Brookstreet kaput

[rockysan99]

Moody’s Investors Service said Friday it downgraded 131 mortgage investments backed by loans issued to people with weak, or subprime, credit histories.

More people who took out subprime mortgages, especially adjustable-rate loans issued over the past two years, have been defaulting on their monthly payments as their mortgages reset to higher rates.

That, in turn, makes mortgages pooled into securities and sold to investors a riskier proposition.

Moody’s said it also put 237 securities on review for further downgrades, including 111 of those already downgraded Friday. The downgrades affects both investment-grade and below-investment grade debt, including securities that had been rated ‘Aa’, ‘Aaa’ or ‘A’ and below, Moody’s said.

The ratings agency’s action affects mortgage securities issued by companies including Bear Stearns Cos., Merrill Lynch & Co., Credit Suisse Group, First Franklin Corp., and IndyMac Bancorp Inc

[rockysan99]

Moody’s Investors Service said Friday it downgraded 131 mortgage investments backed by loans issued to people with weak, or subprime, credit histories.

More people who took out subprime mortgages, especially adjustable-rate loans issued over the past two years, have been defaulting on their monthly payments as their mortgages reset to higher rates.

That, in turn, makes mortgages pooled into securities and sold to investors a riskier proposition.

Moody’s said it also put 237 securities on review for further downgrades, including 111 of those already downgraded Friday. The downgrades affects both investment-grade and below-investment grade debt, including securities that had been rated ‘Aa’, ‘Aaa’ or ‘A’ and below, Moody’s said.

The ratings agency’s action affects mortgage securities issued by companies including Bear Stearns Cos., Merrill Lynch & Co., Credit Suisse Group, First Franklin Corp., and IndyMac Bancorp Inc

[PD]

Goodbye liquidity.
Janey Marketwatcher was in line to buy a coffee just before Christmas 2007 when she overheard one half of a phone conversation.
“What? Four times income? What does that mean? No, I can’t do the math. Huh? I can only qualify for 300k instead of the 600k I’m asking for? And 20% downpayment! That is crazy! Nobody has money like that. No, I can’t sell my Hummer. I owe more than it is worth. This is unbelievable. Just last year one of the guys who works for me, and makes less than I do, got a loan from you guys for more than I’m asking for! This is bogus.”

[PD]

Goodbye liquidity.
Janey Marketwatcher was in line to buy a coffee just before Christmas 2007 when she overheard one half of a phone conversation.
“What? Four times income? What does that mean? No, I can’t do the math. Huh? I can only qualify for 300k instead of the 600k I’m asking for? And 20% downpayment! That is crazy! Nobody has money like that. No, I can’t sell my Hummer. I owe more than it is worth. This is unbelievable. Just last year one of the guys who works for me, and makes less than I do, got a loan from you guys for more than I’m asking for! This is bogus.”

[bubba99]

Does anyone have a good guestimate of how much money we are talking about in CMO/CDO’s? And what about the companies that sold insurance to the buyers of CMO’s – is the insurer at risk? and for how much?

There must be some salvage to CMO’s after insurance, but leverage might wipe that out also?

[bubba99]

Does anyone have a good guestimate of how much money we are talking about in CMO/CDO’s? And what about the companies that sold insurance to the buyers of CMO’s – is the insurer at risk? and for how much?

There must be some salvage to CMO’s after insurance, but leverage might wipe that out also?

[PD]

CMOs are much less risky than the CDOs. This problem was caused by CDOs not CMOs.

[PD]

CMOs are much less risky than the CDOs. This problem was caused by CDOs not CMOs.

[pencilneck]

Personally, I think both are problematic.

To Bubba99, From Wikipedia: “According to the Securities Industry and Financial Markets Association, aggregate global CDO issuance totalled USD 157 billion in 2004, USD 249 billion in 2005, and USD 489 billion in 2006.”

That sounds a little low to me, but its been doubling every year

[pencilneck]

Personally, I think both are problematic.

To Bubba99, From Wikipedia: “According to the Securities Industry and Financial Markets Association, aggregate global CDO issuance totalled USD 157 billion in 2004, USD 249 billion in 2005, and USD 489 billion in 2006.”

That sounds a little low to me, but its been doubling every year

[NotCranky]

You totally misunderstood my comment Rocky.I wasn’t making fun of you. I was making fun of the lack of concerned people you are pointing out. For weeks we have been fighting about religion and schools ect. on the blog. I was poking fun at those of us engaged in that activity.It has gotten so extreme that I thought we could use little teasing about being drunk. No worries, I am not offended by your mistake. You keep doing the heavy work. You are doing a great job. Thanks to you and a few others I get the concept of the hedge fund crisis and I appreciate the edification achieved. It is true I don’t personally worry about pending economic disruptions to a very large degree. I am not that materialistic.I Just hope we don’t end up killing lots of people to get out of it.

[NotCranky]

You totally misunderstood my comment Rocky.I wasn’t making fun of you. I was making fun of the lack of concerned people you are pointing out. For weeks we have been fighting about religion and schools ect. on the blog. I was poking fun at those of us engaged in that activity.It has gotten so extreme that I thought we could use little teasing about being drunk. No worries, I am not offended by your mistake. You keep doing the heavy work. You are doing a great job. Thanks to you and a few others I get the concept of the hedge fund crisis and I appreciate the edification achieved. It is true I don’t personally worry about pending economic disruptions to a very large degree. I am not that materialistic.I Just hope we don’t end up killing lots of people to get out of it.

[PD]

I need to correct my previous post. I was mistaken. The President of Brookstreet said this:

“A group of brokers had client accounts invested in CMO bonds. Some were on margin. The declines in value forced many into negative equity. Those amounts are charged to the firm’s net capital. The accounts were liquidated by the clearing firm which further accelerated the net deficits. Brookstreet went from 17mm of net equity at the end of May to minus 17mm of net equity and the liquidations are not over. Few firms can sustain this devastation. The firm started in 1990 with 16m of capital. It had over 650 registered representatives. It employed 105 staff. We have notified the NASD and SEC that we are out of capital and have been placed on sell only status for client accounts. All client accounts are carried by National Financial, a Fidelity Investments company, and the client assets are safe. This devastation took one week. I have been in the business 30 years, I have never seen anything like this.”

[PD]

I need to correct my previous post. I was mistaken. The President of Brookstreet said this:

“A group of brokers had client accounts invested in CMO bonds. Some were on margin. The declines in value forced many into negative equity. Those amounts are charged to the firm’s net capital. The accounts were liquidated by the clearing firm which further accelerated the net deficits. Brookstreet went from 17mm of net equity at the end of May to minus 17mm of net equity and the liquidations are not over. Few firms can sustain this devastation. The firm started in 1990 with 16m of capital. It had over 650 registered representatives. It employed 105 staff. We have notified the NASD and SEC that we are out of capital and have been placed on sell only status for client accounts. All client accounts are carried by National Financial, a Fidelity Investments company, and the client assets are safe. This devastation took one week. I have been in the business 30 years, I have never seen anything like this.”

[rockysan99]

Sorry Rustico. My apologies
I didnt know about the previous stuff. I am really worried about this hedge fund stuff. Even tho I’m short the insurers (ABK and MBI) I have reservations about a serious meltdown. It appears serious enough that Merrill avoided dumping those CDOs on the open market for fear of causing a panic. Still, Moody’s was forced today to revalue and there will be more. Brookstreet went under, and although they are only a tiny blip it still speaks volumes as to the precariousness of the situation at hand

[Author]

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