OT, but relevant to the discussion here a few days ago. From Mauldin's weekly letter:
In fact, let me sound a note of "optimism." The ever-growing estimates of losses due to subprime may be overstated. According to a study by Goldman Sachs, the ABX indexes suggest about $400 billion in losses. But a $150 billion dollar chunk of that is from AAA rated bonds. They have been marked down an average of 18%. But in order for the AAA tranches to lose money, 50% of the mortgages in the securities would have to go into foreclosure, and those homes would have to drop 50% in value.
So, why the drop in value? Because some of the Residential Mortgage Backed Securities will more than likely face such a serious loss. Others are unlikely to see anywhere close to a 50% foreclosure rate. The problem is that investors cannot figure out which RMBS's are in trouble and which would be good bets. Until there is transparency, it is likely that prices will stay low. |
