[movermike] movermike: More Troubled Companies

[Email subscription to blog articles]

Posted by movermike:
More Troubled Companies
http://www.movermike.com/posts/1172890808.shtml


   I suppose you've read this already, Shannon D. Harrington writes for
   Bloomberg that [1]Goldman, Merrill Almost `Junk,' Their Own Traders
   Say.

     Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley,
     which earned a record $24.5 billion in 2006, suddenly have become
     so speculative that their own traders are valuing the three biggest
     securities firms as barely more creditworthy than junk bonds.

     Prices for credit-default swaps linked to the bonds of the New York
     investment banks this week traded at levels that equate to debt
     ratings of Baa2...two steps above non-investment grade, or junk.

     Traders of credit derivatives are more alarmed than stock and bond
     investors that a slowdown in housing and the global equity market
     rout have hurt the firms.

     "These guys have made a lot of money securitizing mortgages over
     the years in a mortgage boom time," said Richard Hofmann, an
     analyst at bond research firm CreditSights Inc. in New York. "The
     question now is what is the exposure to credit risk and what are
     the potential revenue headwinds if they're not able to keep that
     securitization machine humming along."

   The U.S. Government relies heavily on Goldman Sachs for financial
   leadership, men like Treasury Sec. Paulson, for example.

   In November of 2006, The Independent carried a story by Jeremy Warner
   about the "mond-boggling growth of derivatives:

     There are two views on derivatives. One depicts them as little more
     than a fee-earning devise, a form of snake oil that unscrupulous
     investment bankers sell to an innocent world not primarily for the
     sake of general economic advancement, but only further to boost the
     bonus pool.

     Worse, some see the explosion of trading in financial instruments
     as a giant ponzi scheme which makes it impossible any longer to see
     and know where risk truly lies. It only requires a big default,
     they warn, to spark a domino effect and for the whole edifice to
     come tumbling down.

   You may recall back in April of 2005, Freddie Mac, the U.S. mortgage
   company, said profits in 2004 fell 42 percent as the value of
   financial contracts (derivatives) used to protect against swings in
   interest rates declined.

   Mortgage companies dealing in sub-prime mortgages have been falling
   and failing fast and Morgan Stanley and Goldman were among the top
   five traders of credit-default swaps (used to protect your position in
   securitized mortgages) in 2005.

   [2]Maxedoutmama is one who is following this story closely and noted
   the article in Bloomverg.

   [3]Shannon D. Harrington [4]Goldman Sachs [5]Morgan Stanley [6]Merrill
   Lynch [7]credit-default swaps [8]derivatives [9]Mover Mike

References

   1. http://www.bloomberg.com/apps/news?pid=20601087&sid=a0j4oiYE3Bfw&refer=home
   2. http://maxedoutmama.blogspot.com/2007/03/when-it-rains-it-pours.html
   3. http://technorati.com/tag/Shannon+D.+Harrington
   4. http://technorati.com/tag/Goldman+Sachs
   5. http://technorati.com/tag/Morgan+Stanley
   6. http://technorati.com/tag/Merrill+Lynch
   7. http://technorati.com/tag/credit-default+swaps
   8. http://technorati.com/tag/derivatives
   9. http://technorati.com/tag/Mover+Mike