The Systmic Risk Of A Municipal Bond Market Freeze Up Is At Hand
Thursday, 3. July 2008, 05:17:12
MBIA, MBI, lost 7.2% today and as Jesse relates MBIA is on the edge of a cliff.
Some type of a 'systemic risk' event is going to be the outcome of the MBIA's ongoing falling: a mortgage backed securities or a municipal bond market freeze up or an investment banker meltdown or a credit default swap embroglio or a commercial lending gridlock or money market funds failing to honor their traditional NAVs.
William Selway and Martin Z. Braun of Bloomberg write that: "The municipal bond market may be hit by a new round of turmoil from Wall Street's credit crisis. Yields on floating-rate, tax-exempt debt insured by MBIA Inc. and Ambac Financial Corp. soared as high as 9% last week as investors dumped the securities after the companies' credit ratings were cut by Moody's ... The spiraling debt costs are reminiscent of those that followed the collapse of the auction rate securities market in February."
Jesse reports a significant deterioration in Alt-A mortgage debt performance: the conclusion here is that that a number of banks are going to be going under soon.
Mike Mish Sheldon relates more writedowns on account of Alt-A liar loans are coming: "More people will be walking away from their homes in California and Florida. Approximately 75-80% of those in liar loans only make the minimum payment. Negative amortization increases every month in those loans. On top of that, home prices are falling rapidly. Add the two together and anyone who put down even as much as 20% is now hugely underwater.
At some point escalation clauses will kick in. Escalation clauses vary by contract, but typically vary between 110% of the loan to 125% of the loan. Those clauses should be kicking in now, in mass, based on price depreciation alone.
Have they in practice? Think again. It would be the kiss of death for either WaMu, WM, or Wachovia, WB, to start enforcing those clauses, homeowners would immediately default. Instead, both banks pretend they are well capitalized when it is increasing apparent they are likely insolvent. I fail to see how either of those banks survive."
Some type of a 'systemic risk' event is going to be the outcome of the MBIA's ongoing falling: a mortgage backed securities or a municipal bond market freeze up or an investment banker meltdown or a credit default swap embroglio or a commercial lending gridlock or money market funds failing to honor their traditional NAVs.
William Selway and Martin Z. Braun of Bloomberg write that: "The municipal bond market may be hit by a new round of turmoil from Wall Street's credit crisis. Yields on floating-rate, tax-exempt debt insured by MBIA Inc. and Ambac Financial Corp. soared as high as 9% last week as investors dumped the securities after the companies' credit ratings were cut by Moody's ... The spiraling debt costs are reminiscent of those that followed the collapse of the auction rate securities market in February."
Jesse reports a significant deterioration in Alt-A mortgage debt performance: the conclusion here is that that a number of banks are going to be going under soon.
Mike Mish Sheldon relates more writedowns on account of Alt-A liar loans are coming: "More people will be walking away from their homes in California and Florida. Approximately 75-80% of those in liar loans only make the minimum payment. Negative amortization increases every month in those loans. On top of that, home prices are falling rapidly. Add the two together and anyone who put down even as much as 20% is now hugely underwater.
At some point escalation clauses will kick in. Escalation clauses vary by contract, but typically vary between 110% of the loan to 125% of the loan. Those clauses should be kicking in now, in mass, based on price depreciation alone.
Have they in practice? Think again. It would be the kiss of death for either WaMu, WM, or Wachovia, WB, to start enforcing those clauses, homeowners would immediately default. Instead, both banks pretend they are well capitalized when it is increasing apparent they are likely insolvent. I fail to see how either of those banks survive."
WIDGETIZE