THE MOGAMBO
GURU
Stranger than fictional balance sheets
By The Mogambo Guru
If you are watching all of this subprime, Alt-A, collateralized debt
obligations (CDOs)crap lose money by the ton and wonder how badly you are going
to be hurt since that toxic crap is seemingly everywhere, then you will be
interested in Junior Mogambo Ranger (JMR) George P sending me the news from
Bloomberg.com that "Standard & Poor's lowered its assumptions for how much
money investors will recover after defaults of mortgage-tied collateralized
debt obligations".
Naturally, I am curious as to what "lowering assumptions" means to these
S&P people, as I have recently been told by my family that they have
"lowered" their assumptions again, too, and that
they now collectively assume that I have hit bottom, and am now "the worst
husband and father in the whole world", and that they have decided that they
will all be forced to live out their stupid little, pathetic lives in "anger,
hate and misery", which sounded about right to me, too, as in "welcome to my
world, chumps!"
But this is not about me and my family - who have so discerningly figured me
out - but about how people are going to be losing their butts with the stupid
idea that they can "invest for the long-term" by letting "investment
professionals" invest their money for them in things that pay high commissions.
Now it has turned out that "the most-senior bonds from the CDOs originally
rated AAA should recover 60% of principal owed, while securities rated A or
lower will get nothing, S&P said." Yikes! Nothing! What in the hell kind of
long-term investing is that? Hahaha!
People in the office started complaining about the disgusting way I sat there,
apparently paralyzed but perversely drooling and humming the theme from Gilligan's
Island, as I tried and tried in vain to fathom how much money that is,
but it is measured in trillions of dollars! Trillions!
And getting back a measly 60 cents on the dollar for some CDO assets, and zero
cents on the dollar on others, is a lot of money, measured in untold numbers of
trillions of dollars (with knock-on effects), too, which means a LOT of money,
which I will further emphasize by using several exclamation points, as in
"that's a freaking lot of money to lose!!!"
And these hotshot S&P analysts are not through dispensing terrifying news,
as they go on, "Investors should recover 35% of principal after defaults on
securities from the CDOs junior to their so-called super-senior classes but
also originally rated AAA."
And, even more, "Recoveries on the most-senior originally AAA rated securities
backed by Alt-A, subprime, or home-equity loans or tax liens will likely be
80%, while for junior AAA securities they should be 65%. Alt A bonds initially
rated A should recover 35%, while similar securities backed by the other types
of loans will recover 10%."
By this time, all these numbers add up to, as I previously indicated, "a
freaking lot of money to lose!!!", with three glorious exclamation points for
emphasis which, now that I think about it, is entirely too few to convey the
true horrific, cataclysmic impact, and it should more correctly read "a
freaking lot of money to lose!!!!!"
And where is a lot of this soon-to-be-worthless CDO stuff going? Well, Junior
Mogambo Ranger (JMR) George asks, "Isn't the Fed taking in some of this
so-called AAA CDO crapola as security" against Treasury bonds as a blatant
attempt to shore up banks' balance sheets and other nefarious purposes? I
sagely nod my head "yes", and he asks "at what valuation?" Hahaha!
Laughing too hard to reply, and being too stupid to know even if I weren't, I
extend one Long Bony Mogambo Finger (LBMF) to point to the S&P analysis
(above), and then (to win both the prize for Understatement Of The Week (UOTW)
and Mogambo Dry Humor Award (MDHA), he says with a deadpan look on his face,
"The [Federal Reserve chairman Ben] Bernanke balance sheet may be an even
bigger fiction than we think."
I laugh, and I realize that all the rest of that economic crap is thus a
fiction, too. I tried to keep laughing, but I could not. Fortunately, I tried
to eat a cheeseburger, and I could. Fries, too! And then I felt better.
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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