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Subprime = Subpar

Bob Hoye
Institutional Advisors
Jun 25
, 2007

"La-La" attitudes prevailing in some lower grade credits seem to be turning rather quickly.

  • Wednesday's Pivotal Events briefly reviewed the problems that eventually arise when valuing securities by agreeable conventions, rather than by realistic market trade.
  • We used the example from around 1980 when the big banks were lending to sovereign nations. Valuations were set at par because conventional wisdom "knew" that countries "always", using taxpayer money, would meet their obligations.
  • Under the pressures near the end of that bond bear market, sovereign loans were marked to market.
  • The following two links are important. The first one was in Bloomberg on Wednesday [Jun 20] and provides a surprisingly realistic appraisal from the investment establishment. In this case, Mark Kiesel at Pimco.
  • The other link is from Bloomberg today [Thu Jun 21] and reports that on the Bear Stearns issue the initial clearing of the problem will set a market price in a sector that may have relied too much on pricing by convention.

[Rate Rise Pushes Housing, Economy to `Blood Bath']

[Bear Stearns Fund Collapse Sends Shock Through CDOs]

-Bob Hoye
Institutional Advisors


Hoye Archives

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