Thank god it passed, huh?

[girl gone mad]

Take a good hard look at these charts and thank FSM Paulson never used "TARP".

This is what happened to those "troubled assets" on Oct 28 when it became apparent that the government was not going to rescue the banks and investors by buying the trash at a huge premium:



...and that's the good stuff - the AAA rated securities!

Take a look at the spread on BBB commercial:




The good news is that our grandchildren won't be paying for this worthless paper. The bad news is that we got the absolute worst debt-for-equity deal on the planet because Paulson held a gun to congress's head and they capitulated to him rather than doing the right thing.


http://mrmortgage.ml-implode.com/2008/11/18/abx-cmbx-go-parabolic-carnage/

[BrklynLiberal]

1. The taxpayer has been screwn again.

[SecularisX]

2. A recommendation

As someone who works intimately with these markets, let me offer you some advice.

If you have any kind of investment portfolio, I would strongly recommend you reallocate from stocks to AAA commercial mortgage backed securities at the prices indicated on the graphs you posted.

With one such representative bond I was looking at today, even if every single commercial loan in the pool defaults (and these are offices, malls, apartments across the country) and you get back 20% in bankruptcy, you're getting your money back - and at an 8.5% yield. If that happens, we're talking breadlines and riots.

In a fairly pessimistic and somewhat more plausible scenario (15% default for the next 3 years, and then somewhat less after that) you're talking yields (that is, annual rates of return) of 20%.

What are you going to get in the stock market over the next 5 years?

Granted, there would have been some issues as far as the TARP, what prices to pay and all that. These securities were still great deals before, and I truly believe would have been a windfall to taxpayers. But Paulson isn't trying to help the taxpayers, which is why the original plan was diverted.

I know it's easy to knee-jerk and say "hey, we didn't get screwed!" but in this case, we did. Now the banks can use TARP "capital-injections" to pay bonuses instead of allowing taxpayer money to bridge the gap in a market that's just had a huge chunk of its buyers suddenly disappear because their funding (leverage) has been taken away.

I'll finish this post as I have my others: I am not a troll, a thug, or a fat-cat. I am just a guy who voted for Obama and watches these markets every day, and hopes to inject a bit of economic realism into these forums.

[girl gone mad]

3. I didn't say that we didn't get screwed.

Just that we didn't get screwed the way Paulson wanted to screw us.

IMO, the MBS market will be dead for many years. Right now I'm just trading futures on treasury related etfs. Still buying yen on dips and selling into run-ups. Mostly staying on the sidelines.

At least one hedge fund manager has been buying these bonds at their current lows, though:

Nov. 19 (Bloomberg) -- Money manager John Paulson has started buying beaten-up mortgage bonds as hedge funds stumbled for a fifth straight month.

Paulson, 52, is purchasing debt backed by home loans after generating sixfold returns last year with help from bets against subprime mortgages, investors in his funds said. Paulson's Advantage Plus fund rose 29 percent this year through October, while the Eurekahedge Hedge Fund Index, which tracks more than 2,000 funds that invest globally, dropped about 12 percent.

``Paulson's timing is typically very good,'' said Louis Gargour, chief investment officer of LNG Capital LLP, a London- based hedge fund that invests in distressed credit markets.

(snip)

Bonds linked to U.S. residential mortgages fell last week after Treasury Secretary Henry Paulson abandoned plans to buy distressed securities using money from the $700 billion Trouble Asset Relief Program. The ABX-HE-PENAAA 07-2 index of credit- default swaps tied to AAA-rated securities has fallen 13 percent to 36.25 since the Treasury's announcement on Nov. 12, according to Markit Group Ltd. That indicates the bonds might fetch about 36 cents on the dollar.

If you have the money and the time it could pay off. You'd be getting a much better deal as a private investor than Paulson was going to get you as a taxpayer.

[SecularisX]

4. I hope you're shorting those futures...

If you're going to be investing in Govts, might as well be in TIPs right now. The entire breakeven curve is going down like a sinking ship -- if you think there's going to be ANY inflation between now and 2018, you should be buying 10yr TIPs.

I think we did get screwed the way he wanted to screw us - he wanted a blank check and got it. The TARP would have at least put a floor under assets that are held by many, many institutional (this is union, corporate, state and local) retirement accounts. Now they are more likely to sell them at distressed levels to vulture funds (Paulson the other) rather than hold them to maturity as is prudent.