100 Billion dollar subprime Fund

[stansd]

Great analysis, Dave…largely agree.

One thing I think we forget on this board (not pointed at you, but in generaL): Just as wealth is not actually created with layers upon layers of financial complexity, neither is it destroyed. It is true that there was a lot of risky lending going on and that defaults are going to get worse. That said, the losses are really only as big as the defaults and expenses to process defaults (think REO) and the folks ultimately owning those losses.

All the leverage piled on top is really a “this hedge fund wins, that one loses scenario”. I’m a huge housing bear, but I really do believe much of this is a liquidity issue as anything else.

I’d say bears and bulls are both correct. Bears are right in pointing out that this is much bigger than people think. Bulls are correct in that this isn’t an economy shattering event.

Where things really go south is there you add the housing market to the LBO craze to the madness going on in emerging markets investments to the unsustainable consumer spending in this country, and all the other derivatives of these problems…That is a crisis, but it takes a much broader perspective than the impact of SIV losses to get there.

Stan

[stansd]

Great analysis, Dave…largely agree.

One thing I think we forget on this board (not pointed at you, but in generaL): Just as wealth is not actually created with layers upon layers of financial complexity, neither is it destroyed. It is true that there was a lot of risky lending going on and that defaults are going to get worse. That said, the losses are really only as big as the defaults and expenses to process defaults (think REO) and the folks ultimately owning those losses.

All the leverage piled on top is really a “this hedge fund wins, that one loses scenario”. I’m a huge housing bear, but I really do believe much of this is a liquidity issue as anything else.

I’d say bears and bulls are both correct. Bears are right in pointing out that this is much bigger than people think. Bulls are correct in that this isn’t an economy shattering event.

Where things really go south is there you add the housing market to the LBO craze to the madness going on in emerging markets investments to the unsustainable consumer spending in this country, and all the other derivatives of these problems…That is a crisis, but it takes a much broader perspective than the impact of SIV losses to get there.

Stan

[4plexowner]

Actually, ALL of the issues can be summed up in two words:

FIAT CURRENCY

[4plexowner]

Actually, ALL of the issues can be summed up in two words:

FIAT CURRENCY

[zzz]

I think there is some overexaggerating going on here – the market is not efficient as we’d like it, but not nearly as bad as you guys are writing about. MBS or any ABSs for that matter are tied to assets. Those assets don’t just vanish – we’re not talking about worthless bonds that are issues – they are backed -hence their name. The value of those assets may decrease, but they do not go to 0 as a collective. If they go to 0, the world is ending and we all have a lot more to worry about. Homes do not just become worthless – the question as someone else pointed out is liquidity and speculation. There are always 2 sides to every market – you can bet its going to go up or down. And make money on both sides – its about picking correctly. CDSs are the same – someone is betting on the likelihood of default, or perhaps hedging their underlying position.

The institutional market will be just fine as whoever lost their pants in this subprime mess means another player also made a shitload of money. Goldman for instance made all those risky – yet very profitable and correct wagers.

The valuation question – its whatever people will pay. Debt gets pooled all the time and sold off – its not a newly created financial vehicle. From big companies who issue AAA rated bonds to little guys, or any type of debt you can think of – gets pooled. Are the pools difficult to evalute, yes, but is there a market price at the end of the day, yes. Its like complaining that Google at 600 is overpriced. Perhaps yes, but someone is willing to buy it at 600. That’s the beauty of the financial markets.

[zzz]

I think there is some overexaggerating going on here – the market is not efficient as we’d like it, but not nearly as bad as you guys are writing about. MBS or any ABSs for that matter are tied to assets. Those assets don’t just vanish – we’re not talking about worthless bonds that are issues – they are backed -hence their name. The value of those assets may decrease, but they do not go to 0 as a collective. If they go to 0, the world is ending and we all have a lot more to worry about. Homes do not just become worthless – the question as someone else pointed out is liquidity and speculation. There are always 2 sides to every market – you can bet its going to go up or down. And make money on both sides – its about picking correctly. CDSs are the same – someone is betting on the likelihood of default, or perhaps hedging their underlying position.

The institutional market will be just fine as whoever lost their pants in this subprime mess means another player also made a shitload of money. Goldman for instance made all those risky – yet very profitable and correct wagers.

The valuation question – its whatever people will pay. Debt gets pooled all the time and sold off – its not a newly created financial vehicle. From big companies who issue AAA rated bonds to little guys, or any type of debt you can think of – gets pooled. Are the pools difficult to evalute, yes, but is there a market price at the end of the day, yes. Its like complaining that Google at 600 is overpriced. Perhaps yes, but someone is willing to buy it at 600. That’s the beauty of the financial markets.

[bsrsharma]

They are surely not worthless; but a realistic pricing based on underlying assets should deflate them by at least 50%. That can have unimaginable chain reaction in the leveraged and derivative markets resulting in end result that is not hugely different from repricing to zero.

[bsrsharma]

They are surely not worthless; but a realistic pricing based on underlying assets should deflate them by at least 50%. That can have unimaginable chain reaction in the leveraged and derivative markets resulting in end result that is not hugely different from repricing to zero.

[gandalf]

Exactly correct. Even a 25% nominal repricing, as we are currently experiencing (50% real?), is going to have significant consequences.

True, there are upsides to ‘play’, but losses in ‘paper’ wealth are still losses in a ‘paper’ economy, and the consequences are going to be overwhelming negative for the vast majority of stakeholders.

[gandalf]

Exactly correct. Even a 25% nominal repricing, as we are currently experiencing (50% real?), is going to have significant consequences.

True, there are upsides to ‘play’, but losses in ‘paper’ wealth are still losses in a ‘paper’ economy, and the consequences are going to be overwhelming negative for the vast majority of stakeholders.

[Raybyrnes]

Gandalf,

Seems that the last 10 years would have been a tidal wave of MBS being sold. I could not imagine a better place to be. Why not make the jump to Credit Suisse when they merged? I believe the Managind Director at the time was Gordon Murray. Pretty nice guy. I believe he left and the new MD is Eric Smith.

[Raybyrnes]

Gandalf,

Seems that the last 10 years would have been a tidal wave of MBS being sold. I could not imagine a better place to be. Why not make the jump to Credit Suisse when they merged? I believe the Managind Director at the time was Gordon Murray. Pretty nice guy. I believe he left and the new MD is Eric Smith.

[zzz]

This is assuming any 1 player is 100% leveraged in any 1 direction – not true. None of the big boys are. And are we talking about stakeholders as in Wall St boys losing their money, or stakeholders meaning pension funds and retirement systems, etc? If its Wall St, its the nature of the beast – institutional guys lose money, make money all day long. If its the latter – if you can self direct, put your money somewhere else.

[zzz]

This is assuming any 1 player is 100% leveraged in any 1 direction – not true. None of the big boys are. And are we talking about stakeholders as in Wall St boys losing their money, or stakeholders meaning pension funds and retirement systems, etc? If its Wall St, its the nature of the beast – institutional guys lose money, make money all day long. If its the latter – if you can self direct, put your money somewhere else.

[patientlywaiting]

Isn’t this like a bunch of neighbors getting together to buy each other’s houses to keep the market from tanking? How long can they do that? Sounds like market manipulation to me.

[Author]

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