Comments on: Goldman agrees to carry on as usual A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF Mon, 19 Jul 2010 01:25:59 +0000 Don’t know the answer to that one, Danny_Black, but we’re running something like 1 million foreclosures per year. At last check, 10% of prime loans were delinquent and 3% were in foreclosure. I imagine the situation would be much worse if you looked at loans written between 2004-2007, since mature loans are less likely to default.

Recovery has been poor, partly because so many of the loans are heavily underwater, partly because they are dragging out the process in the hope things will improve.

By: Danny_Black Sun, 18 Jul 2010 18:51:29 +0000 Maybe plenty of buysides sat it out but more than enough were there to participate and speads tightened BECAUSE of demand. If you are a high-grade bond fund then a few bips levered up makes you a genius. Between regulation making these bonds on par with other investment grade bonds and competition for funds in an extended bubble, there was extensive pressure to move into these sort of products just like in the boom people like Perpetual lost their independence because they didn’t believe was worth 100 gazillion.

The CP-funded SIVs existed solely as a result of regulation. As I am sure you know, as long as the debt was less than 365 days you got preferential treatment in accounting and regulatory capital terms. Upshot people used ultra-short term financing which meant when the liquidity dryed up they were screwed. Not sure that is “false demand” since investors bought into these CDOs.

By the way, for Felix… This is a question that I have no idea about the answer to – how many of these bonds actually defaulted, ie what is the actual credit loss people have taken on these bonds. I am not talking about the changes in prices, I mean what value of bonds defaulted and what was the recovery on those defaults in either absolute terms or relative to the size of the market.

By: McGriffen Sat, 17 Jul 2010 14:07:18 +0000 Once again into the breach. The demand side experienced much tighter spread activity. Yield spreads tightened to historical levels, across MBS and non-MBS sectors during this period, that pinning onto “demand” is too simplistic. The demand side could have experienced sector rotation, into competing relative value product. High-grade corporate bonds, for example.

Oh, let’s just market those new-issue CDO to municipalities in coastal Australia. Hey, it’s AAA since moodys said so (oh, by the way you actually hold BBB/BBB- subordinate RMBS). Without that blessed rating, much less of this market existed and therefore demand would have chosen an alternate investment product.

Let’s discuss those wondrous off-balance sheet SIV entities. $100-200 billion in CP-funded SIV conduits (largely run via Citigroup and the like). That is false demand for product, and created a false signal for spreads and structured products.

Plenty of “demand” buy-side investors chose not to participate. We agree to disagree, perhaps.

By: Danny_Black Sat, 17 Jul 2010 07:26:13 +0000 McGriffin, the key point here though is that there was a wave of demand from the buyside. There was so much demand that there were not enough dodgy loans that could be given to enough dodgy people which is why synthetics were created. Nobody here is dealing with demand.

By: eversfreedom Fri, 16 Jul 2010 21:14:27 +0000 Goldman wins…they always win. Goldman shareholders win. All is as it should be.

By: McGriffen Fri, 16 Jul 2010 19:22:40 +0000 My greatest contempt is for the NRSRO cabal, and how poor their performance has been and may well continue to be. Goldman was never a featured issuer of sub-prime or non-prime MBS, not nearly the extent as any currently existing or former counterparts.

By: McGriffen Fri, 16 Jul 2010 19:18:09 +0000 So, there was never an enabling of this activity via Wall St-based financing / purchasing/packing activities ? My point is not about this vs. that trading desk. It is the ‘sausage reviewing’ that, for my two cents, went lacking.

I’ll do my best to connect the dots. A non-bank lender, such as New Century, would have access to warehouse lines via WallSt based financing. most likely these warehouse lines would support 60-90 days of approved / closed mortgage loan activity.

A. Mortgage loan approved, and funded, by warehouse line. Without warehouse lines in place, non-bank finance lending would struggle. Can’t be funded with deposits, or in the CP/Repo market (perhaps so, i’ll guess).
B. Mortgage loans aggregated, until sufficient volume accumulates to sell onward to a trading desk (most likely by the firm / warehouse line financing) these consummated package of residential whole loans
C. EPD should be getting kicked out. EPD were routinely not, late ’06/early ’07, and early delinquency status could prove it.
D. These WL packages were sold onward to an SPE/Conduit, in order to issue private-label MBS or a form of structured product
F. By this point, surely the rating wizardry via moodys or S&P or Fitch has been applied to the underlying collateral. Maybe, just maybe, a team of analysts have looked closely into the 105 LTV lending or the no-doc 660 FICO loans.

Once complete, the structured MBS or CDO product is available for public consumption (or 144A consumption, as the case may be). Every single cog in this wheel gets blame. Wall st firms, while not in the direct business of residential lending, were surely not of a collective mind to stand in the way of progress.

By: Danny_Black Fri, 16 Jul 2010 15:56:24 +0000 McGriffin, what lack of due diligence was done on trading desks and do you see ML trading desk suing MS trading desk because ML didn’t mention that MS was selling something they thought would go down in price?

New Century and other mortgage financers went bankrupt and from the best of my recollection no one is suing on their behalf the liars and idiots who overextended themselves on loans from New Century and others.

By: McGriffen Fri, 16 Jul 2010 14:27:32 +0000 I like unicorns, leprechauns and rainbows. If we extend personal responsibility, properly, to buy-side investment managers and fund owners, should that extend to the lacking due diligence on the WL trading desks across Wall Street ? How about the lack of any adherence to practical business sense, notably from Merrill Lynch or Citigroup as they continued issuing CDO product for example.

Those overpaid fund managers are as much in the wrong as the absolute lacking of due diligence, of any kind, performed on these non-bank finance mortgage lenders who promptly failed (New Century, Ameriquest). And the lousy crap loans those very companies were issuing.

By: Danny_Black Fri, 16 Jul 2010 13:46:09 +0000 lecourt, sounds like a great idea…. all you need to do now is show they did something wrong.

Or you could go after the people who lied on their mortgage applications. Or who were told to lie on them. Or the incompetent, overpaid fund managers who were not keeping their fiduciary duty to their investors – this is the real duty not the made up one market makers are meant to have. Wouldn’t it be a crazy idea if people were held responsible for their decisions?