April 24, 2008
Elaine Meinel Supkis
Time for more charts, more information thanks to kind readers
who send me important information! Today, we visit AMBAC who just
issued a report of the wretched condition of their tranches and
ABXes, etc. And elderly investors and savers who saved real money
rather than taking on loans to gamble, hammer the Bank of Scotland
for losing their dearly-won funds. And Seeking Alpha has a silly
article about these losses.
Tom Brown thinks that 12% losses
aren't all that jolly bad! I know that when I lose 12% of anything, I
get worried or pissed off. But then, this is better than a 90% loss!
All this has happened during a time when the global economy was still
growing! Now that we enter the inevitable recession, what will happen
next? We all know.
Shareholder
to RBS bosses: 'You're paid as superhumans, but you're clearly not'
When the chief executive of Royal Bank of Scotland faced shareholders at the 2007 annual general meeting, he had just revealed his plan to go after ABN Amro and was, to many, the golden boy who promised to fill their pockets with silver.
He was happy to talk about his plans to take RBS on to the world stage, as a banking force to be reckoned with.
But yesterday, at this year's AGM, he and his board had another battle on their hands – regaining the confidence of those same investors, who are now reeling from his announcement of the biggest rights issue in Europe. And at the Edinburgh International Conference Centre, where the board, chaired by Sir Tom McKillop, held court, it approached a war.
An audience brimming with indignation that belied their advancing years accused directors of "unbelievably bad management".
What a wise person does over time is go into debt when fairly
young, buy the first home, etc. You have children and they grow up
and go to college and then one is free to put down all debts and
accumulate a good deal of savings in preparation for the inevitable
old age constrictions on earning ability, etc. The hope is to retire.
When I was a teenager and gave annual predictions that came true,
during the bonfire as everyone stood around waiting, I said in 1969,
'When we retire we will have to sleep two to a bed in hospitals,
Social Security will be bankrupted by government overspending on wars
and the currency will be worthless.' I then got rather angry and
said, 'I will fight this with all my will.'
Well, I spent my entire life harping on this possibility and
worrying about it. When, just a short while after this prediction,
the currency began its long, steep decline, I was frantic. Then,
Volker and Carter fixed this problem and I relaxed and thought, 'For
once, my predictions are wrong! HAHAHA, Cassandra!' Then, the
relieved US public ran to Ronnie Reagan who promised good times and
no down payments or interest due. So in horror, I watched the budget
deficits begin their huge climb. It has doubled and redoubled and is
now 10 times greater than under Jimmy Carter.
This all takes me to my 1970 bonfire prediction on the Winter
Equinox: 'The window of opportunity to change from an oil-intensive
society to a renewable energy society will begin to rapidly close on
our fingers after the year 2000.' This, alas, is coming true. To
retrofit and reconfigure our society requires money. And one needs
loans to do this and the loans must be so worked that they are
self-servicing via the magic of energy gains easing the need to use
labor to pay off the compound interest charges. Several years ago,
ABC news had me talk about how to fund alternative energy systems
using an energy bank system whereby people who wish to install
systems get to pay for it by paying a 'mortgage' based on previous
energy use costs. So if one spends $20,000 on energy systems, this is
then paid off over a long time frame of about 20 years at a rate
around $100 a month or so, depending on interest rates. And this
would be a Fannie Mae government system. If a house is abandoned, for
example, the energy systems can be sold and stripped and the money
taken back into the energy bank when resold.
ABC called me after the story and yelled, yes, YELLED at me,
'NO ONE WANTS TO LISTEN TO YOU! We will never put you back on the
air!' HAHAHA. This was in 1999. Right on the eve of the massive rise
in costs for energy. This is also in line with my earlier prediction.
Now, not only are we seeing the window of opportunity close on our
fingers, we are DEEP IN USELESS DEBT. Instead of fixing our giant
trade deficit by cutting energy imports, we are increasing the dollar
amount of this red ink. Instead of a sober, sound government, our
nation has record debts compared to any country on earth. This is
bad. Very bad and extremely aggravating.
Subprime
Mortgage Losses: Not as Bad as Advertised
But I believe it is possible at this point to get to a reasonably accurate cumulative loss estimate. How? By looking at the credit performance of the $120 billion of bonds that make up the ABX subprime mortgage indices (in particular, by looking at the bonds that underlie the ABX indices created in 2006, when the lending looniness was at its peak) and extrapolating to the market at large. On the one hand, the bonds were hand-picked to represent the market overall; they should behave the same way the market does. On the other, they constitute a small enough universe that an analyst trying to glean future credit performance can take into account details such as loan-to-value ratios and loan originator.
So we’ve gone through 2006-vinatge ABX bonds in a fair amount of detail to arrive at an eventual cumulative loss estimate. And (not to give away the ending completely) the number is materially lower than the base cases the agencies have in mind, and much, much lower than the apocalyptic predictions you keep hearing on CNBC.
*snip*
But, as we’ve seen, if you actually go through the numbers trust by trust, look at what’s happened so far, and make some conservative assumptions about what will happen in the future, you get to estimated total losses of $77 billion. Divide that by the $600 billion in 2006 originations and you get to a total loss rate of just 12.8%. That’s well short of Moody’s base case, and nowhere near the stress cases that the agencies have put out.
Losses of 1% are bad in this field. They MUST attract savings
and who in their right mind will pour savings into a losing system?
Holding cash is better! A loss of 12% is hideous. And this is at the
very, very beginning of a massive global downturn. The demented hopes
that this can be voided by the US and other G7 nations dropping
interest rates well below the rate of inflation while flooding the
planet with an ocean of red ink based on virtually nothing good, this
is pure insanity. The downturn has barely begun, not ended. And the
obvious effect so far of all this red ink production is a sudden and
catastrophic rise in commodity prices. This lunacy is running free
across the planet like an out of control, enraged elephant like we
saw on the news yesterday. Smashing everything in its path and
crushing helpless humans underfoot. Humans will DIE because of this.
And governments doing this to save the investment banks should be put
on international trial and then hung. Like we did at the end of WWII.
Now for some goodies: a kind reader sent me the latest report
by AMBAC. It is a horror. It also amuses me because they struggle to
minimize the bad news. Since they stupidly do this, they can't face
reality or facts. People think that if they hide from reality, the
Monster won't find us under our blankets. I tried this as a child.
When the lightning bolt came seeking me, it ignored the blanket I
threw over my head and blasted me across the room. Since then, I have
been very aware of the impossibility of hiding from reality. So let's
take a look at the Derivative Beast which shows a few claws here in
this report. [By the way, the reason I was so very irritated with
Angry Bear's people is obvious here. I am a fanatic for facts,
numbers and graphs. To be accused of not covering statistical ground
makes me snarl with disgust.]
Ambac
Financial Group, Inc. 1st Quarter 2008 Financial Highlights
Ambac raised $1.5 billion of capital during the quarter
– $1.25 billion of common equity
– $250 mm of equity units which will convert to common equity in 2011
Net cash proceeds of $1.4 billion were received on March 12, 2008. $100 million of proceeds were maintained at the holding company.
Capital contribution of $1.3 billion to Ambac Assurance
Triple-A ratings affirmed by S&P and Moodysand double-A rating affirmed by Fitch – Outlook remains negative reflecting mortgage market uncertainty
Now why was the triple A ratings kept by AMBAC? We all know
the answer to that: the Federal Reserve waved a magic wand over the
seething, ugly mess and said, 'Thou art NOT a mess but Good, Solid
AAA Investment Beast!' And the fanged, horned Derivatives Beast
laughed very darkly and said, 'Ahhhh....magician, I will devour thee
in due time!' And the magician threw a blanket over the Derivatives
Beast and voila! To the amazement of the frightened bankers, it
vanished! They could see the blanket heave and shudder but they could
no longer see the Beast.
'Tis truly a miracle from Heaven that our powerful central
bank magicians can do such a TRICK!' cried the bankers in unison.
'All will be well! Now, we must go back to creating more red ink and
feed it into the Beast that hides under this blanket!' And the
Derivatives Beast grinned with joy as he hunkered under the blanket.
'Feeeeed meeeeee morrrrrre,' he whispered.
This, in a nutshell, is what is going on. Far from dealing
with the deadly truth, all systems have been reset on fantasy
functions that conceal reality rather than deal with the devil. The
devil knows how this operates, this is his kingdom, his realm, his
home base: the cave of wealth and death. Instead of dealing with the
bad repercussions of our desire for infinite wealth, we see the
manufacturers of this mess desperately clinging to this funny money
no matter what.
After all, to keep an AAA rating means only having someone
irresponsible like our central bankers, to announce, 'These tulips
are really worth 600 golden guilders!' And thus ends the Tulip Mania
panic! Indeed, this WAS done in the 17th century! And during the
collapse of the South Seas Bubble. And the Mississippi Ventures
bubble! All governments do this! It is their main defense when the
dikes are overthrown and red ink pours across the land, destroying
the economic systems.
AMBAC:
GAAP net loss: $1.66 billion or ($11.69) per share
Mark-to-market on the Credit Default Swaps of $1.7 billion continues to be driven primarily by the mortgage related CDO exposures
Impairment and reserves for the quarter were primarily driven by:
– Financial Guarantees of RMBS transactions: $1,046 million
– CDOsof ABS: $940.4 million (impairment embedded within the MTM adjustment)
– Investment portfolio supporting the Investment Agreement Business: $95 million
Cumulative impairment to date:
– Single A CDO squared exposures: approximately 100%
– Double A CDO squared exposure: 60%
Like an army of termites inside a wooden building, the numbers
of people defaulting on loans they took out in the last 3 years
continues and indeed, picks up speed. So far, a blanket has been
thrown over this seething, broiling mess by Bernanke. By taking up
these bad loans and holding them OFF THE BOOKS for the irresponsible
bankers and investment organizations, the truth is concealed from the
system. But so many NEW ones enter the scene, we know in our hearts
that things are worsening. Not one of these foreclosed houses will
regain even 50% of the value of the loans taken out. So 50% of this
money, in the bitter end, will have to VANISH somehow and the only
direction this can happen is for it to vanish via inflation. The US
will ravage all savings of good people who work and put aside money
in order to have this vast wealth created via debt creation, vanish.
The debtors get a two for one here: they get to pay off loans with
ever-cheaper dollars.
Bernanke blasts us with the news that he intends to destroy
savings this way. He said, 'We will NOT have a depression.' Of
course, people saving money at home do well in depressions! Money
buys more and more each year and they can dispense with the costs of
banking! BANKERS HATE THIS. So they always opt for inflation. This
raises fees and lets them hammer us savers! We must hand over our
money or watch it lose value! But there is one problem: HYPER
inflation kills bankers! They must control inflation as much as
possible. In hyper inflation, as we see clearly today, everyone
HOARDS stuff. Money becomes meaningless and people buy goods and
commodities as fast as humanly possible. This leaves little savings
for bankers to use as their reserves. And banking collapses.
In the left hand corner, I put up the AMBAC chart. But I took the credit derivative IMPAIRMENT bars and made them red ink. Note the very rapid growth of this dire amount. My granddaddy gave me a book about how people can use charts and graphs to lie. Correct reading of data requires looking hard at these things and even altering them to get to the truth.
Claim payments are expected to absolutely SOAR out of sight
for the remainder of this year. Triple A trips over the side of the
cliff, eh?
AMBAC:
If CDS policies were written in insurance form (excluding MTM impact) economic impairment would be $940.4 million
Second liens continue to drive losses in the direct RMBS portfolio
Mark-to-market on credit derivatives continues to be driven by CDO of ABS
Very low values have been attributed to the CDO2 transactions
This chart clearly shows how the Derivatives Beast grew. It was virtually nothing at all, a tiny critter back when the Japanese carry trade began. Note how it began its rapid climb AFTER the stock market collapse in 2000! But the massive growth was when Greenspan made this all worse with his stupid 1% interest loans. The slight reduction in growth in 2007 was due to the end of the Japanese carry trade in July, 2007. I will note here that 90% of the analysis I see concerning all these banking disasters LEAVE OUT THE JAPANESE CARRY TRADE. This blindness irritates me. Yet all our top money manipulators freely talk about this! And are ecstatic whenever the Japanese carry trade lending resumes! Why can't anyone see this obvious thing?
Ah, the magic blanket! Yes, it works wonderfully, doesn't it?
AMBAC:
Certain Closed-End Second (“CES”) transactions have shown significant deterioration in the last few months, although the CES portfolioremains BBB+ on average.
This is pure BBBullshit.
So,
AMBAC is Triple AAA Plus but look! All that BBB exposure! OUCH.
HAHAHA.
AMBAC:
Certain Mid-Prime (Alt A) transactions have shown deterioration in the last few months. This deterioration is predominantly apparent in transactions originated in 2005 and, particularly, 2006 /07. A limited number of these transactions are now below investment grade given collateral loss expectations of 20-25%.
Now, how on earth can those silly BBB+ gems be OK if Alt A's
are underwater? And they will be damn lucky if the final exposure is
a 25% loss. Remember, we are at the beginning of this mess, not the
end. They HOPE it is only a quarter value loss! The Great Depression
tells us it can be far, far greater. And Weimar hyperinflation shows
us that everything can be rendered totally worthless by hyper
inflation! These two hazards can only be avoided if people are honest
and if they cease creating more and more bad debts.
AMBAC:
Given recent very adverse performance, the above analysis presently forecasts extremely high collateral losses in respect of a limited number of specific transactions.
Example: Bear Stearns 2007-01, closed in April 2007
– NCL to date 9.9%
– Projected NCL 81.8%
– Projected collateral loss as a % of current collateral 86%
A reasonable estimate of projected collateral loss for the abovetransaction might have been @10-12%, with the transaction having an A+ rating at inception and being structured to withstand @28-30% collateral loss.
And this Bears Stearns business is in today's news! I just got it as I published this story.
Ambac: Lawyers Scrutinizing Contracts On 17 Transactions
Bond insurer Ambac Financial Group Inc. (ABK) has hired legal and forensic experts to examine 17 of its financial guarantee transactions covering residential mortgage-backed securities as performance deteriorates.
During its first quarter earnings conference call Wednesday, David Wallis, Ambac's chief risk officer, said the company is examining transactions that have performed much worse than expected.
Wallis suggested that one prime candidate for legal scrutiny is a deal with Bear Stearns Co. (BSC) it closed in April 2007. Another is a transaction with First Franklin.
Last summer I wrote a scorching report about First Franklin
and they contacted me to complain. I said, 'Take me to court!' They
shut up. The British pirate hedge fund that attacked me the same way,
with lawyers, also had to shut up due to going bankrupt. HAHAHA. I am
still here! Well, AMBAC will be suing everyone and everyone will be
suing each other. This is what happens when there is fraud and
deceptions. And they should all sue Bernanke, Bush and Paulson. And
we should put them all on trial for war crimes, too. Cover all our
bases. Then we can hand this mess over to Ron Paul. HAHAHA. Right.
Well, back to AMBAC basics: a 86% loss is a hell of a lot more
than a 25% loss. And like with the Derivatives Beast, the central
bankers threw a huge blanket over THIS monster. The losses would have
been 100% if they didn't throw the blanket over J.P. Morgan's take
over. It is painfully obvious that our entire banking system is
bankrupt. All the charts and graphs echo this terrible truth. But we
must pretend all is well or our entire economy collapses. As the
people who brought down this disaster on our heads struggle to fix
it, they use the worst tools possible and do the most damage they
can...to the world's helpless populations. So the little people
across the planet suffer food shortages and die? Or can't get cooking
fuels? Or see their small savings vanish? So what, says AMBAC! They
are TRIPLE A! Whoo hoo.
Note
how all these charts take off: losses are rising, not falling. The
news is all bad, none of it is good. No one can claim AAA+ status
with these figures, these charts, these facts.
Illustrating the adage that too much of anything is no good, Standard & Poor's warned on Monday that Fannie Mae and Freddie Mac pose significant economic risks to the United States.
The ratings agency said the two U.S. government-backed enterprises could cause more problems for the U.S. budget and economy than would failures on Wall Street and might threaten America's triple-A bond rating.
The warning comes at a time that the government is encouraging the companies to expand lending to help boster the troubled U.S. housing market. Real estate prices are falling as a result of the subprime crisis, which saw imprudent extensions of credit to homebuyers at the tail end of a housing boom. By lifting loan-size limits and easing capital rules, S&P noted, the government will let Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) "replace some of the lost credit from private-label mortgage packagers," many of which disappeared along with the subprime mortgage market. But the moves "increase both the likelihood of government support and the potential cost of providing such support."
A lot of this mess was unloaded onto government guaranteed
entities. By the way, it was Germany that figured out the way to end
hyperinflation was for the government to issue debt currency based on
the value of everyone's HOUSES and LAND! This was a naked
confiscation in order to bail out the lenders. The new money was
charmingly called, 'Renten Marks'. That is, the money was a RENTAL.
And I was a landlady. Note that the home dwellers became TENANTS. But
everyone was so relieved to be saved, they ignored this until...1930.
Then Germany went bankrupt. And everyone who owned property was put
at hazard! This is why Hitler rose in power. Talk about dangerous. We
must learn from history.
Americans are used to receiving calls from India for insurance claims and credit card sales. But debt collection represents a growing business for outsourcing companies, especially as the American economy slows and its consumers struggle to pay for their purchases.
Armed with a sophisticated automated system that dials tens of thousands of Americans every hour, and puts confidential information like Social Security numbers, addresses and credit history at operators’ fingertips, this new breed of collectors is chasing down late car payments, overdue credit card debt and lapsed installment loans. Debt collectors in India often cost about one-quarter the price of their American counterparts, and are often better at the job, debt collection company executives say.
“India will be the only place we grow this year,” said J. Brandon Black, the chief executive of the Encore Capital Group, a debt collection company based in San Diego. India is the company’s largest operating area, with about half the company’s collection force of more than 300.
And here is the end of our follies! Now, the people collecting
bad debts are ALIENS! And the PROFITS for this are flowing to INDIA!
Incredible. Just amazing. We can't even make money off of squeezing
blood from stones! Talk about becoming dupes. And is our government
stopping this madness? It amuses me to see the Pennsylvania protest
vote this week. A significant percentage of voters picked Ron Paul!
Incredible. In double digits, too. And with him no longer
campaigning! And 24% of these Republicans voted against McCain! And
of course, this made zero news coverage.
There are a significant number of Americans who are fed up
with things. And we are not a small group, either. We have many a
hatchet to bury to join forces which is why we won't be given this
opportunity. The media will latch onto emotional, meaningless issues
in order to fan the flames of fear and desire. The last thing they
want is for us to join forces and force the Fed and the government to
stop this red ink madness.