bof – you are absolutely correct regarding loss limitations on the underlying assets (mortgages) as well as the potential credit contraction due to loss of appetite for mortgage-backed securities.
Another aspect to consider is the impact of credit derivatives. We’re potentially talking about trillions of dollars in credit derivatives at stake as the default process unfolds. So a hedge fund or investment house’s exposure on derivatives may far exceed their exposure on CDO’s. Therefore, potential losses are not limited to the underlying asset alone.
Reuters obtained a copy of the letter provided to investors today:
“The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007,” according to the letter. A copy of the letter was obtained by Reuters …
“The losses reflected “unprecedented declines in the valuations of a number of highly-rated (AA and AAA) securities,” the letter said.
Update: BSC is down nearly 4 percent as this post is updated in after-hours trading.
Question: What do you think is the probability BSC may collapse? If it does, will that be a “Black Swan” event?
Reuters obtained a copy of the letter provided to investors today:
“The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007,” according to the letter. A copy of the letter was obtained by Reuters …
“The losses reflected “unprecedented declines in the valuations of a number of highly-rated (AA and AAA) securities,” the letter said.
Update: BSC is down nearly 4 percent as this post is updated in after-hours trading.
Question: What do you think is the probability BSC may collapse? If it does, will that be a “Black Swan” event?
He does drive them crazy, he did the same thing on AHM and just nailed it. Now he has also been wrong but I really enjoy his posts. He has some keen insight into the financial markets.
He does drive them crazy, he did the same thing on AHM and just nailed it. Now he has also been wrong but I really enjoy his posts. He has some keen insight into the financial markets.
By the way the dollar is just crumbling right now. I imagine Ben will come out swinging against inflation tomorrow, at least with words. It should be good theater with this Bear Stearns debacle as a back drop.
By the way the dollar is just crumbling right now. I imagine Ben will come out swinging against inflation tomorrow, at least with words. It should be good theater with this Bear Stearns debacle as a back drop.
