Category: TARP

Moral Hazard? Slabbed wipes our a$$ with Moral Hazard (Part 1)

Friday afternoon I decided to take on the broad topic of Moral Hazard, the concept for which this blog is unpinned. I collected links and research and then promptly experienced writers block for which even my gratuitous bashing of Rossie could not break. Then as per normal (and in true Talebesque fashion) Russell serendipitously emails me a link that ties things together. This becomes part 1 because there is no way I can tackle the topic in one post and do it justice. The bonus is I get to indulge a personal interest in Game Theory and of course poke some fun at what one observer calls moral hazard lite which represents the intersection of politics with the calamity that has shaken our banking system to its core. Let’s start with a quick definition of Moral Hazard:

Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.

How does this “different behavior” that results from having no ri$k play out in the financial markets? We have a case study in progress commonly known as the bailout that provides some clues. Russell knows me as an intuitive trader when it comes to individual issues and I’ve been casually telling people this current rally in the financial services sector is an illusion in respects. We’ll have to retest our lows and that could happen as many as three times between now and Q4. Tyler Durden at Zero Hedge gives us a 2009 example to the old Wall Street saying, “Sell in May and go away” as he details why banks as a whole were surprisingly profitable the past two months. Hopefully this will stick with us when the bank execs collect their bonuses from these “results” down the road. Here are some snippets from the Zero Hedge exclusive: AIG was responsible for the bank’s January and February profitability:

Zero Hedge is rarely speechless, but after receiving this email from a correlation desk trader, we simply had to hold a moment of silence for the phenomenal scam that continues unabated in the financial markets, and now has the full oversight and blessing of the U.S. government, which in turns keeps on duping U.S. taxpayers into believing everything is good. Continue reading “Moral Hazard? Slabbed wipes our a$$ with Moral Hazard (Part 1)”

Gene continues multiperil insurance rollout. Greg Harper proves to be a good neighbor.

(h/t Alan at Yall for the link). Yesterday, thanks to the C-L story on the topic of multiperil insurance we found Mississippi’s own Rep Greg Harper has signed on to Gene’s bill joining Travis Childers as co-sponsors of HR 1264.  Bennie Thompson has yet to sign on. Looking at the list of co sponsors at Gene’s congressional website we find a very diverse group of people (just like here at slabbed) in support of the multi peril concept. In addition to the newest announcements we see conservatives such as NOLA area Republican Rep Steve Scalise to Democratic Representatives Alcee Hastings and Sheila Jackson Lee have also signed on to HR 1264.

Over the past two years I’ve met, shook hands and briefly conversed with more US House members than I can remember at Gene’s Bay St Louis town hall meetings. Two from last year that came to the Bay and “talked a good game” were New York’s Steve Israel and Connecticut’s John Larson. For the slabbed it is put up or shut up time and we’re paying attention to the House members that sign up and the ones who talk a good game. We’re also paying attention to our own  US Senator Roger Wicker who appears to be doing a tap dance instead of working this issue from the Senate side.  Deborah Barfield has the Clarion Ledger story:

Banking on public outrage against insurance companies, 4th District Rep. Gene Taylor says his bill to add wind coverage to the federal flood-insurance program stands a better shot at passage this Congress.

“I would think that if there is ever a time to convince our fellow congressmen to rein in this industry, it’s now,” said Taylor, a Democrat.

Taylor reintroduced a bill this month that would expand the federal flood-insurance program to include wind coverage, which supporters say is important to homeowners in areas hit by hurricanes.

The bill, called the Multiple Peril Insurance Act, would allow homeowners who buy federal flood insurance to also purchase wind coverage.

Taylor said he expects more attention will be paid to his bill this year because lawmakers are upset that American International Group gave $165 million in employee bonuses after receiving more than $180 billion in a government bailout of the financial services industry. The House passed a bill Thursday that would impose a tax of 90 percent of those bonuses. Continue reading “Gene continues multiperil insurance rollout. Greg Harper proves to be a good neighbor.”

More on $enator Chri$ Dodd’$ Relation$hip with AIG and Countrywide’$ Angelo Mozilo. Liddy educates WaPo readers on contract sanctity

I noted Time Magazine has come out with a list of the guilty in their 25 People to Blame for the Financial Crisis. This topic is special to me in a personal way and I’m reminded of a conversation I had with a reporter Tuesday as we discussed the now locally infamous Shred-it Trucks that became parking lot fixtures at the local State Farm offices in the spring of 2006. Steve took pictures but not for this blog as we had no concept of slabbed in those days. Rather he gave the pictures to former SKG lawyer Zach Butterworth. In that sense we feel some ownership for that piece of news, no doubt the same sense of ownership felt by the Rigsby sisters who saw from the inside what was being fed into the shredder.

Similarly Russell, Steve and I feel a similar ownership on that subprime thang as we were posters on the Countrywide Yahoo board at that time. It was Katrina that landed the company on my radar screen as I was surprised to learn some friends that had their mortgage with them could not get their insurance money released so they could repair their house. In fact Countrywide (CFC) was holding far more of their insurance money than they owed on their mortgage. I’m a sucker for this type of stuff so I alerted Steve and Russell and the cyber attack began.  We made short work of CFC that day and my friend had their insurance money back the next day.  Others saw those posts and one reporter asked some questions.  Two weeks later this story appeared on page C-1 of the Wall Street Journal. Evidently someone at LSU thought enough of the article to copy it to a word doc where it resides today for all to see (it is still in the WSJ archives and a PDF I kept as well) and it is there we’ll begin as we explore what kind of company Senator Chris Dodd keeps:

Hurricane Victims Battle Banks — Gulf Coast Residents Complain Lenders Hold Insurance Money While Demanding Late Payments
The Wall Street Journal
April 27, 2006
By Valerie Bauerlein

AS HOMEOWNERS along the Gulf Coast try to recover from the devastation of hurricanes Katrina and Rita, some say mortgage lenders are refusing to turn over insurance proceeds while demanding immediate payment on overdue loans.

Hurricane victims in Louisiana and Mississippi have filed nearly 1,000 complaints with state regulators claiming mistreatment by mortgage lenders. About 800 of the complaints have been resolved, often as a result of mediation initiated by regulators.

Jim Wolf of Pass Christian, Miss., a DuPont Co. technician currently living in a company trailer, for example, wanted to use proceeds of an insurance settlement for a down payment on a new home. On Dec. 10, he sent his $40,000 insurance settlement check to giant Countrywide Financial Corp. to pay off $5,000 remaining on the mortgage of his destroyed home, expecting to get $35,000 back. He said he called Countrywide, based in Calabasas, Calif., every business day for a month, spoke to a dozen representatives and couldn’t get the balance returned. Continue reading “More on $enator Chri$ Dodd’$ Relation$hip with AIG and Countrywide’$ Angelo Mozilo. Liddy educates WaPo readers on contract sanctity”

This is what $enator Chri$ Dodd was doing back when he was making sure the AIG folks were getting their bonuses

[youtube=http://www.youtube.com/watch?v=EhojJFQbIS0]

And of course the Panda is hot on his trail. Continue reading “This is what $enator Chri$ Dodd was doing back when he was making sure the AIG folks were getting their bonuses”

State Regulated Insurers Come Groveling to Uncle Sam for Help

What’ll you do when you get lonely
And nobody’s waiting by your side?
You’ve been running and hiding much too long.
You know it’s just your foolish pride.

From the Wall Street Journal (subscription required):

A dozen life insurers have pending applications for aid from the government’s $700 billion Troubled Asset Relief Program, and the industry is expecting an answer to its request for a bank-style bailout in the coming weeks. The government so far hasn’t said whether insurers will be eligible for the program.

Life insurers have taken a beating in recent weeks. The Dow Jones Wilshire U.S. Life Insurance Index has fallen 59% since the beginning of the year, leaving it down 82% since its May 2007 all-time high. The Dow Jones Industrial Average has lost 21% year to date, off 51% since its October 2007 record.

Denial is a terrible thing and it appears either the WSJ reporters were suffering the affliction or they were fed a line of BS and didn’t check it as the story continues: Continue reading “State Regulated Insurers Come Groveling to Uncle Sam for Help”

Slabbed finds Ajax’s Achilles Heel: Rock Mountain High or Just Stoned in Bermuda?

Special thanks to Chris Sposato. If memory serves there were a dirty (half) dozen “guaranteed” Cat Bond issues connected to Lehman. The second to come tumbling down belongs to Bermuda based Aspen Insurance Holdings, Ltd. and their special purpose entity Ajax Re Ltd. The associated ri$k to take a hit is covered earthquake damage in California. The story itself begs additional research as this deal sounds as if there might be Cat Bonds stuck inside Cat Bonds with a (subprime) Mortgage Backed Security twist. The list of players per the article is very convoluted as well.  The Royal Gazette has the Bloomberg story:

Ajax Re Ltd., a catastrophe bond sold by Bermuda-based Aspen Insurance Holdings Ltd., is likely to default on an interest payment this month, Standard & Poor’s said, the second such security hurt by Lehman Brothers Holdings Inc.’s collapse.

S&P said it may downgrade $100 million of debt issued through Ajax Re Ltd. to D, the lowest grade, from CC, citing an “imminent interest payment default”, according to a statement from the New York-based ratings company yesterday.

Aspen sold the bonds in 2007 to protect against claims from Californian earthquakes.

“The issuer has notified us that it will not have sufficient funds available in the collateral payment account to make the scheduled interest payment,” S&P said. “We anticipate the transaction will default.” Continue reading “Slabbed finds Ajax’s Achilles Heel: Rock Mountain High or Just Stoned in Bermuda?”

News from the cat house……

Time is short so I’ll not offer much analysis and what analysis I offer is in the form of the questions I asked myself while reading it?

  • What money “made the market” and how and to whom are the bonds placed (ie sold)? See this lengthy post I did a week or so back to understand why that question is important.
  • What role is TARP playing in financing this deal? Inquiring minds in policymaking positions what to know. (See first bullet point)
  • Who are the players making money from the act of doing the deal and how is it structured to avoid past mistakes?

Reuters has the story:

LONDON, Feb 27 (Reuters) – Standard & Poor’s has assigned a preliminary BB rating to U.S. insurer Liberty Mutual’s planned $200 million catastrophe bond, to be issued via special purpose vehicle Mystic Re II, the credit rating agency said.

In a pre-sales report published late on Thursday, S&P said Mystic Re II’s Series 2009-1 notes will transfer some potential losses by Liberty Mutual and affiliates from U.S. hurricanes and earthquakes to capital markets investors. Continue reading “News from the cat house……”

Just a Timestamp…

Yep just a timestamp. Go long the broad index, short the issue/sector. (JMHO)

Finally, it was surreal to listen to such a grim panel after the swank reception welcoming the attendees, courtesy of McGraw Hill. A variety of groups were given invitations (mine came via the New York Financial Writers Association) to attend at no charge and hear the panelists offer their views, with the function arranged by Columbia University’s Knight-Bagehot Alumni Committee (a scholarship program for business journalists).

We were on the 50th floor of the McGraw Hill, offering a breathtaking view of midtown Manhattan. There was a multitude of delicious finger foods, washed down by top-shelf booze from an open bar–with single malt, 12-year-old scotch the drink of choice for many, including yours truly.

The room buzzed, and for a moment it didn’t feel like we were all traveling on a sinking ship. But once the program began, I felt a bit like I’d been drinking champagne after the Titanic hit the iceberg. Might as well enjoy whatever good times remain while they last, right?

Play it again Sam, truer words have never been spoken. Bankruptcy is not only for the best, it represents the long term cure. Also a big Slabbed welcome to the folks at McGraw Hill. I heard the construction version of the McGraw Hill 2009 economic sing-a-long in NOLA. Bleak picture no?

[youtube=http://www.youtube.com/watch?v=D8SfiCnwF28]

Continue reading “Just a Timestamp…”

“The causes of ineptitude can be traced…”

Two members of the Troubled Asset Relief Program Oversight Panel today recommended in a minority report that Congress create an optional federal charter for insurers…that may be utilized by insurance firms to underwrite, market, and sell products on a national basis…allowing insurance firms to choose…Congress can build upon the success of state guarantee pools and maintain state jurisdiction over premium taxes…

Money…All for money…Make your money…Hide your money…Stuff your money…Hump your money…Save your money…All for money…The causes of ineptitude…Can be traced… to the tyranny of Money…All for money…

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