Friday, February 29, 2008

AIG 10-K filed 2-28-08 (231 pages)

Read this doc on Scribd: AIG FORM 10-K 2-28-08

Who is Blowing Bubbles in Global Commodity markets?

In trying to put a floor under the housing and stock markets, the Bernanke Fed has cranked up the growth of the MZM money supply to an explosive 15.4% annual rate, which is also depressing the US dollar and pumping up the commodities markets to astronomical heights. The Fed has unleashed a speculative frenzy in commodities, and traders have lost faith in the central bank’s credibility.

The Bernanke Fed’s aggressive rate cuts have doing more harm than good for the US economy, by leaving the US consumer with slumping home prices on the one hand, and soaring food and energy prices on the other hand, otherwise known as the “Stagflation” trap. According to Bill Gross, chief investment officer at Pimco, the Fed’s rate cuts of 2.25% since September have not brought mortgage rates lower, with the Fannie Mae 30-year mortgage rate stuck at 5-3/4 percent.
Current Bankrate 30 year fixed is now 6.41%.

Borrowers Abandon Mortgages As Prices Drop

Goldman Sachs economists estimate that as much as $3 trillion in mortgages could be underwater by the end of the year, leaving 30% of the country's outstanding mortgages in negative equity. Since there is roughly $1 trillion in subprime mortgages outstanding, that means a large amount of better-quality mortgages, such as prime and Alt-A -- a category between prime and subprime -- will be attached to negative equity.

"The focus has been on the [interest rate] resets," said Goldman Sachs economist Andrew Tilton. "But if you're in a deep enough negative-equity position, defaulting has its own kind of logic."

Thursday, February 28, 2008

Tuesday, February 26, 2008

Citigroup 10-K filed 2-22-08 (205 pgs + exhibits)

Read this doc on Scribd: Citigroup 10-K 2-22-08
See PDF page 87 (page 86 of document) for significant unconsolidated "Variable Interest Entities" with off balance sheet assets of $320 billion that might be worth as little as 27 cents on the dollar - see VIEs; Citigroup VIEs Raise Question Of Solvency; A Fear of What's Behind Closed Doors.

Sunday, February 17, 2008

Arcane Market Is Next to Face Big Credit Test

Years of a healthy economy and few corporate defaults led many banks to write more credit insurance, finding it a low-risk way to earn income because failures were few. Speculators have also flooded into the credit insurance market recently because these securities make it easier to bet on the health of a company than using corporate bonds.

Both factors have resulted in a market of credit swaps that now far exceeds the face value of corporate bonds underlying it. Commercial banks are among the biggest participants — at the end of the third quarter of 2007, the top 25 banks held credit default swaps, both as insurers and insured, worth $14 trillion, the currency office said, up $2 trillion from the previous quarter.

JPMorgan Chase, with $7.8 trillion, is the largest player; Citibank and Bank of America are behind it with $3 trillion and $1.6 trillion respectively.

Credit default swaps are going to blow sky high. If 10% of credit default swaps blow up, it would wipe out $4.5 trillion in capital. A mere 1% hit would wipe out $450 billion. We don't know when, but we do know the fuse is lit. Source