FHLBs May Fall Below Capital Minimums, Moody’s Says

Bloomberg | 2009-01-08 | Jody Shenn

[rabscuttle385]

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[rabscuttle385]

The wheels are coming off the cart.

[rabscuttle385]

*Ping!*

[rabscuttle385]

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[Foolsgold]

Where is the List?

[Raster Man]

The FHLBs are the next disaster waiting to happen...well, at least after the CMBS (Commercial Mortgage Backed Securities) market implodes. The FHLBs have had the lending spigots wide open, lending to banks and thrifts. The collateral backing these loans? Well, it is the same mortgages and MBS that got the banks in trouble in the first place, the same securities that are held on the books at prices much higher than where they would actually clear the market. Who are the FHLB shareholders? Well, the shareholders are the same banks that they are lending to. Furthermore, the FHLBs, who took massive writedowns one and two years ago on their investment portfolios, were also buyers of sub-prime mortgages as they reached for yield. When they go bust, the effects will be far-reaching.

[vrwconspiracist]

This deals with an issue pertinent to many financial institutions - illiquidity in the mortgage securities market which drives down fair values of even well-structured and performing securities. The report indicates that Moodys expects maybe a billion in losses to be realized on a 76 billion portfolio, while current fair values indicate that fire sale losses, if they were to have to be taken, would be about 13 billion. 13 billion right now would hurt but isn’t realistic - one billion over a number of years is de minimus. Don’t let the liberal media, whose interest is right now in creating fear about the economy, stampede you.

[blam]

FHLB = Federal Home Loan Bank

[Camel Joe]

You left out credit card defaults which should uptick sharply when the LAST Christmas splurge bills come due... We are so SO screwed!

[Carry_Okie]

So where was Moody's two years ago when Fannie and Freedie needed a good rooting?

[AprilfromTexas]

4later

[wmfights]

The collateral backing these loans? Well, it is the same mortgages and MBS that got the banks in trouble in the first place, the same securities that are held on the books at prices much higher than where they would actually clear the market.

If banks were allowed to value the securities based on the actual cash flow rather than the mark to market method the balance sheets would be more reflective of their true position.

Right now everyone is in a panic mode and holding back capital. The banks are holding back to insure they meet minimum requirements. Investors & businesses are holding back because the new admn. is sending all the wrong signals. It is a problem that is becoming a disaster and it doesn't need to be.

Now if some banks are forced to sell to other banks because they aren't holding enough reserves all that's going to do is tighten lending even more.