GLG News by Research, Sales, and Trading Consultants (US)

Martin KamarckPrincipalMAKO Consulting LLC

Beyond Credit Enhancement: The Value of Risk Management

March 9, 2009

Analysis of:Buffett Warns Insured Muni Bonds Could Be Next Shoe to Drop | www.tradingmarkets.com

The Bond Buyer headline: A default is a default, is a default, is a default. For bond issues most vulnerable to fiscal stresses, monoline insurers "write themselves into the indenture," with surveillance rights, reporting requirements and -- most imprtantly -- covenants and remedies more akin to an (old fashioned) bank loan than a bond issue. Especially with their portfolios of insured risks under stress, the monolines will aggressively exercise those rights as proxy for bondholders, so insured bondholders should be, generally, better protected. If, in his haste to cash in on the market opportunity in muni bond insurance, Buffett missed this basic element of the business, then BHAC's loss experience could be much worse than predicted.

Martin KamarckPrincipalMAKO Consulting LLC

With the GSEs "Nationalized," Will There Still be a Market for Mortgage Insurance?

September 15, 2008

Analysis of:U.S. bails out Fannie Mae, Freddie Mac, ousts CEOs | www.bizjournals.com

The GSEs succeeded in supporting the creation of a broad, deep, liquid national market for mortgages.  They used their market power to impose standardization on mortgage terms and underwriting.  Thus was born the "conforming mortgage." Mortgage insurance is an artifact of this history.  It is an inefficient and (at the individual whole loan level) unnecessary credit enhancement.  But the rumors of MI's demise are premature. The last thing the new management of the GSEs want to do is spook the markets with sudden moves, loud noises or big changes. That said, there will be pressure to impose much more rigorous capital allocation/portfolio risk management controls.  Politically, they can't reduce volume, per se, immediately at least, but the management of counterparty risk exposure to the MIs may well become more active. Bad news for weaker MIs.   Later the survivors will again be caught between price competition and "innovation" (bad risk) in a smaller market.

Martin KamarckPrincipalMAKO Consulting LLC

With the GSEs "Nationalized," Will There Still be a Market for Mortgage Insurance?

September 12, 2008

Analysis of:U.S. bails out Fannie Mae, Freddie Mac, ousts CEOs | www.bizjournals.com

The GSEs succeeded in supporting the creation of a broad, deep, liquid national market for mortgages.  They used their market power to impose standardization on mortgage terms and underwriting.  Thus was born the "conforming mortgage." Mortgage insurance is an artifact of this history.  It is an inefficient and (at the individual whole loan level) unnecessary credit enhancement.  But the rumors of MI's demise are premature. The last thing the new management of the GSEs want to do is spook the markets with sudden moves, loud noises or big changes. That said, there will be pressure to impose much more rigorous capital allocation/portfolio risk management controls.  Politically, they can't reduce volume, per se, immediately at least, but the management of counterparty risk exposure to the MIs may well become more active. Bad news for weaker MIs.   Later the survivors will again be caught between price competition and "innovation" (bad risk) in a smaller market.

Martin KamarckPrincipalMAKO Consulting LLC

With the GSEs "Nationalized," Will There Still be a Market for Mortgage Insurance?

September 12, 2008

Analysis of:U.S. bails out Fannie Mae, Freddie Mac, ousts CEOs | www.bizjournals.com

The GSEs succeeded in supporting the creation of a broad, deep, liquid national market for mortgages.  They used their market power to impose standardization on mortgage terms and underwriting.  Thus was born the "conforming mortgage." Mortgage insurance is an artifact of this history.  It is an inefficient and (at the individual whole loan level) unnecessary credit enhancement.  But the rumors of MI's demise are premature. The last thing the new management of the GSEs want to do is spook the markets with sudden moves, loud noises or big changes. That said, there will be pressure to impose much more rigorous capital allocation/portfolio risk management controls.  Politically, they can't reduce volume, per se, immediately at least, but the management of counterparty risk exposure to the MIs may well become more active. Bad news for weaker MIs.   Later the survivors will again be caught between price competition and "innovation" (bad risk) in a smaller market.

Jerome FonsPrincipalFons Risk Solutions

White Paper on Rating Competition and Structured Finance (Part 2)

April 10, 2008

Analysis of:Study: subprime crisis spurs lawsuits | money.cnn.com

Continued from part 1.

Jerome FonsPrincipalFons Risk Solutions

White Paper on Rating Competition and Structured Finance (Part 1)

April 10, 2008

Analysis of:Study: subprime crisis spurs lawsuits | money.cnn.com

As subprime mortgage losses cascade throughout the global financial system, attention has turned to the structure and performance of the bond rating industry. Faulty ratings on securities backed by subprime mortgages are believed responsible for billions of dollars in losses. This White Paper argues that any such faulty ratings are due in part to conflicts inherent in the issuer-pays rating agency business model. Such conflicts, when combined with existing structured finance practices, have led to widespread rating shopping. Efforts to increase competition among rating agencies may exacerbate the problem unless fundamental changes occur in the structured finance area, particularly in attitudes toward unsolicited ratings.

Martin KamarckPrincipalMAKO Consulting LLC

It's not how broadly you spread it; it's how deep.

February 28, 2008

Analysis of:Arcane Market is Next to Face Big Credit Test | www.nytimes.com

Lesson of monoline debacle: Core issue is concentration of counterparty risk. 

Martin KamarckPrincipalMAKO Consulting LLC

Proposed Split Creates Short-Term Solution, Long-Term Problem

February 27, 2008

Analysis of:Bond Insurer Plans a Split to Protect Ratings | www.nytimes.com

Instead of protecting policyholders, NYS regulators have scrambled to assure availability of bond insurance for benefit of public debt issuers. Core of their strategy was to force shareholders and creditors (the banks) to contribute, one way or another, to the solution.  To do so, they pulled off a high-stakes bluff. The result is a short-term fix that will end up weakening the financial guaranty industry over the long haul.

Josh LevyManaging DirectorTactical Asset Management

High Gold Prices: Not a sign of Impending Doom

October 10, 2007

Analysis of:Gold Gains as Euro Rebounds Versus Dollar; Silver Is Steady | www.bloomberg.com

1.) Gold is higher, yes, but all is well 2.) Demand for commodities is driving Gold higher - Not fear. 3.) This demand is not going away anytime soon.

Raj MehraPresident & FounderChelsea Advisory Services

Low Loan Loss Reserves at Banks Could Cause Problems Ahead

September 20, 2007

Analysis of:E*Trade Hit By Mortgage Turmoil | online.wsj.com

Loan loss reserves at banks are at historic lows. At the same time, the credit cycle has turned viciously negative, particularly for mortgages. Banking regulators are likely to ratchet the pressure up on banks to raise their loss reserves. The most vulnerable are banks with outsized exposure to the mortgage lending business

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