SELL CDS SHORT COMMON. seems to work with any large financial. Bloomberg reporting CDS falling to 76 BPS (down 2.5 BP) and stock trading < $7
Or buy debt, short equity. perhaps buying a few calls for downside protection on the trade.
Not reading the whole thread, just think it’s worth noting that FNMA’s subprime exposure is 3x its equity.
wouldn’t a govt takeover of FRE & or FNM be very good for financials? much like Bear rescue?
virginCFAhooker Wrote: ------------------------------------------------------- > Shareholders deserve to get wiped out. > > The bondholders deserve a 30% haircut in the form > of some complex restructuring deal… so they > can’t easily figure out that they’re actually > taking a 30% haircut. > > If they’ve been holding through this mess they > won’t know or care. lol. agree. buggers were asleep at the wheel.
Maybe now is the time to buy a highly leveraged mortgage reit that holds only government agency debt.
holy its armageddon
MFE Wrote: ------------------------------------------------------- > wouldn’t a govt takeover of FRE & or FNM be very > good for financials? much like Bear rescue? Not really, it can go either way- it COULD invoke more fear…if FRE and FNM fail…who else is safe??? This all about panic and another takeover could create more panic…LEH could be next…then who? Wachovia? Also the thought of the gov taking on 5-6 Trillion in debt and possibly doubling the size of our National Debt in one weekend is crazy. This is insane…it will be interested to see what happens over the weekend- I’m guessing a gov bailout on Sunday…a la BSC.
People keep calling this “fear”. At this point, it is not fear… it is just reality. The powers that be lent zillions of dollars secured by crappy assets and they are selling the crappy loans off as fast as they can to the next genius in line.
I recently read an article about freddie and fannie that indicated they actually are repsonsible for “crowding out” private lenders and providing too much liquidity. Banks were pushed into the marginal stuff like arms and other funky structures, and consequently to shift the risk to others (through vehicles we are all too familiar with). If these two giants were not around maybe mortages would be priced and structured to reflect true risk / return characteristics. This seems to me to be a major source of the bubble which is presently causing so much pain. The short of it is, we need to let these things go down (if that is in fact wheer they are headed), otherwise these mistakes will be repeated. This is a very tough dose of pain, but we should be healthier when we come out of it. The thought of making public market debt investors “whole” with taxpayer dollars sickens me.
Gecco… that is brilliant. Let’s hope our dumbarse gov’t doesn’t crowd out us vulture value investors. I’m starting to droooool over some stuff.
> > This is insane…it will be interested to see what > happens over the weekend- I’m guessing a gov > bailout on Sunday…a la BSC. I take that bad…possible equity investment from the gov, temporary until things return to normal. But the US isn’t taking on that debt…reference Paulson saying, “in their current form.” They’ll hand them a life raft…
LOL, gotta love a selective memory. I looked back farley, here is what I wrote in August 2007 (about CFC obviously): “I never said the stock wouldn’t go down, just that I don’t think the company will go bankrupt. In fact I think I said a very possible outcome is the stock goes down meaningfully and BAC ends up buying the whole company well below the $18 strike on the convert.” Hmm, guess I got “owned” as you would put it. Anyway, I though it was pretty clear that I’m not bullish on GSE equity. Was just looking at risk/reward in longer-dated options, but given the vol they seem pretty expensive. Also, it’s interesting that you would cite a secondary article as opposed to Paulson’s actual statement. Current language indicates they will try to support GSEs in current form rather than nationalize, which is why the equities are well above this morning’s lows (but still deep in the red). However, they could be buying time while they attempt to gather bipartisan support for a bailout. Gecco, where was that article? It’s interesting and I want to check it out. First take is I don’t agree. Many of the banks and brokers that were hugely involved in the private label RMBS market were there for the fees they could earn using the originate-to-distribute model. I’m not sure they were dying for a piece of the lower-margin conforming mortgage action. Distribution was much a more effective way for them to earn high returns without increasing their capital requirements. During the housing boom the GSEs market share feel well below where it had been prior to the massive boom in structured credit. To me that indicates pursuit of profits was fueling the growth, not a need to maintain share. But I do want to check it out as it’s an interesting idea. I also don’t agree that we should let them die. I’m ok with the equity getting wiped out, but I do believe that their systemic importance is too high to let them fail. If the GSEs went bust today (without a suitable replacement, which might be what you are envisioning) literally no one in this country would be able to get a mortgage on Monday. And the entire financial system would likely crater.
There is no easy solution here. Obviously just shutting them down, especially when the banks are getting crushed, would leave a gaping hole. Greatly reducing their role, however, may not be such a bad thing. The “crowding out” argument was indicating that the pricing was marginally profitable, thus unattrative. Without the excess liquidity provided by the GSE, these loans could have been properly priced and been more attractive to banks / private lenders. The securitization problem is more complicated, but ultimately pushed more liquidity into the system, which compounded the excess liquidity already created by the GSEs. Agreed the motivation there was fee driven, but it did also create a situation where lending standards were greatly relaxed due to “intent to distribute.” My fundamental point here is that private money is far more effective at pricing loans properly, expecially if their feet will be held to the fire by holding the loan (or at least having some responsibility for the ultimate performance of that loan).
joey, did you cover the short FNM / FRE position early in the mornin’? you musta made a killing.
>Re: I don’t understand >Posted by: Big Nodge (IP Logged) [hide posts from this user] >Date: August 29, 2007 02:21PM > > >at least this thread is a little spicy, the board has been boring lately. > >man, if only i wasn’t so concerned with anonymity, farely my boy you just set yourself >up to be owned harder than any man has ever been owned on this board before. but >sadly i’ve got to step away i think.
>Also, it’s interesting that you would cite a secondary article as opposed to Paulson’s >actual statement. Talk about sticking your foot in your mouth time and time again. If you weren’t so busy owning people you would’ve noticed the time stamp on my message which was late last night, when the article came out and many hours before Paulson made his statement. Then again maybe I should’ve just read Paulson’s mind and posted his statement before he even thought about it himself.