The 100 Year Storm III
What really happened at the Merrill Lynch auction of Bear Stearns CDO's?
According to a report by Lombard Street Research...
"Excess liquidity in the global system will be slashed. Banks capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing."
Charles Dumas, the group's global strategist, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market.
The sale had to be called off after buyers took just $200m of the $850m mix.
"The banks were not prepared to bid over 85pc of face value for CDOs rated "A" or better.
God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc.
We don't know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know.
There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn."
Noriel Rubini sounding Naybob-esque: "These highly illiquid securities have been priced so far on unrealistic and distorted credit ratings as the ratings industry has been complicit".
They have not been rerated in a way that is consistent with rising subprime default rates. That is why Wall Street is in a panic. Losses will be massive once these assets are correctly priced to market."
More to come in Part IV
According to a report by Lombard Street Research...
"Excess liquidity in the global system will be slashed. Banks capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing."
Charles Dumas, the group's global strategist, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market.
The sale had to be called off after buyers took just $200m of the $850m mix.
"The banks were not prepared to bid over 85pc of face value for CDOs rated "A" or better.
God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc.
We don't know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know.
There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn."
Noriel Rubini sounding Naybob-esque: "These highly illiquid securities have been priced so far on unrealistic and distorted credit ratings as the ratings industry has been complicit".
They have not been rerated in a way that is consistent with rising subprime default rates. That is why Wall Street is in a panic. Losses will be massive once these assets are correctly priced to market."
More to come in Part IV
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