Mbia/ambac

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Jan 19, 2008 1:06 am

So if they go away and all the long bonds sold throughout become junk ... then what, class action suits?  Some of these were sold "as safe as CD's".  Thoughts... GO.

Jan 19, 2008 11:08 am

I think it will be like the 80's when the government had to step in on the S&L's. Then someone like Buffett will pick up some of these companies for pennies on the dollar.

Jan 19, 2008 12:06 pm

I don't think there will be any rescue of these bonds, once they're declared "junk", by reason of AMBAC/MBIA's (A/M) rating downgrade. If anyone does buy (A/M) for pennies on the dollar, it will be sans those bonds. Bondholders will then have to rely on the underlying entity to pay the interest and principal or dump the bonds for a loss.

 
Jan 19, 2008 1:36 pm

There are some interesting cases in Ohio regarding repossession of some of the houses in question.  Apparently the Judge in question has determined that only the loan holder, not the servicer can repossess a house.  As such, tracking down who actually holds the mortgage is a very difficult process as you can imagine.  Who actually is the loan holder is apparently up for discussion as well.  If the loan can't be foreclosed upon how exactly are the CMO's securitized?  If they are unsecured loans, then what exactly will the credit rating end up being?  It will be interesting to see how those cases end up and what the repercussions will be.

Jan 19, 2008 3:28 pm

will this have a ripple effect thru the insurance and institutional investors...or tidal wave? If the institutions have to cut loose of their re-rated bonds...at a loss....they will all be showing losses on what have been their foundation investments. Not trying to be the alarmist...just never have thought of this as a possibility. Thought?....Comments?

Jan 19, 2008 7:07 pm
new_indy:

There are some interesting cases in Ohio regarding repossession of some of the houses in question.  Apparently the Judge in question has determined that only the loan holder, not the servicer can repossess a house.  As such, tracking down who actually holds the mortgage is a very difficult process as you can imagine.  Who actually is the loan holder is apparently up for discussion as well.  If the loan can't be foreclosed upon how exactly are the CMO's securitized?  If they are unsecured loans, then what exactly will the credit rating end up being?  It will be interesting to see how those cases end up and what the repercussions will be.

 
I read an article about a law professor who tracked the progress of numerous foreclosure proceedings. For those that went through the judicial process, nearly 40% of the plaintiffs could not locate the original loan documents and, thus, their case was dismissed. Apparently, the mortgages had been securitized so many different times, so many different ways, the paperwork had been lost in the shuffle.
Jan 19, 2008 7:12 pm

A tidal wave.......scares the crap out of me.

Jan 20, 2008 10:40 pm

i think someone(the gov or buffett or a bank) will come in and back the muni bonds. this is the most stunning thing i have ever seen in my 21 years the business.

Jan 21, 2008 10:01 am

Someone, perhaps Bond Guy, remind us all again what muni-bond insurance DOES cover.  I sell very few muni bonds and frankly, as I recall, bond insurance does NOT cover the entire issue...more like a couple of missed payments.  It's been awhile since I've read an insurance coverage policy, but I remember being surprised that it was NOTHING like FDIC insurance.

Jan 21, 2008 5:12 pm

Here's a head scratcher question: If the muni issuer defaults and the insurer steps-in to make the monthly interest payments, are those payments also tax-exempt?

Jan 21, 2008 5:23 pm

Do you guys think this is an economic crisis(2000 - 2002) or a crisis of confidence(1991, 1994, 1998)?

Jan 21, 2008 6:53 pm

Some of the former, more of the latter.

Jan 21, 2008 10:35 pm

economic crisis 2000-2002 times 20

Jan 22, 2008 2:19 am
Broker7:

economic crisis 2000-2002 times 20

  Not nearly!!!  If that's the case, what are you advising your clients?

Jan 22, 2008 9:42 pm

The default rate on muni's is historically extremely low.  Because these bonds are either private activity bonds backed by the revenue generated or G.O. bonds backed by the direct taxing power of the entity, the default rate is rediculously low.  Only the upper tranches of some of these CDO's really are going to be problematic for AMBAC, FGIC, and MBIA in particular.  I don't think muni's are going to be affected much, and thus it is my prediction that muni's will be the best performing fixed income asset class this year.

Jan 23, 2008 4:29 am
OldLady:
Broker7:

economic crisis 2000-2002 times 20

  Not nearly!!!  If that's the case, what are you advising your clients?



I don't know and I don't make predictions, but why would Bernanke (with full WH/Paulson pressure I'm sure) have announced a historic rate cut just eight days before the Fed's Open Market meeting. That kind of desperation is just a little unnerving.       

Jan 23, 2008 10:26 am
OldLady:
Broker7:

economic crisis 2000-2002 times 20

  Not nearly!!!  If that's the case, what are you advising your clients?

 
 
Not nearly?  You are entitled to your own opinion.  There are Huge cracks in the global economic foundations.  inflation adjusted, bank write offs have already exceeded 1929! And we are not even close to being done.
 
I'm sure my clients that are heavy cash (short cd), short positions and commodities have faired much better than people that have been long equities. 
Jan 23, 2008 11:48 am
Broker7:
OldLady:
Broker7:

economic crisis 2000-2002 times 20

  Not nearly!!!  If that's the case, what are you advising your clients?

 
 
Not nearly?  You are entitled to your own opinion.  There are Huge cracks in the global economic foundations.  inflation adjusted, bank write offs have already exceeded 1929! And we are not even close to being done.
 
I'm sure my clients that are heavy cash (short cd), short positions and commodities have faired much better than people that have been long equities. 
 
For the last few months, perhaps. Is that a long term winning position? Doubtful.
 
Our job is, among other things, to not be as prone to emotional swings as our clients. It's not always easy, but it is always what we're paid for.
Jan 23, 2008 12:01 pm

I gotta agree with Broker7 on this one.  It is not a long term winning position, but buy and holders in this market will take a very long time to recover back to par.  Being in Cash and going back in when things settle down is a solid strategy.  You won't be able to "pick the bottom" of course, because market timing won't work.  But principal preservation needs to be a primary objective in bear markets.   I don't short markets, unless I am hedging current positions, but I do believe heavily in staying flat or very modest gains for now.

Jan 23, 2008 12:02 pm

Better to get  back in late than to get out late! Our job is to make money when possible, and to PRESERVE money when it is not.  We all know something isnt quite right with the market and economy..don't we?  If not..please research.

 
All of you buy and hold mutual fund brokers (you know who you are..this is not the time to hold equities), please look at the option of within fund family exchanges to treasuries or money markets.  Not all of it (you and your client can determine that....enough to ballast portfolios during these rocky times. This is no cost to your client, and it shows you have their best interest at heart.