Commercial-mortgage bond risk rises after loan delinquencies

November 19, 2008 by · Leave a Comment
Filed under: Real Estate News 

Looks like the next shoe to drop will be the commercial real estate market.  It has lagged behind the residential market but it is not immune by any stretch.  Looks like you need 700 basis points (7%) to get debt insurance (CDS) on a CMBS (Commercial Mortgage Backed Security).  

Just today, the premium rose, 1.3%.   With businesses either shutting down or cutting back on their expenses, this will have a direct effect on the commercial real estate market.   If you have been following the CoStar newsletter that tracks the commercial market, they have not had a rosie picture for our current real estate market either.  Time to batten down the hatches.

News:

The cost to protect top-rated commercial-mortgage bonds against default rose to a record, a day after two bad loans boosted concern the debt will cause losses.

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AIG gets expanded bailout to $150 billion and reports $24.5 billion loss

November 10, 2008 by · Leave a Comment
Filed under: Policy News 

Well here go, NPR and Bloomberg reported this morning that AIG’s bailout is going to ballon to $150 billion dollars.  These loans might be paid back over time but at this point this is a lifeline to AIG.  What they are failing to say, is that these losses they are posting is because they were on the wrong end of credit-default swaps (CDS).  Most likely these losses are tied to Lehman Brothers and Fannie/Freddie.  

They might be paying out on some of the many foreign firms that have failed or were nationalized, being the largest insurer in the world makes me tend to think they were a big player in the CDS market.  They need to report their CDS position so we can know if this is a black-hole that the U.S. taxpayer is just literally throwing money into.  In the end, mainstreet is going to pay for this mess just to get into another mess.  Enjoy.

News:

American International Group Inc. got a $150 billion government rescue package, almost doubling the initial bailout of less than two months ago as the insurer burns through cash at a record rate.

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Credit default swap (CDS) disclosure hides true financial risk

November 6, 2008 by · 1 Comment
Filed under: Stock Market News 

This is a pretty hard-hitting article and it also comes up short to the extent of the problem.  The article talks of only $33.6 trillion dollars of credit-default swaps (CDS).   According to the Bank of International Settlements said their is $516 trillion dollars of CDS worldwide.  Being that the United State is considered the financial epicenter, I would assume our financial institutions have much more exposure than what this article states.  

The good news is that the media is finally acknowledging the real problem in the credit markets that is impeding normal lending.  Once we admit this fact it will make a difficult choice on what to do.  I don’t think the different national governments will let all banks that are insolvent because of these debt insurance contracts.   They will either monetize all the debt or absolve all these contracts.  Either way, will create a very intriguing economic environment.

News:

The most comprehensive report on unregulated credit-default swaps didn’t disclose bets in the section of the more than $47 trillion market that helped destroy American International Group Inc., once the world’s biggest insurer.

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SEC head calls for transparency on credit default swaps (CDS)

October 19, 2008 by · Leave a Comment
Filed under: Economic News 

Its great to know that is takes a crisis with global implications to ruin many economies for us to finally to demand disclosure on these huge positions using credit default swaps (CDS).  The SEC head, Chris Cox even admitted that the $55 trillion credit defaults market is more than the GNP of all the world’s nations combined, and that credit default swaps “play an important role in the smooth functioning of capital markets.”  How can we even talk about this as it is a walk in the part.  I believe this is the central reason for the freezing in the global credit markets.  No one would want to deal with counter-parties that have this kind of exposure?  It will be very interesting in how the various government bodies decide to deal with this problem and the precedence it will set for decades to come.

News Release:

SEC Chairman Christopher Cox has called on Congress to pass legislation that would make so-called credit default swaps more transparent, including requiring that dealers in over-the-counter swaps publicly report their trades and the trades’ value.

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Credit-Default Risk (CDS) Soars After Lehman Brothers Files for Bankruptcy

September 15, 2008 by · Leave a Comment
Filed under: Industry News 

Much uncertainty on Wall Street today. According to Bloomberg, Lehman was a top 10 dealer in CDS or credit-default swaps. First fallout with a major market maker going under is the amount counter-parties are demanding for debt insurance has gone up 50% overnight in many cases.

Bill Gross of Pimco made this comment ““The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,” “It induces a tremendous amount of volatility and uncertainty.”” In this article they stated if a company insured $2 trillion in debt and went under it would induce 36-47 billion dollars in losses. This is not good and we might finally be over the edge with no way back.

CDS Article:

Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel.

Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

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