Posted on 08/10/2007 5:13:29 AM PDT by Moonman62
NEW YORK (Reuters) - U.S. regulators are scrutinizing the books of some top Wall Street brokers and investment banks for subprime-mortgage losses, according to a report in the online version of the Wall Street Journal. Under review by the U.S. Securities and Exchange Commission is whether the firms are calculating the value of subprime-mortgage assets in a consistent way, as well as customer assets, such as those held for hedge funds, according to the report, which cited people familiar with the inquiry.
The regulatory checks, which are expected to include Wall Street's five biggest investment banks including Goldman Sachs Group Neither Goldman Sachs nor Merrill Lynch could immediately be reached for comment.
The added scrutiny comes amid some subprime-mortgage cracks surfacing at some large investment firms. Swiss bank UBS AG was forced to shut down Dillon Read Capital Management less than two years after its launch following losses on mortgage markets. And Bear Stearns Cos shares, and its reputation, were slammed as two of its mortgage funds suffered losses, outflows and then filed for bankruptcy.
Both analysts and investors have raised questions over whether there are unreported subprime-mortgage and collateralized-debt obligation losses lurking on firms' books. Added scrutiny may also help pinpoint whether hedge funds have accurately reported their results to investors, the Journal said, citing one person knowledgeable with the inquiry.
Regulatory cross-checks of how firms calculate subprime-mortgage assets could boost the accuracy of reports to investors, according to the report.
Marking subprime assets to market is troublesome since they aren't easily bought or sold, making it tricky to put an accurate price on them, the Journal reported.
Ann Rutledge, a principal with R&R Consulting, a structured finance consultancy in New York, told the Journal: "No one really knows how to price asset-backed securities and CDOs and that's a real problem in the market now."
In late June, the SEC said it was probing about a dozen CDOs, which are secured by mortgage bonds and other forms of debt.
The free market is going to cleam up a lot of this mess.
Mortgage backed securities will need to be of a higher standard to be marketed in the future. That means no more of these liar 110% loans. That also means that housing will be more affordable for those that have 20% down and the idiots will be back renting.
The free market is going to cleam up a lot of this mess.
Mortgage backed securities will need to be of a higher standard to be marketed in the future. That means no more of these liar 110% loans. That also means that housing will be more affordable for those that have 20% down and the idiots will be back renting.
I expect a lot of hedge funders are running scared about now.
All the liquidity being added around the world must be making you sick. It’s the exact thing you didn’t want. Central bankers didn’t want to do it, but the market (the thing you supposedly like) forced them to do it in order to maintain their target rates.
Nice timing SEC. You didn’t think of this before now???
This will not solve the problems, it will only make things worse. The underlying issue is the trillions of dollars in equity that have evaporated and the arms reseting. The defaults will continue and pick up speed. And this money will be sucked up by the banks. It is temporary solution to a more permanent problem.
The SEC ha so few people, the market is going to have to. Wall Street loved the Clintons, because they kept the SEC short handed and powerless.
What I would hope comes out of this is:
1. CDO’s are banned. Hereafter, if a bank wants to sell a tranche of debt, they have to sell the debt directly, not wrap it up into a complex package with a mark-to-model valuation.
2. Mark-to-model valuations are banned on marketed instruments.
3. Margin is limited to 10:1 on any portfolio.
4. If the SEC doesn’t abolish mark-to-model, then they prohibit margin on mark-to-model instruments.
5. Re-establish the downtick rule. It was put into place for a darn good reason, and I cannot fathom why they removed it.
Saw it, but thanks. WhAt I see here is a short term wrong headed fix for a long term problem. It will make things worse in the long run.
The long term problem here is that Wall Street is overrun with children who think they’ve got the world by the ass, and they’re much more impressed with their IQ’s than the world is.
As a result, Wall Street has created a huge, interlocking network of derivatives, leverage and opaque instruments with unrealistic credit valuations.
The first and biggest problem, IMO, is to get the leverage pressure off the system. The Fed/ECB injections are intended to do just that. They’re not a bail-out, they’re a very short term loan from the “lender of last resort” that allows some of these big banks/brokers and hedge funds to start unlocking the web of margin debt.
The real issue is what any serious review of the valuations that the wirehouses have in their Hedge Funds, and resultant valuations, less haircuts.
If the SEC starts reevaluating the haircuts the wirehouses have to take on their hedge funds and agency positions, you’ll see a lot of FINOPs and CFOs going through Depends by the case...
The hedge fund affiliates are bad enough — limited partnership investments / affiliates is what made Enron insolvent when those chickens returned to the roost. A determination by the SEC that huges swathes of a firm’s agency portfolio is “not readily marketable” would be devastating to many bond dealers out there, even some of the big ones.
Re: The Feds are shoring up the market. Bought 19 Billion in mortgages......
Where are all of the market-is-god-and-will-fix-everything freepers?
The “liar loans” are all but gone.
I don’t see a return to 20%+ down only, although those loans will be by far the easiest and most affordable.
Realistically, I see 5% down for prime, 10% for subprime, and zero-down reserved only for those who COULD put money down if they wanted to and prefer to keep it leveraged otherwise, showing they have the responsibility to do so but would rather retain maximum liquidity. And I think 2.25% down FHA will remain in place, and zero-down VA.
We're still here. It's the market that is forcing the Federal Reserve and other central banks to do these things. If the central banks hadn't already gone too far manipulating the markets this wouldn't have happened. This is a correction of their manipulation.
Re: If the central banks hadn’t already gone too far manipulating the markets this wouldn’t have happened. This is a correction of their manipulation.
I thought markets could not be manipulated; they were **always** right.
Useless databases packed full of information. Information is irrelevant. The investigators could have been doing this a couple years ago and possibly stopped the problem from developing, but now all they can do is watch the pattern of damage from the dam burst. Pump some more liquidity into the system and save somebody’s yacht for another day, or not.
Markets were right this time. They forced central banks around the world to add liquidity. And I guarantee that's not something they wanted to do.
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