Moody’s Downgrades of RMBS
HERE’S SOME LIGHT WEEKEND READING FOR YOU: 2,446 classes of residential mortgage backed securities, mostly fairly large credit Downgrades (several steps). Private label non-agency mortgage backed securities. Mostly Alt-A, some are sub prime.
How very timely of Moody’s to release this in February 2009 (along with this timely warning to the dinosaurs: Hey, look out for that asteroid!)
via Debtwire:
“Wednesday’s downgrade of 2,446 classes of mixed RMBS caught traders off guard – even though it was viewed as an eventuality. While the market had largely priced in below-investment grade ratings to alt-A bonds following Moody’s Investment Services’ announcement that it would increase loss assumptions, the swiftness with which the rating agency acted has traders bracing for even more supply.
While the market was already trading bonds to these higher loss assumptions, the banks and insurance companies that own this paper are now going to have to hold more capital against these assets, and the increase given that these bonds are now junk [rated] is not a small matter,” said one trader. . .
Moody’s warned in a report last week that loss assumptions would be increased for RMBS and that downgrades could be expected. Moody’s is projecting that alt-A deals originated in the second half of 2007 will experience 25.5% losses of original balance, compared to 23.9% of 1H07 deals, 22.1% for H206 deals and 17.1% for 1H06 deals. The rating agency in May expected average losses for 2006 and 2007 vintage deals to reach 11.2% and 14.7%, respectively.
Massive selling is not expected immediately though it is only a matter of time before a substantial portion of the downgraded bonds are put out to bid, a second trader said . . .”
–Kevin Donovan
February 6th, 2009 at 4:07 pm
Correct me if I’m wrong here, but doesn’t the reserve requirement rise as these assets are downgraded? More trouble for the banks.
February 6th, 2009 at 4:08 pm
Exactly
February 6th, 2009 at 4:49 pm
OT, way OT
Barry,
Who displayed lower ethics CNBC or Ken Lewis by running and re-running a Maria’s T-ball interview of Lewis 2 days after he bought 200,000 BAC shares?
February 6th, 2009 at 4:56 pm
Potentially a much bigger problem for European banks under Basel II?
February 6th, 2009 at 5:03 pm
Moody’s and the rating agencies relationship to assets can be described thus:
Favorable Evaluation of Largely Leveraged Absolutely Tiny Income Outlook.
I am trademarking this one… but Barry and Meredith Whitney have dibs.
February 6th, 2009 at 5:05 pm
Are these guys even relevant anymore? I’m not sure what bond rating even means now-a-days.
February 6th, 2009 at 5:25 pm
What are California’s IOU’s rated as anyhow?
Reminds me of Dumb and Dumber.
“You might want to keep that one. It says I owe you one Ferrari”
February 6th, 2009 at 5:25 pm
Putnam Investments’ global asset allocation head Jeffrey Knight said that while the stimulus could “help to prevent a Great Depression sequel,” at the same time “Those who measure prosperity against the Faustian opulence of the last 10 years may find that stability, equilibrium, and even recovery will still feel like a deep depression.”
Pass the Prozac, bro, this is getting deep.
February 6th, 2009 at 5:30 pm
Sounds like a contrarian indicator.
February 6th, 2009 at 5:40 pm
Moody’s rating. Maria Bartiromo interview. Same thing.
We don’t listen, trust or believe them any more.
February 6th, 2009 at 5:46 pm
leftback: Did you ever?
I always thought Maria was just a once nice looking little Italian girl who could talk fast and got a break. Sorta like an actress who got discovered.
February 6th, 2009 at 5:47 pm
@Mike in Nola: I believe she scored a zero on Jeopardy, no?
February 6th, 2009 at 6:10 pm
@Mannwich:
See for yourself…I first posted this last year
http://www.youtube.com/watch?v=XRE1Wi9nr1k
February 6th, 2009 at 6:20 pm
http://www.alternet.org/workplace/125566/naomi_klein%3A_public_revolt_builds_against_rip-off_rescue_plans_for_the_economy/
Like Leftback says, credibility requires trust. Trust is hard enough to earn. When the very ones who destroyed that trust think they still have a future as leaders, they are delusional. All those wonderful PR tools to keep us channeled and caged aren’t working because of blogs like this one. People not only see through the BS, they realize this has been the same tired response for generations to elite economy trashing. This is really interesting. Can we really stuff a bunch of assholes in the shitpile this time? I hope so but I don’t deny the tenacity of those with the money. We’ll see.
February 6th, 2009 at 6:30 pm
AGG — they are not delusional. Secretly, they are amazed that they were ever able sell their finance fairytale.
February 6th, 2009 at 8:22 pm
As I learned recently the insurance industry used mbs (and not even top grade) as the basis for a number of their CAT bonds. Since the CAT bonds have something like a covered bond feature to them, the investment banks who are acting as their agent are going to be ponying up some more money.
The amounts involved are not huge by some standards, but they are pretty important with regards to insurance companies being able to pay for losses on the next big one. It’s yet another can of worms in the unfolding drama.
See here:
http://slabbed.wordpress.com/2009/02/05/slabbed-lets-the-cat-out-of-the-bag-is-allstates-reinsurance-program-worthless-ask-the-weeping-willow-tree/
(A friend of mines blog).
February 6th, 2009 at 11:23 pm
steve barry. thanks for that Maria B. Jeopardy link….that is really, really funny. Talk about getting “undressed” on a national stage. I don’t think it’s fair to judge someone’s intellect on their knowledge of “trivia,” but Computer worms? WTF. She’s a big blank.
February 7th, 2009 at 12:07 am
Off Topic — Infectious Greed has picked up the story from Clusterstock about a dissing of Steve Barry’s favorite chart — although the revised version looks plenty ominous to me.
I don’t think Henry Blodget is entirely convincing that our debt problem has been resolved. Somehow I think he’s missed a few trillion in recent borrowing.
February 7th, 2009 at 2:01 am
@Andy: And don’t forget, Celebrity Jeopardy has easier quaetions than standard Jeopardy.
@Constant: I read through tall those arguments and saw nothing from CSFB that made any sense (granted I think I was only reading piecemeal excerpts from the report). It does strike me as odd that practically everything I have seen or read says we are in the worst crisis since the Great Depression, yet this will somehow magically stop well short of being that bad, or will be at worst a “mini” depression.” How are they so sure?
Anecdotally, car sales are down 40% or so…home values down 25% and falling. I believe that anything over 10% drop is a depression…we are well over that and still falling. The effects of recent job losses haven’t even been felt yet. I see massive commercial RE vacancies in Westchester NY that haven’t been filled for a year. Now what happens when anchor tenants such as Linens n Things, Circuit City, Borders and Fortunoff are closed for good? There is nobody big enough, expanding fast enough to fill those locations…what about tons of WaMu locations right across from Chase that will be consolidated away? This has all occurred, despite falling interest rates and recently the plummeting of oil prices. What happens if rates spike and/or oil spikes back up?
February 7th, 2009 at 2:11 am
ATTN: Anybody with a Bloomberg Terminal:
Can you tell me where Financial Sense is getting the data that shows the Nasdaq P/E is 79? Last week they said 46 or so. It could be that they are using data that includes all “one-time” write offs rather than pro-forma operating results…either way that number is ridiculous. The WSJ has it at 26 (still bubble-like given a possible depression)
http://www.financialsense.com/monitor.html
http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=topnav_2_3000
February 7th, 2009 at 2:51 am
and another front is continuing to expand on the mortgage war:
Rep: Foreclosed owners should squat in their own homes
http://tinyurl.com/anlzza
February 7th, 2009 at 4:25 am
Barry,
This is off topic but it is part of the bigger picture:
It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.
© 2009 The New York Times
Paul Krugman
So as the big jumbo began the climb,C0-pilot Biden asked Captain Obama if that cloud looked like a bunch of Republicn GEESE.