Tag Archives: RMBS

Fresh Financial Crisis “Around The Corner”

31 May

More warnings that GFC 2.0 is on the way … and that those toxic financial inventions called derivatives will be front and centre again.

From Bloomberg:

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is “around the corner” because the causes of the previous crisis haven’t been solved.

The total value of derivatives in the world exceeds total global gross domestic product, creating volatility and crisis in stock markets, Mobius told reporters inTokyo today.

“Are the banks bigger than they were before? They’re bigger,” Mobius said. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. subprime loans and contributed to the collapse of Lehman Brothers Holdings Inc. in September 2008.

How relevant is all this to Australia?

Very.

Australia’s Big Four banks have recently been downgraded by Moody’s credit rating agency, mainly due to their reliance on off-shore borrowing.

What this means in practice, is that another GFC-style credit “freeze” in the USA and/or Europe would again bring our banks to their knees in a matter of weeks, begging for Government (ie, taxpayer) financial support.  The granting of which is exactly what has brought Ireland to the brink of total bankruptcy.

Even more worrying, Fitch’s credit rating agency recently placed 54 ‘tranches’ of Australian residential mortgage-backed securities (RMBS) on ratings watch “negative”, due to increasing arrears by overstretched mortgage borrowers.

These are the same kind of exotic financial derivatives that brought down the USA financial system.  And the same clever “investments” that Wayne Swan has poured $20 Billion into.  What’s worse, Wayne has even invested in RMBS that include “low doc” loans. Can you say “sub-prime”?

But in my view, perhaps the biggest concern of all is our banking system’s combined $15 Trillion in Off-Balance Sheet “Business”, which is mostly in, that’s right, derivatives.

Barnaby was right.

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How Wayne “Franked” Another $20 Billion

27 May

It’s long past due time that Wayne Swan formally adopted the name of his alter ego, Frank Spencer.

From ceiling insulation to school halls to “green” loans to computers in schools to set-top boxes, every “investment” that our Treasurer touches, ends up totally ‘Franked’.

From the SMH:

Arrears on mortgage repayments spiked to a record high in the first three months of 2011, as more Australians struggle with rising costs, Fitch ratings agency says.

Arrears on prime residential mortgage-backed securities (RMBS) of 30 days or more hit a record high of 1.79 per cent in the first quarter, from 1.37 in the final quarter of 2010, the group said, as Christmas spending and the Queensland floods forced more Australians to struggle in repaying their mortgages.

RMBS are home loans which are bundled together and sold to institutional investors by banks and mortgage lenders. Misrated RMBS were at the heart of the subprime crisis in the US which lingers to today.

As we have seen previously (How Australia Will Look When The SHTF), Wayne has “invested” $20 billion of borrowed money into Australian RMBS since the GFC, to prop up our housing bubble.

Including an extra $4 Billion which he approved in April – (ie) after the period of increasing arrears that is mentioned in the SMH article.

This news gets much worse though:

The increase in arrears for the most fragile band of mortgage borrowers, low-doc loans, with payment delays of 30 days or more hit 6.74 per cent in the first quarter, up from 5.7 per cent in the final quarter of 2010, a higher level than December 2008 quarter, when the financial crisis hit and the Reserve Bank began rapidly lowering rates.

Low-doc mortgages are written for riskier borrower than prime mortgages, which are written for customers who have a reasonably safe ability to borrow.

Delinquencies of three months or more on conforming low-doc mortgages, which are used by people who are self-employed for example, soared past 5 per cent in the March quarter, from about 3 per cent the December 2010 quarter.

Would our Wayne have “invested” any of that borrowed $20 Billion in low-doc RMBS?  Or, did he stick with “prime” RMBS?

From the AOFM website:

Purchase of RMBS – Program Update

Minimum Eligibility Requirements

* Low documentation loans, that is loans underwritten using alternative income verification procedures, may be included in mortgage pools.

Oooooooooo!

Wayne’s ‘franked’ another $20 Billion.

Some Mothers Do ‘Ave ‘Em

UPDATE:

Another ‘franked’ “stimulus” program from Wayne. Remember the doubled First Home Owners Grant, that also helped to prop up our housing bubble?

The Reserve Bank has warned many first home owners who bought into the market with the help of generous federal government assistance may now be vulnerable to rising interest rates.

RBA deputy governor Ric Battellino said today there were concerns that buyers who bought into the market in 2009, when the federal government grant was increased, may have over-committed themselves.

Are any of those hundreds of thousands of “vulnerable” first home owner mortgages actually “low doc” loans, Wayne?

Are any of them packaged up in the $20 Billion worth of RMBS that you “invested” borrowed money in … Wayne Frank?

Fitch’s: Residential Mortgage-Backed Securities “Negative”, Threat To Banks

21 May

Uh-oh.

Haven’t we already had enough worrying announcements over this past week?

To top things off, Fitch’s ratings agency has reclassified 54 tranches of Australian residential mortgage-backed securities (RMBS) from ratings watch “stable”, to “negative”:

Cash-strapped borrowers and tight-fisted mortgage insurers are a greater threat to Australian banks than previously thought, says a major ratings agency.

New information shows that Australian mortgage insurers, which secure loans for banks and other lenders, do not always pay the full outstanding amount of mortgages when they fall over which can leave banks out of pocket, according to ratings agency Fitch.

Based on its findings, Fitch moved 54 tranches of residential mortgage backed securities (RMBS) from ratings watch “stable” to “negative”. Mortgage backed securities are home loans which are bundled together and sold to institutional investors by banks and mortgage lenders.

Banks fund mortgages through issuing RMBS, which are rated by credit ratings agencies like Fitch, Moody’s and Standard & Poor’s for their quality and likelihood of being repaid. RMBS lay at the heart of the subprime crisis in the US, when major banks and investors poured billions of dollars into mortgage debt which turned out to be lower quality than thought.

The new ratings account for about half of Australia’s national securitised mortgage market. Each transaction is made up of multiple tranches that attract a different rating based on their underlying credit quality.

“Rating watches indicate that there is a heightened probability of a rating change and the likely direction of such a change,” according to data from Fitch’s website, with “negative” denoting a potential downgrade.

Commonwealth Bank chief executive Ralph Norris recently noted a 11 per cent increased in delayed payments on mortgages in the March quarter following the big rise in lending for first home buyers around the time of the financial crisis. ANZ Bank and Westpac have reported similar upticks.

We have been covering the other, even greater risks to Australia’s banks in recent posts (here, here, and here).

What concerns most about this announcement, is the implications for the $20 Billion worth of RMBS’ that the Labor government has purchased, and continues to purchase, in their efforts to keep propping up our housing bubble.

It’s been quite a week.

How Australia Will Look When The SHTF

15 May

Want a glimpse of Australia’s future?

Watch this shocking story from America’s 60 Minutes:

http://www.youtube.com/watch?v=QwrO6jhtC5E

Pretty distressing, right?

It was exotic “mortgage-backed investments” that triggered the GFC in America. And as you just saw, they are still very much at the heart of their terrible ongoing crisis, where 1 in 7 (44 million) are now living on food stamps.

Just as in the USA and other countries, our Labor government responded to the GFC by “stimulus”.  And, by propping up our “safe as houses” bankstering system.

This is the same “best in the world” bankstering system that has just $2.67 Billion in On-Balance Sheet Assets, versus $15 TRILLION in Off-Balance Sheet “business”.  The bulk of that off-the-books “business” is exotic “derivatives” bets on interest rates, and foreign exchange rates.

How exactly did Labor prop up our bankstering system?

Amongst other things, by using taxpayer’s money to “invest” billions in … yep, Residential Mortgage-Backed Securities (RMBS).

$16 Billion, to be precise.

But $16 Billion wasn’t enough. Just last month, Wayne Swan authorised the AOFM to “invest” another $4 Billion in these “mortgage backed investments”:

Click to enlarge

According to numerous sources including The Economist magazine, Australia has the most overvalued housing in the world.

And earlier this month, we learned that house prices fell by the most in 12 years in the March quarter.

That $20 Billion pumped into Residential Mortgage-Backed Securities is not looking such a great “investment” now, ‘eh Wayne.

Let there be no mistake.

Rudd/Gillard Labor did not “save us” from the GFC.

They simply kicked the can down the road a couple of years.

And in doing so, all they have achieved is to dramatically weaken our government’s financial position.

Nearly $200 Billion in gross debt.

$20 Billion in “mortgage-backed investments”.

A $50 Billion budget deficit – that’s for this year alone.

A $50 Billion increase in our national debt ceiling, to $250 Billion.

And borrowing more than $2 Billion a week.

But look on the bright side.

When GFC 2.0 strikes, we’ll not need to worry about what’s hitting the fan.

Because thanks to Labor … and the banksters … we’re already in the ____ right up to our necks.

Barnaby is right.

UPDATE:

For more shocking revelations on this story of bankstering corruption of the mortgage finance markets – and now even the courts of law – see this exposé by Rolling Stone’s Matt Taibbi:

The foreclosure lawyers down in Jacksonville had warned me, but I was skeptical. They told me the state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase. This “rocket docket,” as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and laby­rinthine derivative deals of a type that didn’t even exist when most of them were active members of the bench. Their stated mission isn’t to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history …

And if you missed it, check out Matt’s infamous exposé of one of the big banks at the heart of the ongoing mega-fraud, Goldman Sachs:

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates …

What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy

Goldman Sachs is the puppeteer of our very own Emissions Trading Scheme leading proponent, former GS Australia chairman Malcolm Turnbull MP.

Aussie Banks Not So Safe

4 Mar

From Money Morning:

We dropped the line yesterday about the banks having $13 trillion of off-balance sheet business. We’ve mentioned this number several times over the last year, but if you’re a new reader to Money Morning, here’s a link to the Reserve Bank of Australia spreadsheet that contains the awful truth.

To be precise, it currently runs to $13,058,814,195,842.70.

Just to put that in perspective, the banks have a total of $2.59 trillion of on-balance sheet assets. We’re sure the banks and the RBA will claim that all the off-balance sheet business is completely offset, so that losses are contained.

Personally, we don’t think you should believe a word of it. The number one risk with the off-balance sheet business is counterparty risk. As long as each counterparty can keep the ponzi scheme going then sure, everything will be tickety-boo.

But as we all know, that can’t happen. We’ve seen counterparties collapse before (Lehman, Bear Sterns, etc…) and they’ll collapse or need bailing out again.

There’s only so long that banks can keep the ponzi going. They’ve scraped through by the skin of their teeth thanks to an unprecedented bail-out by the taxpayer.

You see, $13 trillion is $13 trillion. It’s the big unspoken risk that the banks have created for themselves.

You can see the growth in off balance sheet business for yourself here:

$13 Trillion - AU Banks' Off Balance Sheet "assets"

$13 Trillion Off Balance Sheet Business = RISK

So let me make one thing clear. When you hear all the talk about banks deleveraging and de-risking, don’t believe a word of it. As you can see from the chart above, they’re in as deep as they’ve ever been.

The issue of counterparty risk is precisely why the Greek debt crisis is a threat to Australia – despite what Ken Henry and Glenn Stevens would have us believe.

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