Reuters are reporting another big dollop of liquidity has been emitted from the ECB. ( Around 61 billion Euros.) And it doesn't seem to have made much difference!
Perhaps this has to do with it? From the Wallstreet Examiner
"The Steaming Pile"
by Lee Wheeler
Interesting client letter dated July 30 from Kyle Bass, the guy who runs Hayman Capital out of Dallas. He’s nailed the subprime crisis and his fund is up 240% this year. He remains short U.S. credit vehicles and believes the pain is just beginning.
He calls the subprime CDO/CLO market the “greatest bait and switch of ALL TIME” (his caps.)
Says that he spoke with a “senior exec” in the structured product marketing group at one of the big borkers who told him:
“The ‘real money’ (U.S. insurance companies, pension funds, etc) stopped buying subprime mezzanine debt in late 2003 and they needed a mechanism to ‘mark up’ these loans, package them opaquely, and export the newly packaged risk to unwitting buyers in Asia and central Europe. The CDOs were the only way to get rid of the riskiest tranches of subprime.”
“These buyers (mainland Chinese banks, the Chinese government, Taiwanese banks, Korean banks, German banks, French banks, UK banks) possess the ‘excess’ pools of liquidity around the globe. They have had a virtually insatiable demand for U.S. dollar denominated assets…….until now.”
“This [converting toxic waste into AAA grade debt] will go down as one of the biggest financial illusions of all time. The ensuing HORROR SHOW will be worth the price of admission.”
Bass expects that this debt will ultimately fetch 10 cents on the dollar and that the problems will leak all the way up to AA debt. He also fully expects non-US buyers—the main source of U.S. debt and even schlock LBO liquidity—to hold a buyer’s strike of U.S. assets.
In essence, he says (not his words), Cheat Street has taken a giant, steaming fraudulent shite in the liquidity pool, and no one will want to swim for a long time.
Bass also mentions he took a recent tour of California’s Inland Empire where a great deal of this toxic waste was created, along with Florida, Arizona, Nevada and elsewhere.
“Let me start by saying it is MUCH WORSE than even I thought it could be. I met with mortgage lenders, originators, economists, capital market professionals. The overriding theme: ‘Everyone committed fraud.’ They told me that 90% of all subprime loans contained some kind of fraud and that 50% of applicants overstated their income by MORE THAN 50%!.”
“The borrowers are now locked out of the financing market and there is no logical buyer for these homes outside of the original borrowers. The foreclosure wave will hit these neighborhoods like the Asian Tsunami. If you plug in 15% depreciation in housing prices and 50% loss severities into our subprime model, the capital structure is wiped out all the way to the “AA” tranches.”
Bass remains short credit in the U.S. and has not taken ANY profits yet. He is also short select U.S. schlocks, mostly consumer-related. He is long non-U.S. equities and debt.
“I think the world is going to begin to decouple from the U.S. and realize that currency appreciation coupled with the globe’s best growth is an attractive alternative to fraudulent ratings, U.S. dollar depreciation and financial inventions used to export risk.”
http://www.dealbreaker.com/images/pdf/HaymanJuly07.pdf
For more great articles visit the Wall Street Examiner home page.
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This entry was posted on Wednesday, August 8th, 2007 at 7:32 PM and filed under Lee Wheeler On The Mark.
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