The full subprime letter from Hayman’s Kyle Bass <http://ftalphaville.ft.com/blog/2007/08/21/6727/the-full-subprime- letter-from-haymans-kyle-bass/>
That's a frank read.
I have a request for others reading detailed accounts on the sub- prime mess. I am looking for a good account of the job losses in the US, right through the mortgage value chain.
There's also a couple of features of the sub-prime mess turned bank liquidity shudder that interest me.
Plenty of the losses are in European banks, and it looks like Asian banks, as well as from money managers who should know better, like hospital and municipal managers in Australia. I wonder if readers outside the US see that the sub-prime story is playing as an investment loss story everywhere else.
Closely connected to this, and relevant to all losses (including US investment banks and hedge funds) is that no owner or creator or beneficiary, or any analyst, can really say with confidence what the value of a myriad of exotic, leveraged, packaged debt is worth. In the books of many institutions values are now unknown and it looks like in the books of many the former value will have to be cut drastically, perhaps to zero.
The investor letter from Hayman, cited above, predicts a value of 10 cents in the dollar.
Losing your shirt on daft dot com equities was a known risk of the 1990s bubble. The risk of drastic capital losses on packaged mortgage debt was underplayed in selling these securities to yield hungry investors who in most cases were supposed to making conservative choices.
For anyone following the bank rescues of the last few weeks, which are so far in Europe that I know of, what do you make of this episode? Or of last week's equity rally in the face of mostly more bad news from the credit market?
The mining execs from BHP Billiton and Rio Tinto that feature in Australian papers pushed the permanent boom/new scenario story with vigour in the course of explaining their (stellar) profits. Presumably they agree with those central banks pushing rates up amid the clamour for rates to fall.
One piece of credit market news this week is that Rio got its loans from the bank market to buy Alcan.
Unlike many, many other borrowers that would normally be expected to do so.
So does the credit shock trump the long boom? I tend think so.
Ian.