Loss Estimates in Mortgage Securities Markets into the Hundreds of Billions

29 de junio de 2007

<body><div id="article"><p>June 29, 2007 (LPAC)--The door opened by the "Bear Stearns hedge fund crisis," into the real lack of value of the trillions of dollars of MBS, CDOs, and lunatic derivatives contracts of the U.S. housing bubble, is now leading to estimates of hundreds of billions of dollars of losses hitting hedge funds, banks, pension funds, etc. The losses are spreading far beyond mortgage securities markets and crunching bond markets that have relied on similar derivatives--so that six major international bond issuances or IPOs have been cancelled or drastically scaled back over June 27-28.</p><p>Liquidity is contracting throughout corporate bond markets, warned one banker spoken to on June 28, with the Federal Reserve "in a bind" to anything about it. And Asian central banks, which have flooded the MBS and CDO markets for several years, are now sharply pulling back.</p><p>Economist Lyndon LaRouche has called the process "disintegration of the financial system," spreading unstoppably (but at an unpredictable rate) from the collapsing U.S. household debt/mortgage bubble. A credit crunch is hitting the biggest borrowers: Carlyle Group, KKR/Royal Ahold, Arcelor Steel, MISC natural gas producer, CanWest Media Group, and Dollar General all had to cancel or drastically scale back bond issuances in the past 48 hours. And another large hedge fund, Caliber Capital Management in London, closed due to MBS losses.</p><p>On June 28, two reports appeared that estimated mortgage-backed securities (MBS) holders will lose between $125 billion (Graham Fisher & Co., New York) and $250 billion (Institutional Risk Analytics, California), far higher than previous estimates. And according to a long analysis piece by <em>Bloomberg News</em> June 29, those losses could go far higher. In the center of the crisis, they say, are the ratings agencies--S&P, Moody's, Fitch--which are digging in and refusing to downgrade MBS from the rating level BBB, 65% of which need to be downgraded, according to <em>Bloomberg's</em> analysis. Make that 80%, says Credit Suisse analyst Rod Dubitsky, quoted by <em>Bloomberg</em> . The longer the ratings agencies hold out, the worse will be the securities collapse when they do downgrade. Moreover, "the current debacle threatens asset-backed bonds, securities that use consumer, commercial, and other loans and receivables as collateral"--a $10 trillion market.</p><p>As for the U.S. household debt bubble which triggered the crisis: Subprime mortgage delinquencies will likely keep rising from their current record level of near 15%, to 20%, says Los Angeles-based TCW Group. That would mean another 1.2 million delinquent or non-paying subprime mortgages.</p></div></body>