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Post by jeffolie on Jul 7, 2007 13:44:15 GMT -6
Finally, and one more reason not to own the large financials, is that it is not clear how much of the CDOs they sold they have on their own books, or how much they are going to have to take back in legal settlements. They are all required to maintain a set amount of net capital. The compliance officers at the various firms will start pounding the table to write down the CDOs to market as opposed to model, because they know the regulators will be coming in to look at their "net capitalization" and asking very pointed questions. www.safehaven.com/article-7909.htm
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Post by jeffolie on Jul 7, 2007 18:11:30 GMT -6
As I understand it, Bear has not actually made, as of yet, a loan to the Enhanced Leverage fund. That is probably because there is no actual collateral for them to make a loan on. Better to save your money to deal with the lawsuits. www.safehaven.com/showarticle.cfm?id=7909
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Post by unlawflcombatnt on Jul 8, 2007 4:39:50 GMT -6
Jeff,
Thanks again for a great link. That was the best explanation yet of how BBB-rated bonds become AAA-rated. The rating agencies have deliberately deceived buyers and holders of these CDOs, and have concocted stories to justify their overly high ratings. Basing a rating on a risk assessment of a 1% default rate when the consensus is for a 20% default rate is simply fraudulent.
It was also "reassuring" to see that Bear Stearns has enough capital to buy over 100 California foreclosures. Hopefully they'll lose a lot of their capital, and lose the ability to drive foreclosed home prices up, like they are currently doing.
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