CDOs Are Back [Housing Tracker]

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Includes: GS, JPM
by: Judy Weil

Quote of the Day 

“It's just the reincarnation of the CDO.” - Paul Colonna, CIO for fixed income at GE Asset Management. Colonna says new mortgage bonds being hawked by investment banks called ‘Re-Remics,’ are the same as CDOs, only that they are being sold at different valuations.” (Bloomberg, July 8th)

Mortgage Trends

Paulson Remarks Send Stocks Soaring. “Treasury Secretary Henry Paulson on Tuesday afternoon set off a late afternoon rally on Wall Street as he said the Treasury Department and other federal financial agencies were looking at "covered bonds" as a potential solution to the shortage of money for mortgage lending.”  (Big Builder Online, July 8th)

Toxic CDOs Given Up for Dead Coming to Life With Pension Funds.  “Collateralized debt obligations that helped drive banks to $400 billion of writedowns and credit losses are finding buyers under a different name: Re-Remics. Goldman Sachs Group Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM) and at least six other firms are repackaging unwanted mortgage bonds as sales of CDOs composed of asset-backed securities fall to less than $1 billion this year from $227 billion in 2007 because of the global credit crunch. Re-Remics contain parts that are structured to guard against higher losses on underlying loans than most CDOs, allowing holders to sell or retain other sections at lower prices that can translate to potential yields of more than 20%.” (Bloomberg, July 8th)

Commercial Paper on the Rise, Federal Reserve Reports. “Federal Reserve: The U.S. commercial paper market rose in the latest week, as did the closely watched asset-backed sector. For the week ended July 2, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, expanded by $27.1 billion to $1.780 trillion, from $1.753T the previous week. Asset-backed commercial paper outstanding rose $8.1B after falling $5.0B the previous week. U.S. asset-backed commercial paper outstanding rose to $756.5B in the latest week from $748.4B the previous week.” (Financial Week, July 7th) 

Housing, the Subprime Mortgage Crisis and the Enduring Resilience of the U.S. Economy.  “Regulatory policy should focus on things markets themselves cannot solve, not on those problems markets—and market discipline—can effectively address. This means policies that enhance transparency to make market discipline more effective, avoid moral hazard and encourage the development of clearinghouses for [credit default swaps]. Above all, it means that government regulatory policies should not make things worse by failing to recognize government's own limitations in an era when private markets have grown so large.” (U.S News & World Report, July 7th)

 

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