From Leveraged Losses: Lessons from the Mortgage Market Meltdown, a report from the US Monetary Policy Forum, sponsored by the Rosenberg Institute of Global Finance at Brandeis University's International Business School and the Initiative on
Global Markets at the University of Chicago Graduate School of
Our best (very uncertain) guess is that the losses will total about $400 billion, with about half being borne by leveraged U.S. financial institutions. We then highlight the role of leverage and mark-to-market accounting in propagating this shock. This perspective implies an estimate of the eventual contraction in balance sheets of these institutions, which will include a substantial reduction in credit to businesses and households. We close by exploring the feedback from credit availability to the broader economy and provide new evidence that contractions in financial institutions balance sheets’ cause a reduction in real GDP growth. [emphasis added]
UPDATE: More here, and another link in the comments below.
Sullivan on the difficulties faced by AIG in valuing its own portfolio and the risk it covers: "We are in uncharted waters...We could not find observable data points in this highly disrupted and illiquid market to value the protection we provide." (starts about 9:00 of call)
He also announced that the head of the unit with the huge loss, Joe Cassano, "has decided with our concurrence that he would like to pursue opportunities outside of AIG."
UPDATE: You really need to listen to the whole call to get a sense of the complexity of this business. These slideshows will help.
UPDATE: An AIG exec uses my favorite word: "I don't think the opacity of the market has clarified any further since [year end], in fact I think it's probably even less liquid and more opaque than it has been." (just after 2:21:00)
AIG chief executive Martin Sullivan on United Guaranty: "We expect operating results [...] to continue to be challenged...Our best estimate is that future premiums on the existing in-force book [...] will exceed future losses incurred. However, losses will likely emerge in advance of premiums earned, and we expect that negative operating results will persist throughout 2008 as a result of continued weakness of the U.S. housing market." (UGC remarks begin at 4:30 of earnings call.)
Translation: that half-billion in red ink flowing out of Greensboro is just the beginning.
This is a big local story, and one that provides a view onto a huge national story. Perhaps the local media will cover it.
UPDATE: More from the call. In response to an analyst question (about 2:00:00) UGC boss Billy Nutt says, "The housing indicators are all trending negative...at an accelerating pace...and likely to continue to do so...the housing market is going to continue to experience a lot of stress through '08, and probably will not bottom out until the first half of '09, if then...quite a bit of stress on our domestic portfolio...we would anticipate that operating loss [for 2008] would be somewhere in the range of where we were in '07 to somewhat higher than that." [emphasis added]
Canada and Mexico, however, already subscribe to the core standards
of the International Labor Organization. Mexico has subscribed to 70
ILO conventions, and Canada has adopted 28 of them.
United States has agreed to only 14. That's eight fewer than the number
of global labor agreements accepted by China, the source of most U.S.
Jobs flow to places with lower costs, which promise higher returns on capital investment. NAFTA lowers costs in this hemisphere, making it somewhat more competitive with Asia.
We talk a good game in this country when it comes to capitalism, but then we turn around and embrace things like the "startlingly redistributive" stimulus plan. It's almost as if life is more complicated than an Econ 101 textbook or a curve drawn on a cocktail napkin.
United Guaranty gets a paragraph in the WSJ's coverage of AIG's horrible quarter, which ledes: "The credit crunch hit American International Group
Inc. with brute force, as the global insurer reported a $5.3 billion
fourth-quarter loss largely because of a write-down that exceeded many
analysts' expectations. It was by far the worst quarterly loss the
company has reported in its history, which dates back to 1919."
Bloomberg on the Greensboro company: "The unit, which reimburses lenders when borrowers
don't pay their loans, may not regain profitability until 2009."
Given the direct link between the housing bust and UGC's performance, it's going to be morbidly fascinating to see how high the losses -- $563 million in the second half of 2007 -- climb this year.
AIG reports Q4 earnings. Local results quite unpretty.
"United Guaranty Corporation (UGC) reported an operating loss of $348 million in the fourth quarter of 2007, compared to operating income of $27 million in the fourth quarter of 2006. Continued deterioration in the U.S. housing market adversely affected
losses incurred in both the domestic first- and second-lien businesses."
That's well over a half-billion dollars in losses in the last six months for the GSO insurer. Our local housing market may have avoided the worst of the meltdown, but not all of our local companies can say the same.
[M]ore than onein every 100 adults is now confined in an American jail or prison. According to figures gathered and analyzed by the Pew Public Safety Performance Project, the number of people behind bars in the United States continued to climb in 2007, saddling cash-strapped states with soaring costs they can ill afford and failing to have a clear impact either on recidivism or overall crime.
For some groups, the incarceration numbers are especially startling. While one in 30 men between the ages of 20 and 34 is behind bars, for black males in that age group the figure is one in nine. Gender adds another dimension to the picture. Men still are roughly 10 times more likely to be in jail or prison, but the female population is burgeoning at a far brisker pace. For black women in their mid- to late-30s, the incarceration rate also has hit the 1-in-100 mark. Growing older, meanwhile, continues to have a dramatic chilling effect on criminal behavior. While one in every 53 people in their 20s is behind bars, the rate for those over 55 falls to one in 837.
North Carolina election workers are bracing for a wave of new voters --
many of them young people casting their first ballots -- who may
inundate polling places during the May 6 primary.
"We are going to be
registering new folks the likes of which we have never seen before,"
said state elections director Gary Bartlett. "I've not seen this level
starting out of the gate."
Bartlett recently cautioned county
election workers that they need to be ready for a turnout that could
top 50 percent if the Democratic presidential contest between Illinois
Sen. Barack Obama and New York Sen. Hillary Rodham Clinton is still
alive when North Carolina holds its primary. North Carolina typically
sees a top turnout of about 30 percent in primaries.
Some readers have asked if the allegations about destroyed police files were discussed with City Council members in a recent closed session. So I asked Robbie Perkins, who responded:
He said he heard about it for the first time the night before the press conference.
Gerson: "I have seen the future of evangelical Christianity, and it is pierced.
And sometimes tattooed. And often has one of those annoying, wispy chin
More: "[T]here is something essentially countercultural about Christianity
that should make evangelicals restless in any political coalition.
Christianity indicts oppressive government -- but also the
soul-destroying excesses that sometimes come in free markets and
consumerism. It teaches enduring moral rules -- and an emphasis on
justice for the least and the lost. It is often hard where liberalism
is soft, and soft where conservatism is hard.
If evangelical Christianity were identical to any political movement, something would be badly wrong."
Some reactions. Essentially, the FOMC's strategy is to "cut and hope", trusting
that lower short term interest rates will help the economy regain its
footing, and that incipient inflation pressure will prove to be
short-lived. –-Joshua Shapiro, MFR Inc.
NYT on the William F. Buckley, who died today: "Mr. Buckley's greatest achievement was making conservatism — not just
electoral Republicanism, but conservatism as a system of ideas —
respectable in liberal post-World War II America."
Carney: "If it's a day that ends in the letter y, it's probably time to learn about problems in another dark corner of the credit markets."
Variable interest rate entities, or VIEs, are the bogeyman. They might even bite above-it-all Goldman for $11 billion or so -- part of another $88 billion haircut for the industry.
Says Tanya Azarchs, managing director
for financial institutions at S&P, "The disclosure on VIEs is hopeless You
have no idea of the structure or how that structure works. Until
you know that you don't know anything."
A report says North Carolina is "under-lawyered," and recommends allowing graduates of unaccredited schools to practice in the state. (via Dome)
More lawyers and lower standards -- not exactly what you might expect from a document issued by the conservative Pope Center for Higher Education Policy, although breaking the lawyer-factory monopoly might be a Pope issue. Or maybe they think it just makes sense. A related issue -- allowing non-laywers to do stuff traditionally done by attorneys -- has been a hot topic in the legal profession for years (and a focus of one of my favorite lawyers).
The report says of GSO's pride and joy, Elon University School of Law, that "provisional ABA approval is likely before Elon graduates its first class in the spring of 2009."
The housing/credit mess continues to unfold. Mortgage resets haven't even peaked yet. If this thing kicks us into an officially-defined recession, we won't know until July at the earliest. Even Kudlow is admitting that Goldilocks has the flu.
Today, public allegations were made that during the administration of Former Chief of Police David Wray, a member of the Greensboro Police Department ordered the destruction of police records related to the November 3, 1979 Nazi-Klan murders. The police department has reviewed the anonymous allegations and is discussing them with the Guilford County District Attorney to determine if the nature of the allegations would constitute a criminal violation if substantiated.
In September of 2007, allegations were brought to the attention of Chief of Police Tim Bellamy regarding the possible destruction of documents related to the 1979 incident. Chief Bellamy met with Rev. Nelson Johnson and requested more information or evidence that this had occurred, but no evidence was produced or persons identified that were willing to talk to Chief Bellamy or investigators.
Between August 2005 and February 2006 the Greensboro Police Department provided numerous documents related to the November 3, 1979 incident to the Truth and Reconciliation Commission as requested.They were contained in 49 bound volumes.
Davidson now has the longest active win-streak in D1 hoops.
NYT: "Closing in on a second perfect Southern Conference regular season in
four years, Davidson [...] is back on the list of dangerous small programs the
big-time teams do not want to face in the N.C.A.A. tournament."
N&R letter-writer Will Truslow tells me all kinds of stuff I didn't know: that some folks near Danville are sitting on top of a very large amount of uranium that they would like to dig up and sell, that VA has a moratorium on uranium mining, and that environmental safety concerns have made the possible lifting of the moratorium a hot issue north of the border.
After a two-year rush program by the
Pentagon's research arm, the U.S. Defense Advanced Research Projects
Agency, or DARPA, troops are now getting what might be described as
Google Maps for the Iraq counterinsurgency. There is nothing
cutting-edge about the underlying technology: software that runs on PCs
and taps multiple distributed databases. But the trove of information
the system delivers is of central importance in the daily lives of soldiers.
The new technology--called the Tactical Ground Reporting System, or
TIGR--is a map-centric application that junior officers (the young
sergeants and lieutenants who command patrols) can study before going
on patrol and add to upon returning. By clicking on icons and lists,
they can see the locations of key buildings, like mosques, schools, and
hospitals, and retrieve information such as location data on past
attacks, geotagged photos of houses and other buildings (taken with
cameras equipped with Global Positioning System technology), and photos
of suspected insurgents and neighborhood leaders. They can even listen
to civilian interviews and watch videos of past maneuvers. It is just
the kind of information that soldiers need to learn about Iraq and its
Via Nick Carr, who titles his post "Social networking goes to war," and notes that insurgents can and do use many of the same tools.
Brooks says McCain really does stand up to lobbyists, Marshall says he bends over for them, too. Both seem to be true. The question over time is whether the latter undercuts the image crafted around the former.
McClatchy: "Why isn't immigration a campaign issue in Texas?"
With the nation's second largest population of illegal immigrants
behind California , and 1,200-mile long border with Mexico, Texas
seemed tailor-made for a bruising confrontation on immigration in
advance of the state's March 4 presidential primaries.
But after more than 40 earlier primaries and caucuses, the issue
that once threatened to roil the 2008 presidential race has seemingly
lost much of its intensity. The three candidates who now dominate the
race share similar ideas on how to fix the nation’s tattered
As colleagues in the U.S. Senate, Democrats Hillary Clinton and Barack
Obama and Republican John McCain supported bipartisan efforts to
legalize millions of undocumented immigrants, the most controversial
ingredient in failed immigration legislation.
Their past record on immigration, coupled with their campaign pledges,
point to a continuation of President Bush's efforts to overhaul the
nation's immigration laws, regardless of which candidate ultimately
More than one-quarter of American adults (28%) have left the faith
in which they were raised in favor of another religion - or no religion
at all. If change in affiliation from one type of Protestantism to
another is included, 44% of adults have either switched religious
affiliation, moved from being unaffiliated with any religion to being
affiliated with a particular faith, or dropped any connection to a
specific religious tradition altogether.
The survey finds
that the number of people who say they are unaffiliated with any
particular faith today (16.1%) is more than double the number who say
they were not affiliated with any particular religion as children.
Among Americans ages 18-29, one-in-four say they are not currently
affiliated with any particular religion.
Reuters: "The United States expects to have
140,000 troops in Iraq in July after withdrawing five combat
brigades, leaving a force larger than before it began pouring
in troops last year, the Pentagon said on Monday."
PASTORS TO DISCLOSE DETAILS ON THE DESTRUCTION OF APPROXIMATELY 50 BOXES OF GREENSBORO POLICE FILES RELATED TO THE NOVEMBER 3, 1979 KLAN-NAZI KILLINGS DURING FORMER POLICE CHIEF DAVID WRAY’S ADMINISTRATION
Media Representatives are invited to join us on Tuesday, February 26, 2008, 11:30 AM, at New Light Baptist Church, 1105 Willow Road, Greensboro, NC for an announcement related to the matter outlined below.
Based on information from an active duty police officer, three pastors – Rev. Cardes H. Brown, Rev. Gregory T. Headen, and Rev. Nelson N. Johnson – will disclose detailed information about the destruction of approximately 50 boxes of police files during the tenure of Former Police Chief David Wray. The materials were related to the November 3, 1979 killing of five labor and community organizers. The name of the police officer who gave the order to destroy the materials will be shared during the media briefing. The pastors will also share the circumstances surrounding the destruction of the files and their view of the broader implications of such conduct. In addition, they will share steps already taken with city official to have this matter addressed.
Nearing the end, The Wire is good again. Not rise-and-fall of the Barksdales good (i.e., great), not kids-in-school good (i.e., Best. Show. Evar.), but back on track after a shaky patch. Below, a reminder from the past -- Omar shows he doesn't need that shottie to take people out.
SI's Stewart Mandel: "In the seven seasons since Duke's last national title (2001), college
basketball's most publicized program has almost annually seen its
weaknesses exposed at the worst possible time: the end."
Lots of variables in this game. If Deng had stayed for more than one year, if McBob had played as well as he thought he did...
Dook team that came into Chapel Hill in early February was playing pretty damn
well. I think a healthy UNC takes the regular season title from them at Cameron in a couple weeks, and Dook goes on to make the Sweet 16 or final 8.
Elon pollquestion: "Do you plan to vote [for or against] Elizabeth Dole as U.S. Senator from North Carolina?"
AGAINST 24.8 FOR 37.4 TOO EARLY TO TELL (v) 14.2 DON'T KNOW/ NOT SURE (v) 22.5
v = an answer volunteered by the polee, not one of the given responses.
Those don't seem like very strong numbers for an incumbent.
Then again, as Dome points out, "Hagan and Neal have not turned many heads in their bid for
the Democratic nomination...both candidates badly trailed 'Don't know' (46.6 percent), 'Too
early to tell/Not sure' (34.8 percent) and 'Named someone else/other)'