The market swan dive...

[LegendKiller]

Originally posted by: maddogchen

Originally posted by: JS80

Originally posted by: SSSnail
Heh, just a touch on the high interest savings, WAMU is actually offering 5% on their no minimum deposits account.

my friend who's a quant analyst for a hedge fund that does ABS/MBS predicts wamu will go bankrupt (he predicted last month TMA's portfolio is worthless and I laughed at him).

isn't WAMU's high interest savings FDIC insured? So even if it goes bankrupt your money will be protected?

I think WAMU will be OK. They have a large amount of deposits and a pretty strong retail banking side. They don't just depend on mortgage originations nor underwriting fees. Even if they did come under difficulties somebody would buy them, besides, all of your money is FDIC insured provided it's under 100k.

However, there are some pure IB shops that might be under a lot of pressure in the coming months. It wouldn't be hard to pinpoint who these people are. They are usually huge in MBS markets, at or near the top of the league tables, and are undiversified while having strong concentrations of revenue from underwriting MBS and CDO deals.

CNBC talked about one and it's stock tanked.

 

[JS80]

Originally posted by: SSSnail

Originally posted by: JS80

Originally posted by: SSSnail
Heh, just a touch on the high interest savings, WAMU is actually offering 5% on their no minimum deposits account.

my friend who's a quant analyst for a hedge fund that does ABS/MBS predicts wamu will go bankrupt (he predicted last month TMA's portfolio is worthless and I laughed at him).

Mortgage at this point in time is completely predictable. What indications do your friend have on making that assertion?

He says most of wamu's loan portfolios are alt-a and estimates they are "worthless" (i.e. 20 cents on the dollar). He's probably exaggerating but I agree with him wamu is a shvtty bank. Their target demographic is young people and minorities so would make sense if they go broke (however unlikely).

 

[LegendKiller]

Originally posted by: JS80

Originally posted by: SSSnail

Originally posted by: JS80

Originally posted by: SSSnail
Heh, just a touch on the high interest savings, WAMU is actually offering 5% on their no minimum deposits account.

my friend who's a quant analyst for a hedge fund that does ABS/MBS predicts wamu will go bankrupt (he predicted last month TMA's portfolio is worthless and I laughed at him).

Mortgage at this point in time is completely predictable. What indications do your friend have on making that assertion?

He says most of wamu's loan portfolios are alt-a and estimates they are "worthless" (i.e. 20 cents on the dollar). He's probably exaggerating but I agree with him wamu is a shvtty bank. Their target demographic is young people and minorities so would make sense if they go broke (however unlikely).

That's practically impossible.

1. You'd have to have 100% of all mortgages default today, so no interest is received.

2. You'd have to have 20% recoveries on those mortgages, meaning that every house would have to be only worth 20% of what the mortgage was.

3. There'd have to be no PMI and no other assets that could be seized.


Realistically, there'll be ~20% losses to Subprime and lower-tier Alt-A mortgages. Of that you're probably going to recover ~50% after costs. If you figure that 10% of the rest of the portfolio will default, with a 60% recovery.

For speculative purposes lets say that their portfolio is composed of 40% of the former and 60% of the latter. That means that WAMU will suffer 8.4% net losses. Lets say they hold a portfolio of $40bn, which is pretty high, that means they will suffer a 3.36bn loss.

Yeah, that'll put a diversified bank right under water.

I think your friend was...umm...talking out of his ass. Not sure what quant models he was running for his ABS/MBS portfolios, nor the assumptions used, but I think that he's over-reacting. I'm not a "quant" but I know my way around cashflows models, CPR/CDR/PSA, interest rate changes upon prepayment curves, amortization of mortgages, recovery models based upon MSA codes and legal jurisdictions, stress mutliples for rating agency criteria...etc.

Even if you double or triple the losses that's only 10bn, which is nothing to sneeze at, but isn't a company destroying loss

Now, to an undiversified bank, that's a hell of a lot of money, especially since other banks will shut down their credit lines, your CP conduits will sustain losses, and you'll have to rely on your deposits for funding, but it isn't unsurmountable to a bank like WAMU.

It's not going to be a great time for those banks, but not Armageddon.

 

[Lithium381]

mine have been down the past two weeks, bummer!!!

 

[rchiu]

Originally posted by: JS80

Originally posted by: SSSnail

Originally posted by: JS80

Originally posted by: SSSnail
Heh, just a touch on the high interest savings, WAMU is actually offering 5% on their no minimum deposits account.

my friend who's a quant analyst for a hedge fund that does ABS/MBS predicts wamu will go bankrupt (he predicted last month TMA's portfolio is worthless and I laughed at him).

Mortgage at this point in time is completely predictable. What indications do your friend have on making that assertion?

He says most of wamu's loan portfolios are alt-a and estimates they are "worthless" (i.e. 20 cents on the dollar). He's probably exaggerating but I agree with him wamu is a shvtty bank. Their target demographic is young people and minorities so would make sense if they go broke (however unlikely).

That's pure BS. TMA didn't have problem with their loans, they had problem with using too much leverage, and that cause a problem when there is credit crunch.

There isn't that much default outside of subprime market. Both prime and alt-a loans should still provide solid cash flow. There is no way they are selling prime/alt-a 20 cents on the dollar, if they are, I'd be jumping on it right now.

The whole problem with this subprime crisis is one, companies like Bear Stern taking leveraged bets on subprime market and incurring huge loss, and two people like your friends making up stories making problem sounds bigger then it is.

 

[Vic]

WAMU is anything but a "shvtty" bank. And speaking from experience, their mortgage portfolio is one of the most collateral-reviewed in the industry. 20 cents on the dollar and I'd be in for my life savings fully margined.

two people like your friends making up stories making problem sounds bigger then it is.

Totally agreed. I've been arguing this all year. Some people, it seems, are deadset on turning a crisis into a full-blown panic. Yeah yeah we got a fire here but fanning the flames is hardly helping.

 

[SSSnail]

Dow 12,861.47 -167.45 (-1.29%)
Nasdaq 2,458.83 -40.29 (-1.61%)
S&P 500 1,406.70 -19.84 (-1.39%)

Continues...

 

[ponyo]

Originally posted by: LegendKiller

Originally posted by: maddogchen

Originally posted by: JS80

Originally posted by: SSSnail
Heh, just a touch on the high interest savings, WAMU is actually offering 5% on their no minimum deposits account.

my friend who's a quant analyst for a hedge fund that does ABS/MBS predicts wamu will go bankrupt (he predicted last month TMA's portfolio is worthless and I laughed at him).

isn't WAMU's high interest savings FDIC insured? So even if it goes bankrupt your money will be protected?

I think WAMU will be OK. They have a large amount of deposits and a pretty strong retail banking side. They don't just depend on mortgage originations nor underwriting fees. Even if they did come under difficulties somebody would buy them, besides, all of your money is FDIC insured provided it's under 100k.

However, there are some pure IB shops that might be under a lot of pressure in the coming months. It wouldn't be hard to pinpoint who these people are. They are usually huge in MBS markets, at or near the top of the league tables, and are undiversified while having strong concentrations of revenue from underwriting MBS and CDO deals.

CNBC talked about one and it's stock tanked.

I need names of those IB shops! Bear Sterns and Lehman Bros? I've been 50% cash in my trading account for awhile and currently net short so I welcome this decline. I remember during the tech crash and later Enron, Worldcom, Tyco, and Halliburton meltdown how it was always "shoot first, ask questions later" mentality. If your competitor tech company warned, every company in the sector would get crushed. It was brutal seeing companies get chopped 50% -75% for earnings warning.

 

[Nerva]

Originally posted by: Vic
A long overdue correction. And the 10 year bond is UP. A decrease in yield represents an increase in price.

in the current case, i am pretty sure its the increased buying that drove down the yield.

 

[Goosemaster]

The key is virtualization.....if something takes a dive if doesn't take down the server.....in fact it leaves other things available to do quite well...

 

[ebaycj]

Originally posted by: ViviTheMage
haha this is why I don't play in the market

Bolded the reason why you won't have much in your wallet at retirement.

 

[alrocky]

Originally posted by: AnthroAndStargate
any tips on sites that give advice on where to start if now is a good time to invest?

Vanguard Diehards forums

Now is a good time to invest as is any time you have money with which to invest.

FoBoT's suggestion is sound and Vanguard's STAR Fund (VGSTX) could be appropriate for you.

The market has dropped 10% which makes this a correction. Anyone who can't stomach this drop has overestimated their risk tolerance and may panic, turning a paper loss in a real loss. Instead hold or buy more.

 

[IGBT]

..the ebb and flow of the market. time to buy. if your dollar cost averaging your getting more shares for you dollar.