Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Wed 02.06.2008
Bank ratings may be cut on bond insurer woes: S&P Standard & Poor's said on Tuesday that it may downgrade bank ratings because of trouble in the $2.4 trillion bond insurance business. "Bond insurers are suffering as a result of their roles as guarantors of mortgage-related securities, and downgrading them could affect all markets in which they are active, including the municipal bond, commercial mortgage-backed securities, and other structured finance areas," Tanya Azarchs, a credit analyst for S&P, wrote in a note to investors. "In turn, dislocation in those markets could affect banks." Bond insurers guarantee billons of dollars worth of complex securities known as collateralized debt obligations (CDOs). But losses on these securities have begun to rise, imperiling the companies' crucial AAA ratings. Banks and securities firms lost close to $146 billion from subprime-related products in 2007.
Iran's oil bourse could topple the dollar Two weeks ago George Bush was sent on a mission to the Middle East to deliver a horse's head. We all remember the disturbing scene in Francis Ford Coppola's "The Godfather" where Lucca Brassi goes to Hollywood to convince a recalcitrant movie producer to use Don Corleone's nephew in his next film. The "Big shot" producer is finally persuaded to hire the young actor after he wakes up in bed next to the severed head of his prize thoroughbred. I expect that Bush made a similar "offer they could not refuse" to the various leaders of the Gulf States when he met with them earlier this month. The media has tried to portray Bush's trip to the Middle East as a "peace mission," but nothing could be further from the truth.
U.S. sees Russia, China, OPEC financial threat The United States is worried that Russia, China and OPEC oil-producing countries could use their growing financial clout to advance political goals, the top U.S. spy chief told Congress on Tuesday. Such economic matters joined terrorism, nuclear proliferation and computer-network vulnerabilities as top U.S. security threats described by National Director of Intelligence Michael McConnell in an annual assessment. McConnell said U.S. intelligence agencies had "concerns about the financial capabilities of Russia, China and OPEC countries and the potential use of their market access to exert financial leverage to political ends." Russia, bolstered in part by oil revenues, was positioning itself to control an energy supply and transportation network from Europe to East Asia, and the Russian military had begun to reverse a long decline, he told the Senate Intelligence Committee.
HOW FEDS INVITED THE MORTGAGE MESS PERHAPS the greatest scandal of the mort gage crisis is that it is a direct result of an intentional loosening of underwriting standards - done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults. At the crisis' core are loans that were made with virtually nonexistent underwriting standards - no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment. Most people instinctively understand that such loans are likely to be unsound. But how did the heavily-regulated banking industry end up able to engage in such foolishness? From the current hand-wringing, you'd think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job.
BHP Billiton sweetens offer for Rio Tinto BHP Billiton on Wednesday raised its bid for Rio Tinto to $147 billion, its first move since a combination of Aluminum Corp. of China and Alcoa Inc bought a big block of the Anglo-Aussie mining giant. BHP, the world's largest miner by market value, will offer 3.4 shares for every one of Rio Tinto, the company said in a statement Wednesday. The offer is 13% more than its previous three-for-one proposal, which was rejected by Rio's board. "Rio Tinto will consider the terms of the proposal carefully in the light of all circumstances and will make a further statement once they have completed this assessment," the company said, adding it was encouraging "shareholders not to take any action."
Consumer comfort gauge plunges to 14-year low A weekly survey of consumer attitudes about the economy fell to its lowest level since late 1993, ABC News and the Washington Post reported Tuesday. The ABC/Post consumer comfort index fell six points last week to negative 33. The index has fallen 13 points in the past month, "an unsettling sign," ABC News said, noting a 13-point drop before the 1990 recession and a 14-point drop before the 2001 recession. Just 22% of the consumers polled view the economy as good or fair, a 5-point drop from a week earlier. Attitudes about the buying climate and personal finances also fell. The record low for the index was reached in February 1992 at negative 50. The index is usually slightly negative.
Buyback Blowback at Ambac and MBIA Ambac and MBIA are world leaders in providing financial guarantees and credit enhancements for bond issuers (e.g., municipalities), asset managers, financial institutions, and insurance companies. Both companies are traded on the New York Stock Exchange. Holders of bonds and securities, "insured" by Ambac and MBIA, are provided irrevocable guarantees of timely payment of interest and principal should there be a default or other triggering event. Between the two companies, they guarantee more than $1 trillion in municipal, corporate, and mortgage debt. A critical aspect of such guarantees pertains to the fact that Ambac’s and MBIA’s triple-A credit ratings are bestowed upon the bonds and securities they are insuring.
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