[quote=TheBreeze]
As for Davelj’s assertion that most of the MBS’s, CDO’s, etc are undervalued right now, well, I think that’s a crock of feces. There are still tons of foreclosures to come and valuing the three-letter-acronyms on current income is highly risky. Also, as another poster above said, do you really think AIG bailout money is “money good”. Please.
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OK, fair enough. I discuss these issues with professionals in the field every week. Given the veracity of your opinion I must assume that you do the same. So, Breeze, what are the prices and assumptions built into some of these securities currently? If you think I’m wrong – which is fine – then please provide me with a specific example. Is it possible that folks model in armageddon-like scenarios when determining what the value of some of these securities might be? Your insight is appreciated.
Where AIG is concerned, only part of the $160 billion in funding is TARP money – I believe $40 billion; the rest is a dedicated facility. Actually, I’ll be pretty surprised if we don’t lose money on the AIG deal. That one’s a turd. What I said in my original post was that the “vast majority of the TARP money will be money good.” Specifically, I’m confident that the $350 billion we’re putting directly into the banks will get paid back with interest. A few TARP banks will likely fail (there will ultimately be over 200 that receive TARP funds), but the equity interest in the others will likely offset these. The majority of the weaker CAMEL 3-rated banks and below are getting rejected for TARP.
The TARP money, the facilities, AIG, etc., in my view, are red herrings as to where the real losses are (for taxpayers and the economy). Again, the real losses for the govt (us) will be in Fannie and Freddie’s portfolios. Those will number in the $trillions.
Having said that, when my most bearish of bearish friends, who saw this coming from the beginning, start scratching their heads and saying, “I’m seeing some value here (in MBS, CDOs, etc.) based on an End of Days scenario,” I pay attention. But it’s a (mostly) free country, so folks can believe what they want to believe.
