Monday's Links
A: Some good stuff out there in the blogosphere that I would like to share with readers.
Quitest October in a Decade (truegotham.com)
That said, if the October and first week of November activity are any indication of what's on the horizon for the New York City real estate market, that correction may indeed be just around the corner. I'm not prophesying by any stretch here as that always gets me into trouble but this has been the quietest October I have seen in the past 10 years.Citigroup: $134.8 Billion in 'Level 3' Assets (Marketwatch.com via calculated risk)
Citigroup Inc. ... said its so-called level 3 assets as of Sept. 30 were $134.84 billion. Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management's best guess.Lara Meyer: I'd Be a Dove on This Fed (realtimeeconomics.com)
But Mr. Meyer, now a Fed watcher at his old firm, Macroeconomic Advisers, feels like a soft-money inflationist next to the current crew running the central bank.Credit & Financial Bloodbath Will Continue (Prof. Nouriel Roubin's Blog)The Fed, he says, left last week's meeting, at which it cut rates by a quarter point, "with even more resolve" not to cut rates again. "The markets may have pushed the FOMC into a cut in October, but we think the message is: 'Push us once, you win. Push us twice, you pay!' This is one of the most hawkish Committees that I can recall … Put it this way: I would be the dove on this committee today, and I don't usually do even a good imitation of a dove."
The amount of losses that financial institutions have already recognized - $20 billion - is just the very tip of the iceberg of much larger losses that will end up in the hundreds of billions of dollars. But calling this crisis a sub-prime meltdown is ludicrous as by now the contagion has seriously spread to near prime and prime mortgages. And it is spreading to subprime and near prime credit cards and auto loans where deliquencies are rising and will sharply rise further in the year ahead.Fitch May Downgrade Bond Insurers After New Test (bloomberg.com)Valuation of illiquid assets is a most complex issue; but starting with the November 15th adoption of FASB 157 the leeway that financial institutions have used so far for creative accounting will be much more limited. Valuation of illiquid assets is a most technical issue. But new regulations will limit the ability of financial institutions to put "illiquid" asset in "level 3" securities, i.e. securities where the lack of market prices allows them to use dubious "valuation models" and "unobservable inputs" to value such assets.
Fitch Ratings may lower the AAA credit ratings on one or more bond insurers after a new review of the companies' capital takes into account downgrades of collateralized debt obligations that they guarantee.Fitch said it will spend the next six weeks reviewing the capital of insurers including MBIA Inc., Ambac Financial Group Inc., CIFG Guaranty and Financial Guaranty Insurance Co. to ensure they have enough capital to warrant an AAA rating. Any guarantor that fails the new test may be downgraded within a month unless the company is able to raise more capital, New York- based Fitch said today in a statement.
Fitch said it decided to review the bond insurers after "broader and deeper' downgrades of "CDOs, which package debt such as subprime mortgage securities and loans.
The bond insurance industry has guaranteed more than $1 trillion of bonds issued by U.S. cities and states as well as bonds backed by mortgages, credit cards and other assets, and the guarantee allows borrowers to use the insurers' AAA rating.
