[NYtimes] AP Study Finds $1.6B Went to Bailed-Out Bank Execs

And when you knowingly base your 2007 earnings on a mountain of leverage which is premised on similar earnings in future years or else it collapses - you're not really basing earnings on 2007 alone are you? A balance sheet full of holes and that doesn't truly reflect your future debts, liabilities or other obligations can make it look like you have a lot of earnings when in reality you really don't.

No - it's worthless because no income stream will come from it in the future. This is because the pool of underlying assets has little to no value. A residential MBS backed by NINJA loans never had very much value in the first place outside of the underlying asset pool, if you calculate value in terms of the future stream of loan repayments, as the prospect of those loans staying alive is slim. This was a realistic assumption a few years ago and obviously is true today - and had the market had better information when trading these products back then (the market had the information, people just chose to ignore it) the prices of the products would have reflected it.

 

Not true, most of the AAA holders are still getting paid. Current price has more to do with liquidity than asset defaulting.

NINJA loans is only a fraction of the total subprime pool. And the MBS with subprime pools usually has some protection build into them. The fact some of the underlying assets will default is not necessarily the problem. The housing price that collapsed which caused people not able to refi is the biggest problem.

Part of the reason 2008 is so bad is a lot of these places were making money based on volume, keep cranking out deals. When the housing price collapsed, the volume completed stopped.

 

Sorry but the elimination of the entire investment banking industry basically overnight leads me to believe that these assets are not worth all that much. If you think otherwise, there's some Credit Suisse bankers with their 2008 bonus pool to sell you....

 

If I can get those for pennies on the dollar, sure.

Not able to price these assets does not equal to assets not paying, you outta know that by now. A large number of hedge funds are jumping into the MBS business precisely because of this.

 

I will gladly take your large number of hedge funds jumping into the business and stack them up against the trilions of dollars of related losses which has driven a far larger number of hedge funds and other institutions out of the business.

 

Hedge funds traditionally have not be in the MBS market, this is only a recent development. BTW, wtf are we arguing about here? I lost track.

 

Two things here:

1. The lack of an income stream is directly correlated to the economy. Had the economy not slowed, the income stream would be there and the assets would be profitable.

2. The assets actually likely have a higher income stream than their current value. That's the problem with M-2-M in an illiquid market, and that's why there was a lot of talk of the government making money if they bought these securities and held onto them for a long time. The banks can't afford to hold onto them for a long time and conduct any other business, but the government can.

 

Had the economy not slowed, Madoff could have continued paying his investors. And many of them would have gotten their money back (actually lots of them did, with some profits). The economy slowed because there was an asset bubble which eventually popped. The thing is that these guys took the profits off of these things before the chickens were hatched off of dubious earnings. So Stanley O'Neal's pay package in 2007 was not properly discounted against the true risk of the positions that he put Merrill in ... not even close. But since the money is in his hands there's nothing we can do about it (contrast this with Madoff investors who got paid off - they will face a clawback simply for being duped). Obviously O'Neal will hae some hefty legal bills to pay but that's an afterthought.

How do we really know this? I understand this is the philosophy but when we are dealing with something where the inherent problem was that nobody had a clue what they were worth - it's a leap of faith to say "we'll just hold to maturity and get paid off!" A lot of calculations about what they were worth and what was needed have already been proven wrong.

 

Sure - but the economy over recent history (last 20 years or so) is always built on bubbles of some sort or another. If you bought Apple stock at $50 and sold it at $200, you sold it in the midst of an economic bubble. That doesn't make your profits fake - you just took advantage of the situation.

The problem with saying that the 2007 profits were fake is that it assumes the bubble was destined to pop in 2008 - but the bubble could have gone until 2012 for all we know. If that was the case, many of those MBS would have been refinanced and paid off in full. (Yes, new ones would have been created, but that would be someone else's problem)

The difference between Madoff and an investment bank is that, at any point in 2005 or 2006 or 2007, the investment bank could have liquidated it's assets and it would really have had all that money. They then proceeded to hold the assets too long, and thus experienced massive losses this year - but that's this year, not last. Madoff never had that option. At no point could he have fully liquidated all his clients because it was truly fake.

It's no different than buying a stock at a certain price, watching it go nuts and get inflated and then get deflated. If you sold when it was inflated, you made real profits. If you held it, you made massive profits and then had massive losses (in real life - not on paper; on paper, you ended up even or whatever).

Absolutely - but he did deliver profits to the bank in 2007. They had the opportunity to walk away at that point. They chose not to, and thus lost a ton of money in 2008.

Nobody had a clue what they were worth because no one had a clue how bad the economy would get. But ultimately, they are priced based on assumptions about the economic situation and default rates. I may be wrong, but my understanding is that MBS's are currently priced in a sort of "worst case scenario" for depression-level defaults. If we have anything less than a depression, they should turn a net profit at current price levels. Not any particular MBS, but the whole class of assets together.

 

+1

Sam, you are trying to compare firms not valuing their assets properly and getting left holding the stick (i.e. the example of buying stock at a value and selling it when it's devalued), to some guy committing fraud. That's apples to oranges.....

 

That's what mortgage originators did - they liquidated their assets and really had all the money. Doesn't change the fact that they sold a pile of crap to begin with that literally wasn't worth what it was paid .

Not really - he took a loan against the future, pocketed a huge part of the principal, and walked away. Let's be clear that it wasn't just purchasing MBS & other structured products (with leveraged funds) that made them money it was also swaps & other derivatives like CDS - those are more like insurance policies. They collected the premiums, parceled the(unlike insurance companies, they had no reserve requirements), left no money in the till when it came time to reimburse.

To give you an idea of how badly and wildly off the values of MBS were, most MBS trader/people prior to 2007 thought that prepayments were the worst case scenario and that's what the industry revolved around, lol.

 

No no, go ahead. Pray tell. I do want to hear how those things are discussed in their public filings.

I'm always into listening in when somebody who doesn't understand the structure of a deal talk details.

 

Not very accurately, sometimes not at all. And if so in completely ridiculous language which is not possible to decipher and misleading when you can. THat is why companies with atom bombs on their balance sheets had share prices that collapsed overnight.

Sorry, but it would be lost on an IT guys like you here on a temp visa. Back to things you know about, like installing vista.

 

Dude, no one fradulently valued their assets too high (at least nothing like that has been proven towards anyone yet). Folks thought their assets had a certain value when the market was up...the market tanked...and they were left holding the bag for huge losses. Most banks were quite suprised. That's completely different from fraud (willingly trying to screw someone).

Apples to oranges......

 

No it's really not. And trust me I know what the legal definition of fraud is.

 

Ridiculous language that is not possible to decipher? Really? On which filings? Is it the 425(b)? The 423? The 10-K? The remittance report? Most of those deals are actually quite standard in structure. The language is only difficult because the structure is difficult, and they can't draw imbeciles like you a picture.

The only thing I know about vista is to not install it on my computer. That's it. Back to things you know about is actually good advice. So insterad of talking about securitzation, shouldn't you be back sucking on Dalai's dick?

 

sorry Chinetizen, your pretense has been exposed here - the only form you know anything about is an I-9.

Oh and merry christmas and thanks for your always-kind words. Time for somebody to get the ban-hammer....AGAIN.

 

And so do I. Banks did not intend to screw someone when their assets tanked. They were the ones holding the assets. Who were they trying to damage...their own stockholders??? Themselves?

There was no deception. Thinking your assets are worth a certain amount, then being left holding the ball when the market fails is not deception.

 

You seem quite sure of yourself that all actors were innocent.

Basically what you're saying is that it's not a lie, as long as you believe it to be true at the time....so like when a pile of crap doesn't come back with an AAA rating, and then you go back and force the raters to come back with one, and then you tell investors that this thing is really awesome - there's nothing fraudulent about that?

I guess it's true as long as you don't get caught doing it like these guys:

United States v. Cioffi, et al.

 

Times awasting Sammy, again. Though that's hardly a surprise with you. I'm still waiting on exactly which part of which public filing involving those securities you find "not possible to decipher," because you see, here I thought Intex was trying to do precisely that. An example would be helpful. Can't you get your puppet master in Dharamsala to conjure at least a pretense of an argument? Wouldn't be much of a reincarnated god otherwise now would it?

See now, that's actually funny, because that little bit of blurb their highlights exactly how you don't know jack **** about how those ratings work.

I guess it's true as long as you don't get caught doing it like these guys:

United States v. Cioffi, et al.[/QUOTE]


Suppose Lehman's the underwriter, they gather a mortgage pool and goes to say, Moody's and say, we want some of those bonds to be rated AAA's. Moody's would then say this pool looks really bad, if you want 20% of your bonds to be rated AAA's, you'll have to have a credit enhancement/OC amout of xyz%. Lehman would then structure the deal accordingly.

NONE of those deals are ENTIRELY RATED AAA. ONLY the seniors. As a matter of fact, the most subordinate bonds are EXPECTED to fail, hence they receive JUNK BOND ratings, or are not rated at all. Now apparently to your idiocy, a say... $100 million bond backed by $1 billion of collateral, with default insurance, absolutely under no circumstances should be rated AAA's.

Well Moody's and S&P do it quite systematically, with actuaries, using past information, which unfortunately has to be the case cause they don't have your Dalai inspired ability to see into the future to predict a collapse.

And you know what the funny thing is? You mentioned many times that those securities are mispriced. What I want to know is, in which of those public filings did it tell you the "fair/implied" price for those securities. Because the last time I checked, those filings only suggested cash flows for those deals, during specific circumstances under very specific assumptions. Where did your idiocy find a manual those deal abc should be sold at xyz dollars?

Lost money on it? Too bad. If you thought it was that bad, nobody told you not to offer $10, $5, $1 for it or staying away from it altogether. Buying something that you know nothing about will lose you money, boy, what a novel concept there.

Very early in my career I was told by a person that I have a lot of respect for that in any deal there is a loser. So look around. If you can't find one, you are the loser. So Sammy, go look in the mirror.