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Robert J

What, no thread on the banks?

158 posts in this topic

... Given how cash-strapped AIG is right now (thanks to CDO investments, the extent of which I cannot believe passed muster with 50 state commissioners), this is a very real risk. Given the fact that the stock touched $3.50 today (95% below where it was less than a year ago), I think it fair to say that many others share this assessment.

Doubt it's just CDO investments. I've been hearing that AIG trading desks have some seriously underwater/mishedged CDS (credit default swap) positions.

This may betray my ignorance, but prior to your post I would have considered a CDS to be a type of CDO. Isn't a CDS essentially a firm-specific CDO?

No. a CDS is an insurance contract on debt -- guaranteeing against default of that debt/bond. So if the debt/bond does default, the insurer pays out. Hence credit default swap.

a CDO (collateralised debt obligation) is a bond with assorted underlying financial assets as collateral, also generating the interest payments. Lots of these use subprime bonds as collateral.

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I think a CDO (collateralized debt obligation) is a kitchen-sink style bond-like investment, which can be backed/collateralized by all manner of things: mortgages, corporate bonds, various senior/subordinate/equity tranches of other collateralized deals, even swap agreements like CDS.

Yup. There were even CDOs of CDOs, titled CDO^2, CDOs of CDO^2s titled CDO^3. Staggering.

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I don't understand any of this shit even though it could cost me my job.

made me laugh however.

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According to CNN:

NEW YORK (CNNMoney.com) -- The pressure on American International Group reached fevered pitch on Monday night as the troubled insurer was hit by a series of credit rating downgrades.

The cuts could prove deadly to AIG, the nation's largest insurance company, which is scrambling to raise much-needed capital.

Late Monday night, Moody's Investors Service and Standard & Poor's Ratings Services each said they had lowered their ratings.

A few hours earlier, Fitch Rating had also downgraded AIG, saying the company's ability to raise cash is "extremely limited" because of its plummeting stock price, widening yields on its debt, and difficult capital market conditions.

The downgrades will make it more expensive for AIG to issue debt and harder for it to regain the confidence of investors.

Up over and out.

I went to the CNN site and read the entire article. While I don't understand all of the particulars, it sounds really bad and a little frightening. Hope some kind of deal can be worked out to keep AIG afloat.

Edited by ghost of miles

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According to CNN:

NEW YORK (CNNMoney.com) -- The pressure on American International Group reached fevered pitch on Monday night as the troubled insurer was hit by a series of credit rating downgrades.

The cuts could prove deadly to AIG, the nation's largest insurance company, which is scrambling to raise much-needed capital.

Late Monday night, Moody's Investors Service and Standard & Poor's Ratings Services each said they had lowered their ratings.

A few hours earlier, Fitch Rating had also downgraded AIG, saying the company's ability to raise cash is "extremely limited" because of its plummeting stock price, widening yields on its debt, and difficult capital market conditions.

The downgrades will make it more expensive for AIG to issue debt and harder for it to regain the confidence of investors.

Up over and out.

I went to the CNN site and read the entire article. While I don't understand all of the particulars, it sounds really bad and a little frightening.

You should be particularly frightened because people in the know don't understand all of the particulars.

Guy

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I've just been reading up on the Glass Steagall Act of 1933. This is the law that was repealed by the actions of our friend Phil "Bunch of Whiners" Gramm when he co-sponsored the the Gramm Leach Bliley act of 1999. GLB was the culmination of intense lobbying on the part of what's now known as the financial services industry that began as far back as the 1980's. More than a few economists believe that this laid the groundwork for the sub-prime crisis and all the attendant fall out. Interesting stuff.

Up over and out.

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The ironic thing is that people's money is safer in mutual funds right now than in a bank.

Unless you think the US government is going to go belly up, bank deposits (up to $100K) are FDIC insured. Mutual funds are not.

If the mutual funds are held in a brokerage account they are insured up to $ 500,000 by SIPC . Excess SIPC coverage ( provided by third-party insurers ) up into the millions is available from the major brokerages and fund companies as well . Additionally , mutual fund investors are protected by the fact that fund assets are held in trust and are thus legally separate from the mutual fund company , and by the fact that mutual fund managers must be bonded .

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Here's a C-Span video from a year ago in which Ron Paul on the floor of the US Congress predicts what is happening today if the government doesn't get its spending under control.

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It looks like AIG is in a race with WaMu.

http://www.bloomberg.com/apps/news?pid=206...refer=worldwide

WaMu Rating Lowered to Junk by S&P on Mortgage Losses (Update4)

By Ari Levy

enlarge_details.gif Sept. 15 (Bloomberg) --Washington Mutual, the biggest U.S. savings and loan, had its credit rating cut to junk by Standard & Poor's because of the deteriorating housing market.

S&P reduced its rating on Seattle-based WaMu to BB- from BBB-, leaving it three levels below investment grade, the ratings firm said today in a statement.

``Increasing market turmoil and the related impact from managing its concentrated mortgage franchise in this troubled housing and credit cycle led to the downgrade,'' S&P wrote. S&P cut its rating on the subsidiary bank to BBB- from BBB.

S&P followed similar announcements last week from Moody's Investors Service and Fitch Ratings. WaMu, which has reported $6.3 billion of losses in the last three quarters because of soured mortgages, said on Sept. 11 that it expects a third- quarter loan loss provision of $4.5 billion.....

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Here's a C-Span video from a year ago in which Ron Paul on the floor of the US Congress predicts what is happening today if the government doesn't get its spending under control.

The problem has nothing to do with excess government spending, which is likely going to be exactly what is necessary to get us out of whatever deep recession we're about to hurtle into. The problem was caused by a lack of regulation in the derivatives markets, which Paul as a libertarian ideologue naturally is a huge fan of.

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So WaMu is in trouble now too, eh? They currently own our mortgage. Does that mean if they go under our house is free and clear?

;)

Well, shit... when a company goes bankrupt and owes YOU, usually you don't get squat. Why shouldn't the opposite be true?

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I suspect this whole mess will take years until it finally works its way through the system. I blame it largely on the derivatives 'products' of the 1990s onwards, the ballooning of risk as asset prices exploded, lack of regulatory controls and resultant inability to price (and control) bottom-line risk. What is happening has taken a pretty long time to hit the fan but is to a vary large degree, I think, inevitable. Just a damn shame that the fallout will affect the innocent parties (ie. most of us) instead of the spivs in fancy braces who instigated and perpetuated this sham.

The whole mess primed of course by interest rates way too low for too long. Thank you, Mr Greenspan, for that ;) (although he was on TV last night deflecting the blame elsewhere).

From what I'm hearing over here, that insurance company AIG looks pretty damn vulnerable.

Edited by sidewinder

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So WaMu is in trouble now too, eh? They currently own our mortgage. Does that mean if they go under our house is free and clear?

;)

Well, shit... when a company goes bankrupt and owes YOU, usually you don't get squat. Why shouldn't the opposite be true?

I hope they hang in there until January, at least. I have a fairly fat Washington Mutual CD -- though it's insured if they go belly up.

... and, I reiterate among all the doom and gloom that the current equities environment presents an excellent long-term buying opportunity. I, for one, do not believe the entire financial system is going down the drain.

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... and, I reiterate among all the doom and gloom that the current equities environment presents an excellent long-term buying opportunity. I, for one, do not believe the entire financial system is going down the drain.

I agree. Some banks will shut down, but the financial system will survive. It always has.

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The TSX took a hit yesterday, but will rebound as it was mostly energy stock devaluation. We are also having our manufacturing woes, but that's not going away. Ford laid off 500 workers in my town last week.

Canada's banks will be fine as we aren't burdened with bad home loans . And in the last 6 months most of the major Canadian banks did their writeoffs for the ABCP crap they still held.

The company I work for recently retained its AA rating so we'll be OK for awhile.

I feel for my fellow American board memebrs though.

Edited by Robert J

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Just paid my $2,000 annual premium for my life insurance policy to AIG (Canada) yesterday. When I took out the policy 5 years ago, my broker told me that AIG was the most sound insurance company of all. I'm not particularly worried though, since a more solidly grounded insurer will surely buy up AIG's good in-force policies . The management of these companies is really screwed-up.

The whole melt-down is shades of Wall Street's Gordon Gecko ("Greed is Good"). I really feel badly for all the laid-off employees of these firms, as for the upper management , not at all. (in any case, they've already sucked out millions from the companies for their own pockets- I'd love to see the off-shore bank accounts of these greed bags).

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... and, I reiterate among all the doom and gloom that the current equities environment presents an excellent long-term buying opportunity. I, for one, do not believe the entire financial system is going down the drain.

I agree. Some banks will shut down, but the financial system will survive. It always has.

But not always in the same form.

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Time to bring back Glass-Steagall.

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Canada's banks will be fine as we aren't burdened with bad home loans .

Really?

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Canada's banks will be fine as we aren't burdened with bad home loans .

Really?

Our banks / lenders are far stricter about home loans, especially first timers. Most of our mortgages are "prime" and maybe a very small portion are subprime, and even then, a very small group of subprimers use variable rates.

All high-ratio mortgages in Canada — those with less than 20 per cent down — must be secured by mortgage insurance such as the Canada Mortgage and Housing Corporation. In addition, Canadian financial institutions do not finance more than 100 per cent of a home's purchase price, and that value must be verified with a separate appraisal.

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