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Friday, May 9, 2008

Housing/Subprime/Credit Roundup — May 9, 2008

Items of Interest:

AIG see no rebound yet for subprime securities -- American International Group on Friday told investors that the structured credit market for residential mortgage securities, including subprime, does not appear to have rebounded.

"We don't see any precise evidence to date that those markets have rebounded," said Steve Bensinger, who it was announced yesterday will step aside as chief financial officer to assume a new post.

Late on Thursday, the world's largest insurer reported a record loss of $7.8 billion, largely as a result of writing down assets that have links to subprime mortgages. The company has said it expects much of the costly revaluation of these securities to "reverse" over time, as market conditions improve...

Euthanizing Bear
-- On Wednesday, they finally took Bear Stearns out behind the woodshed and ended its lingering misery. On that day, the plaintiffs’ attorneys in the last remaining viable lawsuit in New York against JPMorgan Chase and Bear withdrew their motion for a preliminary injunction to halt the JPMorgan acquisition. Instead, the lawyers stated that they will pursue monetary damages. There is one more suit pending in federal court but it does not look significant.

According to the latest filings with the Securities and Exchange Commission, JPMorgan now owns 49.43 percent of Bear Stearns, and so a “yes” vote to approve the combination is a virtual certainty...
Kevin Depew / Minyanville.com:
Five Things You Need to Know: Where Your Tax Rebate Is Really Going -- Today we see where India's government suspended futures trade in basic foods such as lentils, soy and potatoes for four months, hoping to "stop price rises driven by speculators."

Stopping price rises driven by speculators? That's one way to put it. Another way to put it is they are preventing price discovery. Why? Simple, because they don't like the prices that are being discovered.

The irony is that this prevention of price discovery is precisely what the Federal Reserve is doing by swapping out Treasuries for all manner of lesser-quality assets. They are basically preventing price discovery. Why? Because, like India's government, the Federal Reserve, banks, home sellers, mortgage lenders, derivatives dealers, almost everyone, doesn't like the prices that are being discovered.

The short rebuttal to this is that the Fed isn't preventing price discovery, it's simply providing liquidity because there is no price discovery currently taking place because there are otherwise no bidders. But you know what, as anyone who has ever tried to sell a ticket to a baseball game discovers after the first pitch has been thrown, a lack of bids is price discovery...
Adam Warner:
Blue Horseshoe Loves Chickpeas -- So I anticipated making a Big Salad in August and did what any sensible consumer would do, put in an order to buy some chickpea futures to lock in the price now. And I sit and wait for a fill. But it's not going to happen apparently. This, from Bloomberg.

Calculated Risk

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