|
NOT
ANOTHER SUBPRIME EDITORIAL?!
by David Shvartsman
Finance Trends Matter
July 2, 2007
We've devoted a fair
amount of coverage to the ongoing fallout in the subprime
mortgage and CDO markets in recent weeks.
For those of you who just can't get enough of this financial car crash
(or for those who would simply like to learn more), we offer the
following subprime roundup. It's the latest take on what's happening in
subprime, with a view to the possible knock-on effects in the debt
market.
We'll also take a look back to April, when people like Scott
Simon of Pimco were offering their view on why they were staying
conservative with their asset-backed bond investments.
Plus, you'll see an interesting Bloomberg
video panel in which Simon and others debate the extent of last
spring's subprime problems.
First off, here's a recent take on what lies ahead for the subprime and
debt markets, courtesy of John Mauldin and friends. The following is an
excerpt from, "$250
Billion in Subprime Losses?".
It is hard to know where to start
when trying to analyze the current problems in the subprime mortgage
markets, there are just so many points that beg to be made. So, not
necessarily in order of importance, let's look at a few items.
First, as Dennis Gartman so
frequently states, there is never just one cockroach. If you see one,
you know there are more in the wall. Bear Stearns is just the first.
They may be the canary in the coal mine which warns us of more problems
to come.
Will the problem in the subprime
market spread to other areas of the debt market? The answer depends on
what you mean by spread.
Read on for Mauldin's assessment of the problems in the subprime market
and how the ongoing turmoil will affect the appetite for risk going
forward. See also, Doug Noland's latest Credit
Bubble Bulletin for a discussion on why CDOs are "the tip of a
derivatives iceberg".
And now we go back in time to April 2007 when Scott Simon was asked by
Bloomberg TV to sum up his views on the housing market, and his firm's (Pimco's)
strategy on investing in asset-backed bonds. His answer: we
stay conservative.
You can bet that Simon's views were shared by Pimco's head honcho, Bill
Gross, who recently opined that Moody's
and Standard & Poor's ratings services were fooled into labeling
these Residential Mortgage-Backed Securities (RMBS) and CDOs as
investment grade instruments.
Well prudence and rating agency
standards change with the times, I suppose. What was chaste and AAA
years ago may no longer be the case today. Our prim remembrance of
Gidget going to Hawaii and hanging out with the beach boys seems to have
been replaced in this case with an image of Heidi Fleiss setting up a
floating brothel in Beverly Hills. AAA? You were wooed Mr. Moody’s and
Mr. Poor’s by the makeup, those six-inch hooker heels, and a “tramp
stamp.” Many of these good looking girls are not high-class assets
worth 100 cents on the dollar.
And if you're interested to see how everyone felt about all these issues
back in April, please see this subprime
market panel video moderated by Bloomberg's Brian Sullivan. Note the
informal poll taken on the spread of subprime problems in the opening
minutes of this group discussion.
Well, I think we're up to date. Hope this post has offered some insight
into these rather complex issues.
©
2007 David Shvartsman
Editorial Archive
CONTACT
INFORMATION
David
Shvartsman
Finance Trends Matter
Chicago, IL USA
Email
| FinanceTrends
Blogspot
The
opinions of FSU contributors do not necessarily reflect those of
Financial Sense.
|
