Hurray! Grassley to investigate Bear paper

[brewer12345]

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Originally Posted by RockOn That is worth a small bet. I think there will be a significant loss on many of the MBS securities which is what I am assuming Bear sent to the FED.

Impossible to really say without knowing more details on what the reference portfolio is. It probably contains a grab bag of stuff, including corporate loans, MBS of various flavors, ABS, etc.

I suspect that the Fed made JPM put up the better (if illiquid) stuff, which is why JPM was willing to take a first loss position. There is a lot of paper that will almost certainly be money good in the fullness of time, but which is essentially not salable at the moment. For example, I have seen seasoned, AAA rated, short term (couple of years, max), insured (by a good insurer, not a crap one) securitization paper backed by a portfolio of subprime auto loans that is without a doubt going to pay all coupons and principal. Priced at a 16+% yield to maturity. I think that is the kind of stuff that wentinto the reference portfolio.

[brewer12345]

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Originally Posted by Notmuchlonger Well good news. It should end next election with Obama.

I hope so, but ground wars of occupation are a lot easier to start than they are to finish.

[RockOn]

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Originally Posted by brewer12345 Impossible to really say without knowing more details on what the reference portfolio is. It probably contains a grab bag of stuff, including corporate loans, MBS of various flavors, ABS, etc. I suspect that the Fed made JPM put up the better (if illiquid) stuff, which is why JPM was willing to take a first loss position. There is a lot of paper that will almost certainly be money good in the fullness of time, but which is essentially not salable at the moment. For example, I have seen seasoned, AAA rated, short term (couple of years, max), insured (by a good insurer, not a crap one) securitization paper backed by a portfolio of subprime auto loans that is without a doubt going to pay all coupons and principal. Priced at a 16+% yield to maturity. I think that is the kind of stuff that wentinto the reference portfolio.

If that what the FED got, I'm totally with you. I own a few bank loan funds and hopefully have some of those myself. I'm not that confident it is that good of quality. I think JP only put up the first $1B to justify raising the stock purchase price from $2 to $10 which is about equal to $1B. The FED probably made them do it for political cover. Let's say it turns out to be all MBS, including all the tranches, then what would you say about the deal? You'd still be for it?

[brewer12345]

Quote:

Originally Posted by RockOn If that what the FED got, I'm totally with you. I own a few bank loan funds and hopefully have some of those myself. I'm not that confident it is that good of quality. I think JP only put up the first $1B to justify raising the stock purchase price from $2 to $10 which is about equal to $1B. The FED probably made them do it for political cover. Let's say it turns out to be all MBS, including all the tranches, then what would you say about the deal? You'd still be for it?

I'd be for the deal even ifthe Fed wrote a check for $30 billion and never got a penny back. I think that if they had not orchestrated the deal we would be hurtling toward another Depression right now.

But supposing that they got just MBS, it would really depend. Even the crappiest subprime mortgage deals will almost certainly pay back the AAA tranche in full as long as the underlying collateral was first lien loans. Mezzanine tranches from prime deals are probably OK. Home equity, not so much. Other ABS (car loans, credit card receivables, mixed collateral, CMBS, etc.) is very likely fine as long as its not too subordinated. But a lot depends on vintage and what exactly the collateral is. I'd rather own paper backed by subprime auto loans than prime piggyback second mortgages.

[RockOn]

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Originally Posted by brewer12345 I'd be for the deal even ifthe Fed wrote a check for $30 billion and never got a penny back. I think that if they had not orchestrated the deal we would be hurtling toward another Depression right now.

I don't think it would have been that serious to let Bear go into liquidation but what do I know. If it was a bad as hurtling toward another depression, I think things must be much worse than we think. I've heard many estimates, they are not all crackpots, that not even 50% of the losses have been written off so far. If those estimates are correct, there will surely be more shoes to fall. The FED cannot bail out many more from the numbers I have seen but are acting like they have unlimited resources.

It seems to me they could pump the printing presses, prop up house prices, and inflate us out of the problem. Do you see that happening? Do you watch the monetary base? It broke to a minor new high, it could be the start of a new trend. Too early to tell though.

[chinaco]

Something occurred to me. Do you agree with this idea?

The government is helping out the miscreant (or incompetent) corporations (and management) that scr3wed up.

Shouldn't a stipulation of the government bailout (help with loans) be that most of upper management be fired to get the assitance? Fired with the company refusing any golden parachute?

It seems only fair... Why should the perpetrators be left in power?

[Tadpole]

I'm with chinaco. When I read this discussion I wonder if people are trying so hard to be "conservatives" and "personal responsibility" that they can't see their navels for their bellies.

[W2R]

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Originally Posted by chinaco Something occurred to me. Do you agree with this idea? The government is helping out the miscreant (or incompetent) corporations (and management) that scr3wed up. Shouldn't a stipulation of the government bailout (help with loans) be that most of upper management be fired to get the assitance? Fired with the company refusing any golden parachute? It seems only fair... Why should the perpetrators be left in power?

YES!!! You are so right about that. Upper management should not be allowed to walk away from these bail-outs and retire in unbelievable luxury, which seems to happen a lot. It almost seems like a scam. Even if it is not their fault (which I find it hard to believe), they should still bear the responsibility. Bad things happen to all of us (except these guys).

[Zipper]

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Originally Posted by Zipper I watched a news show on HDnet a couple of weeks ago that made me sit up and take notice. I think it was a Dan Rather's news programme. It showed a U.S. army captain (female) handing out stacks and stacks of newly minted $100 bills to some tribal leaders in Iraq. They were supposed to distribute it to locals to keep highways open and buy the peace. We are talking about 10's of $millions in just this one area. I looked at those stacks of paper and realized that the printing presses must be going full full tilt. Makes me glad I have some gold in the portfolio.

Here I am quoting myself!

Who on this forum wouldn't like one of those stacks?? (about 6" of mint $100's)

[Notmuchlonger]

Dun dun dun The Fed might get more bullets.


Bush proposes financial regulation overhaul - Stocks & economy - MSNBC.com

[HFWR]

Quick, close the barn door. The horse is out...

[al_bundy]

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Originally Posted by RockOn I'm not so sure of that. My feeling is that the average american, as opposed to the Wall Street crowd, is pretty fed up with high prices, dropping home prices, and a looming recession. To see the Government giving away money to bail out a Wall Street firm that made stupid loans and took on 30 to 1 leveraged risk isn't sitting well. The Dems will start beating it like a drum. I think it may have legs. Since Bear got a bailout watch out for everyone else asking for a handout. Homeowner bailout plans are already stirring, Bush sounded today like even he wouldn't fight it too much. Time will tell. I expect some intensive regulation as a minimum. Especially if it becomes obvious Bear unloaded junk paper on the Fed.

we have had all this when the US was on the gold standard and before we had a Fed

[saluki9]

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Originally Posted by RockOn No I wouldn't trust his word if that's all I got. He said he wants "full public disclosure", if I heard him right. Full sunshine.

The average American doesn't have even the most basic understanding of public debt, our tax system, or What the Fed does.

I can't wait until Mr. Grassley starts trying to explain CDO tranches to them, I'm sure it will be enlightening to the point of unconsiousnes.

[HFWR]

Well, I think it's okay to hold some feet to the fire, including the tootsies of Congress...

Something must be done...

Apparently, a lot of risk in these instruments was not accounted for properly, or at all. So now the Fed has to punt...

All you can do is hold your nose...

[barbarus]

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Originally Posted by saluki9 The average American doesn't have even the most basic understanding of public debt, our tax system, or What the Fed does. I can't wait until Mr. Grassley starts trying to explain CDO tranches to them, I'm sure it will be enlightening to the point of unconsiousnes.

I say get Britteny Spears to explain these things and America will be a better place.

After all, she knows as much about finance as any of the current candidates for our next fuhrer, no?

[brewer12345]

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Originally Posted by saluki9 The average American doesn't have even the most basic understanding of public debt, our tax system, or What the Fed does. I can't wait until Mr. Grassley starts trying to explain CDO tranches to them, I'm sure it will be enlightening to the point of unconsiousnes.

Heh. And now the administration wants to consolidate all regulation under the Fed. Imagine explaining to the public the difference between the OTS, the OCC, the FDIC, and the Fed. And I cannot wait for the 50 way dag nasty fight that will result from the proposal for a national insurance regulator. Can't see that working with all the entrenched interests, but I will make sure to have some popcorn popped before the insurance cage match starts.

[RockOn]

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Originally Posted by Want2retire YES!!! You are so right about that. Upper management should not be allowed to walk away from these bail-outs and retire in unbelievable luxury, which seems to happen a lot. It almost seems like a scam. Even if it is not their fault (which I find it hard to believe), they should still bear the responsibility. Bad things happen to all of us (except these guys).

Almost? That's movin out there on the wild side. Tryin to avoid the Reynolds wrap?

[W2R]

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Originally Posted by RockOn Almost? That's movin out there on the wild side. Tryin to avoid the Reynolds wrap?

I suppose I am just not all that full of myself. Odd to some, I know!!