Re: DOW Up 416.66 : Financial Groups' Correction?

<stuff_stuff@[EMAIL PROTECTED]
> wrote in message 
news:ub4et3t6evmu2lqvusr3112ods0vbc1ic3@[EMAIL PROTECTED]
> On Tue, 11 Mar 2008 17:43:16 -0500, "John Galt"
> <whoisjohngalt@[EMAIL PROTECTED]
> wrote:
>
>>
>><stuff_stuff@[EMAIL PROTECTED]
> wrote in message
>>news:171et3di4lsljdm74hnvqb93d00br6s2mt@[EMAIL PROTECTED]
>>> On Tue, 11 Mar 2008 16:47:34 -0500, "John Galt"
>>> <whoisjohngalt@[EMAIL PROTECTED]
> wrote:
>>>
>>>>What the Fed is doing now and what they did then could not be more
>>>>different.
>>>
>>>
>>> Except it's not. It's created a whole new entity to loan money out
>>> with bonds as collateral. But the bonds are about 50% over rated.
>>> They're trading good paper for bad. This is not going to end well.
>>> IMHO.
>>
>>1929 was a tight money Fed policy. Today is the opposite. Not the same.
>>Today, the goverment is going with loose money and as you point out,
>>absorbing risk. Today the exposure is topped at 200B, but since they're 
>>only
>>taking the AAA stuff (yes, I know....), one would *hope* that losses
won't
>>top a point or two while restarting the credit market.
>
> But that triple A is almost all bogus.
>
> Look at this graphic.
> http://www.bloomberg.com/apps/data?pid=avimage&iid=iQUy2GaasArs
>
> Look at the column "collateral at risk" defined as percentage of a
> bonds total collateral that is 90 days delinquent, foreclosed or
> repossessed.
>
> Read this guy on the bonds and fed move. He's the best I think.
> http://bigpicture.typepad.com/

I get this. From 1983 to 1999, The default rate of any A or better bond
was 
..1%. The worst rated junk, OTOH, defaulted at 12.2%.

Everybody's guessing as to what the history books will show regarding this

move. If those AAA's are really only A or better, then .1% will default,
and 
the taxpayer gets hit with 200M, which is a rounding error for the federal

goverment. If they're ALL BBB (and common sense tells you that what's in 
there will be a range of stuff between AAA and BBB) the taxpayers get hit 
for 22B, which is a 1-year 1% increase in the upper tax quintile.

There's no economic immolation here.

JG


>
>>If the taxpayer can restart the markets at the cost of 4 to 10B, it's a
>>bargain. Should have done that instead of the 150B rebate.
>>
>>JG
>>
>>
>>
>>
>