jour:


Underestimated No More</a>





Another great Credit Suisse Report.





In response to the recent turmoil in the mortgage market, we surveyed our


private homebuilders and their mortgage lenders to asses the new home


market’s exposure to mortgage products that are at greatest risk for tightening


and increased regulation in the coming months --- <strong>it’s not just a subprime issue.</strong>





We believe that 40% of the market (share of subprime and Alt-A) is at risk of


significant fallout from tightening credit and increased regulatory scrutiny. In


particular, we believe the most pressing areas of concern should be <strong>stated


income (49% of originations), high CLTV/piggyback (39%), and interest


only/negative amortizing loans (23%)</strong>. The proliferation of these exotic mortgage


products has been disproportionately weighted to former hotbeds such as


California, Nevada, Arizona and Florida, which have accounted for the lion


share of builder profits.
 
<p>Sour mood, Housing industry index hit 16 year low. Fornt page news.</p>

<p><a href="http://www.msnbc.msn.com/id/19295922/">http://www.msnbc.msn.com/id/19295922</a>/</p>
 
Morgan Stanley siezed $400 million of the Bear Stearns hedge fund assets. How does a broker or investment banker legally sieze the assets of a hedge fund with investors? What happened to due process? And why would Morgan Stanley want a bunch of MBS bonds anyways? What is going on? Whatever it is, something tells me it doesn't bode well for the retail mortgage market. Just a guess.
 
<p>To add to how well the mortgage market is performing the 1st quarter 2007 BBB- MBS insurance now costs more than the 2006. I wish I knew how to short or buy puts on the price of the ABX indexes or at least collect that coupon. Should we start the IHB hedgefund?</p>

<p><img alt="" src="http://img101.mytextgraphics.com/photolava/2007/06/19/07bbbabx-1ib7nhb6.png" /></p>
 
<p>Sorry, I do not know how to short the ABX spreads. And considering that I only have a vague idea about how they work, it would probably be a poor short for me anyways.</p>

<p>I guess the housing starts numbers came in at expected. What I don't get is why anyone would think that if the actual housing starts had been greater than expected, how that would be bullish for the housing market. Wouldn't a greater housing starts number meant there would be more new homes in an innudated market, thereby forcing prices lower?</p>

<p>I guess Carl Quintanilla did a segment this morning on Bubblevision, the gist of which was that the bottom is in and the housing market is turning around. I didn't get to see it, but I would have liked to. Did anyone see it?</p>
 
<p>The must read of the day: <a href="http://tinyurl.com/28ohz5"><strong>http://tinyurl.com/28ohz5</strong></a><strong> </strong>Kellner on why the Fed has an inflation problem.</p>

<p>Ah yes housing starts <a href="http://calculatedrisk.blogspot.com/2007/06/housing-starts-and-completions-for-may.html">http://calculatedrisk.blogspot.com/2007/06/housing-starts-and-completions-for-may.html</a> for the real information on the data.


</p>

<p> </p>
 
This guy should get some kind of a prize as he is one of the first intelligent reporters I have heard say that inflation is out of whack.
 
I read today that Citigroup may help bail out Bear Stearn's failing hedge fund with $400 million. Bear Stearns itself may bail out the hedge fund for a total of $1.5 billion, and there are rumors that Blackstone may help bail out the fund. The total capital from investors is only $600 million. So why you ask are investment bankers and even private equity so anxious to help out some hedge fund investors? Because ... if this hedge fund fails, all those MBS derivatives get marked to market and the ratings agencies have to re-rate all similar derivatives. And if they get marked to market, everyone holding any of the $530 trillion worth of derivatives out there is going to panic, including Blackstone, who's IPO would probably not go through since it is being financed with bond derivatives. Better to give a few hundred million dollars to some hedge fund investors than to lose an IPO worth billions to the primarys. How many times will this happen before the investment bank stockholders start dumping? And how many times can it happen before this wonderful world of liquidity dries up? You think you are seeing a few foreclosures now? You think this doesn't matter to us little guys because we cannot comprehend an amount of $530 trillion? It matters and the only way for the Fed to see it's way out will be for Bernanke to start up the helicopters.
 
It's fascinating to read about what's going on behind the scenes. I consider this blog akin to a "No Spin Zone", unbiased and reliable. And by helicopters, are you referring to rate hikes?
 
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