AAA is investment grade, A is Alt-A, BBB is subprime. Even AAA is selling at 90% of face value. Alt-A is a sickening 35% and subprime is dead at 20%.
That’s assuming you can even sell them, which you can’t, because there are no bids. And there are hundreds of billions, maybe trillions, of dollars worth of these out there.
(update: The ABX may be more of a sentiment indicator than pricing, but with ETrade recntly selling some of their holdings, albeit in a forced manner, at 27 cents on the dollar, it would seem to be an accurate indicator too.)
3 responses so far ↓
Politics in the Zeros » The proposed ARM rate freeze // December 3, 2007 at 1:15 am |
[...] In other words, this would primarily be an investment bank bailout, as they bought and sold trillions of dollars worth of mortgage-backed securities, more than a few of which now are near worthless. [...]
Thomas // December 10, 2007 at 9:01 am |
Hello Bob
I wonder if yopu can clarify a question for me. Apparently the subprime mortgage derivatives where traded internationally, hence the current write offs by international banks.
Since the security for those loans is real estate I wonder to the title deed (ownership) is transfered.
Does it mean that the banks who bought the derivatives and the creditors defaulted, that the securities are owned by the current owner of the credit ?
What are the securities for the derivatives ?
Another aspect f this I am wondering about is the following:
how do the numbers add up ? I all write-offs of all the involved banks are accumulated where does this figure stand in relation to the number of subprime loans and total real-estate turn-over over the given period of time.
With best regards,
Thomas
Bob Morris // December 10, 2007 at 6:14 pm |
The mortgages generally get packaged by the thousand into debt securities like CDOs, which are separated into risk levels called tranches, and the tranches then sold sold to whoever. Thus, a CDO with say 10 tranches might have ten owners, one for each tranche. Whoever owns the tranche owns the mortgage.
To make things more complicated and risky, purchasers and issuers of CDOs and related debt instruments like SIVs are probably doing it leveraged and with borrowed money.
With a SIV, they borrow money at short-tern rates then invest at long-term rates. This only works as long as they can continue to roll over the short-term debt – which is precisely what they can’t do now.