Posted on 02/26/2009 10:02:21 PM PST by Flavius
LONDON, Feb 27 — A bigger proportion of non-investment grade companies will go bust in the US and overseas in the coming years than during the Great Depression, according to Moody's, one of the world's foremost experts on credit.
In what will be seen by many as die-cast confirmation that the world economy is plummeting towards an economic and corporate implosion of unprecedented proportions, Moody's said it anticipated a tidal wave of defaults was approaching.
It said that in the coming months more than 15 per cent of speculative-grade bonds and loans — all but the most highly-rated — would default on their debts.
This peak is even higher than the peak reached in 1933, when bank after bank throughout America was collapsing, taking hoards of other companies with them. Back then, the default rate peaked at 15.4 per cent; moreover these companies were former investment grade issuers regarded as more reliable credit prospects than their contemporary counterparts.
(Excerpt) Read more at themalaysianinsider.com ...
just wondering
Moody’s Downgrading Subprime Mortgage-Backed Securities; S&P to Follow
by: SA Editor Judith Levy July 11, 2007
******
FEBRUARY 26, 2009, 10:58 A.M. ET
Moody’s: Worse to Come on Subprime
Moody’s Investors Service raised its loss estimates for $680 billion in U.S. subprime residential mortgage-backed securities issued between 2005 and 2007 and put them on risk for possible downgrade, the latest hit to the ailing financial system.
The ratings agency also said by the end of the year, one-third of subprime borrowers who are currently paying on their mortgages will become delinquent and eventually default, representing 19% of outstanding loans.
http://online.wsj.com/article/SB123565300722281697.html?mod=googlenews_wsj
The concept of bigger is better is not quite so lucrative.
The bigger they are, the harder they fall.
Or are they now too big to fail?
The smaller more responsible financial companies of the past survived because they had some integrity and took responsibility for their actions. Not the case now with the mega companies arrogantly too big to fail.
My opinion, for whatever it’s worth.
I thought this was a visually very interesting and very well done portrayal of the genesis of the credit crisis.
Keep in mind, folks, that the largest numbers of Alt-A mortgage interest rate resets, which are having default rates very much in line with subprimes, are due this spring.
None of the ratings agencies were what we’d call “visionaries” where sub-prime defaults were concerned. When the first defaults started happening in early 2007, the ratings agencies were caught completely off-guard.
By July of 2007, this was when the ratings agencies started taking down the ratings on a whole lot of sub-prime paper, both straight RMBS paper and then CDO’s and CDO-squareds. This is what set off the chain reaction of bank balance sheets blowing up - when the ratings agencies took down the ratings on the paper on bank balance sheets, that meant that the banks had to have more capital on hand to meet their reserve and margin requirements. Round and round it went down from there...
What they’re talking about now are companies (entire companies, not just their paper) that are in such poor shape, that have balance sheets that are rapidly disintegrating, that they’re going to default on their paper. The way I’d start looking for who this will be is:
1. Look for BBB (or worse) paper in the bond pools at your broker.
2. Out of all the BBB paper you find, look for those who have one or two “credit watch negative” ratings added to their corporate rating.
I’d start with retail, restaurants, auto companies, auto supply companies...
This, BTW, is not a pile-on. On this action, I think Moody’s is now out in front...
Fortunatly I own no house and no stock. But I have been wondering why anyone would want to keep a house they paid 200,000 for if it is only woth 100,000. Makes no sense. I would bail out and rent a place.
Some people still believe their word/agreement to pay back a loan has some meaning... you know, the personal ethics and honor thing.
In Florida we have a lemon law. You can return bad deals for a refund. How can you deal with unethical institutions in an ethical way?
What unethical institutions? Greedy fools thought the housing market would go up forever, and even taunted renters on the way up “You’re an idiot! You’re throwing away your money on rent! They’re not making any more land, ha ha!” Well guess what? Most of them are crying for bailouts or just walking away (but not before trashing the house on the way out). Those with a shred of decency are trying to satisfy their obligations.
First, hasn't a lot of this risk already been discounted in these instruments?
Second, definitionally, it's not clear if the "default" event measured by Moody is any interruption in payment. Often debts are simply rescheduled after "default". I think this journalist is using an important, but still narrow, historical comparison to stoke fear and controversy.
For example, even with a 20% full “default” rate, if you are receiving above a one-fifth premium on the interest rate, you are ahead if you own a diversified portfolio of these bonds.
The interest rate risk-premium of the other 80% is sufficient to provide a superior return. The market prices and yields of these bonds reflect these changes and risks over time.
This idiot did not buy a 100,000 house for 200,000.
Not sure what you mean. But I do think the “system” the Politicians are trying to prop up is a failed ponzi. I can not see a way to save it other than taking the losses and starting over. Unfortunatly the voting public has been dumbed down to the point of no return.
It would depend upon whether you consider a house as an investment, or as a place to shelter your family. If one can make the mortgage payments and family is safely ensconced, it shouldn’t really much matter.
The agencies most culpable for the current housing/credit crisis are the Community Reinvestment Act - banking regulators, Fanny and Freddie for the packaging of toxic loans, and the ratings agencies - (Moodys and Standand & Poor, etc.) that didn’t do their job in correctly grading the investment instruments that were created as a result.
The banks were just operating from the regulations forced upon them by the CRA, and Wall Street was just trying to make the best of a bad situation.
When Obama, in his speech, ‘chided’ the banks for making ‘bad decisions’ I had to laugh, because the banks, due to gov’t regulations of the CRA were forced to make loans they would have never made in a free market. It was people like Obama and others from ACORN that _ensured_ banks made ‘bad decisions’. Even Barney Frank (although not Chris Dodd) will ‘give’ you that... now, but not when it would have meant something.
It is similar to the accounting firms and audit committees which turned a blind-eye to the cooking of the books at ENRON, WorldCom, etc. Whistle-blowers were there only to be ignored.
That "arm's length" relationship that wasn't hurt many people - people who do not "have the time" to recover.
We far too often forget - we never get the "time" back.
That’s right and nobody should be giving Moody’s a pass on this one. It’s a private rating company and should be open to competition that will call junk packages junk, instead of Triple A.
If Moody’s is predicting high default rates, they should also add that much of it was their responsibility, that they apologize to investors and will work to restore the trust which was broken.
My faith in credit experts and ratings agencies has been sorely weakened after the last few years.
“Fortunatly I own no house and no stock. But I have been wondering why anyone would want to keep a house they paid 200,000 for if it is only woth 100,000.”
For the coming inflation. Being a debtor is a good thing right now—credit is cheap. By the time BO is finished with inflating the dollar, your 200,000 debt will be paid in dollars that are worth 1/10th what a dollar is worth today and debt won’t be cheap anymore.
Having a big mortgage is one of the best investments you can make right now. The trick is to take the money you pull out from the mortgage into inflation proof assets.
That sounds crazy. I do not understand all this bailout credit globaloney. And do not want to.
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