Comments on: Limits On Short Selling Are Not Enough

By: masaccio

masaccio — Mon, 06 Jul 2009 01:56:44 +0000

I misread the article. The correct data is in comment 17.

Morgenson uses some double negatives or maybe it was the wine with dinner.

By: masaccio

masaccio — Mon, 06 Jul 2009 01:55:55 +0000

I agree with you on the failures of the administration. The bankruptcy cramdown failure is a perfect illustration. Gretchen Morgenson in today’s NYT tells us that a study of 3,500,000 loans in securitized pools overseen by Wells Fargo, specifically the 35,000 foreclosures, shows that:

Loss severities, like foreclosures, are rising. In November, losses averaged 56.1 percent of the original loan balance; in February, 63.3 percent.

Obviously it would be better to reduce principal so homeowners might be able to make payments. Yet only a tiny percentage of modifications reduce principal.

Morgenson doesn’t mention cramdown.

By: masaccio

masaccio — Mon, 06 Jul 2009 01:25:40 +0000

This is a complicated problem. My posts on modeling are attempts to work through the problem. Right now, I’m pretty sure that until models improve, the downside is too risky to justify any benefits they might suggest.

By: masaccio

masaccio — Mon, 06 Jul 2009 01:23:55 +0000

I really agree with you on the mortgages, as you know. If you look at Morgenson’s article in today’s NYT, you learn that the foreclosures for Wells Fargo are producing losses of 36%, but the modifications are interest rates, not principal. If they modified for principal, they could increase their returns. That was the idea of bankruptcy cramdown.

Stupid is as stupid does.

By: earlofhuntingdon

earlofhuntingdon — Mon, 06 Jul 2009 01:21:18 +0000

Nothing like importing senior executives from those to be regulated and putting them in charge of the regulating. I thought Mr. Bush had brought that to new heights. Mr. Obama and Goldman are stretching them further.

By: MarkH

MarkH — Mon, 06 Jul 2009 01:11:11 +0000

It’s not that they mind doing real investing, it’s just that the more activity they can create (regardless of real utility) the more they can rake the pot and get rich.

For America they will have to be regulated.

By: ThingsComeUndone

ThingsComeUndone — Mon, 06 Jul 2009 00:31:49 +0000

So we can get rid of them with little problem? If so then lets do it the downside is worth more than the risk.

By: Hugh

Hugh — Mon, 06 Jul 2009 00:12:31 +0000

All of those CDSs would fall into the non-standard category so they wouldn’t be trading on the exchanges that have been set up for derivatives. Did I mention that the banks control the ICE so it’s not like their being traded on such an exchange would necessarily make much difference.

By: Hugh

Hugh — Mon, 06 Jul 2009 00:08:51 +0000

What are the consequences of getting rid of CDS all together how can this be done?

Not a lot. They are basically unregulated insurance. If a company wants to make a deal and there is increased risk, it could buy regular insurance. Otherwise if the company needs a CDS to make the deal work, it is probably a bad deal and the company should not enter into it.

By: ThingsComeUndone

ThingsComeUndone — Mon, 06 Jul 2009 00:06:00 +0000

As of today, there are only 5,281 live CDSs on Citigroup, and 11,104 on Bank of America. (This link is not permanent.) That isn’t a lot of contracts to make up a real market. Many of the contracts are held as hedges, so a few trades by speculators can easily move the market.

They still have not fixed this market? I hope Obama is getting us tax payers a big cut off the profits of CDSs at the banks that owe us money.