by ARGeezer
Thu Jul 31st, 2008 at 01:25:41 AM EST
Articles by
Noureil Roubini and
Robert Gottliebsen point to further financial turmoil.
Nouriel Roubini's Global EconoMonitor
Super-Senior Tranches of CDOs are Worth Much Less than 22 Cents on the Dollar: Another Ponzi Scheme of "Selling" Toxic Garbage with More Leverage
Nouriel Roubini | Jul 29, 2008
Merrill Lynch decision to "sell" a good chunk of its remaining CDOs at 22 cents to the dollar has been widely praised as the firm finally recognizing the full extent of its losses on these toxic instruments. This batch of $30.6 billion of CDOs was already marked down to $11.1 billion. Now with the "sale" of it to Lone Star at a price of 6.7 billion Merrill Lynch is taking another $4.4 billion writedown and "selling" it at 22% of the original face value.
But is this a market-based "sale"? No way as calling this transaction a "sale" is a joke.
Roubini describes a transaction in which Merril provides the financing for the sale, as the secondary market for these CDOs is "illiquid." I would describe it as paying the undertaker to dispose of the body.
Below the fold Robert Gottliebsen of Business Spectator describes the thunder from down under that will waft its way to Wall Street. No happy talk here.
Commentary 12:40 PM, 25 Jul 2008
Robert Gottliebsen Business Spectator
NAB will shock Wall Street
The National Australia Bank's decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a "meltdown".
We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans - an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression. (my bold)
It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable.
While global banks have been writing down their balance sheet assets, few have tackled their conduit exposures which are off balance sheet but to which they are ultimately liable.
-skip-
The global banks have been marking to market the assets they held on their balance sheet, but the vast amounts held in so called 'conduit trust accounts' have not been written down because they were not marketable. NAB wrote them down when they saw the bad mortgages.
Mike Whitney describes how these events played out on on Wall Street Monday and Tuesday.
Apocalypse Down Under from Counterpunch
By MIKE WHITNEY
Monday's trading on the New York Stock Exchange (NYSE) was a real humdinger. It started off with the White House announcing that this year's fiscal deficit would soar to a new record of nearly $500 billion. That was followed by news of rising oil prices, weak quarterly earnings and a slowdown in consumer spending. By mid-morning the markets were in full retreat. That's when investment giant Merrill Lynch announced that it would notch a $4.6 billion second-quarter loss and write-downs of $9.4 billion on collateralized debt obligations (CDOs) and other mortgage-related assets. Stocks quickly went verticle and the rout was on. By the closing bell the Dow was down 240 points. Traders staggered from floor of the exchange slumped-over and bedraggled, looking like they just got a missive from the draft board.
And, yet, on Tuesday, the market staged a valiant comeback, surging 260 points in a matter of hours. It was enough to give the fund managers a bit of a lift and hope that things are finally turning around. But the market's woes are far from over. The International Monetary Fund summed it up in warning they issued earlier in the week:
"Global financial markets are 'fragile' and indicators of systemic risk remain 'elevated'...Credit quality 'across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.' Bank balance sheets are under 'renewed stress' and the decline in bank share prices has made it more difficult to raise new capital. (There is an) 'increased likelihood of a negative interaction between banking system adjustment and the real economy.' (Financial Times)
The IMF also stuck by its earlier prediction that total losses to financial institutions from the credit crisis would reach $1 trillion ($945 billion) a sum that will have savage consequences for industry, consumers and the global economy.
The foregoing provides context for London Banker's recent post regarding "covered bonds" in the USA and my comment in the July 31 Salon.
