by Calculated Risk on 12/19/2007 11:28:00 AM

Update: Only news story I could find so far from Reuters: S&P cuts ACA to "CCC" junk, acts on 6 bond insurers

Press Release: S&P Takes Rtg Actions On Six Bond Insurers (no link, hat tip Brian)

Standard & Poor's Ratings Services today announced various ratings actions on six financial guaranty insurance companies.

The rating actions were prompted by worsening expectations for the performance of insured nonprime residential mortgage backed securities and CDOs of asset backed securities. Based upon current stress test analysis, the details of which are being published simultaneously with this release, the affected companies may experience claims and/or capital consumptive negative rating transitions such that their capital resources may no longer be sufficient at their respective rating levels. Another consideration in the analysis, if there is a capital shortfall, is the magnitude of the shortfall and the extent to which the company has raised or is planning to raise new capital, and the viability of that capital plan.

Standard & Poor's will host a teleconference today at 3 p.m. EST.

... Our analysis of the impact of the ratings actions announced today is ongoing. We expect to post lists of affected structured finance issues later today. As we complete our analysis during the next few weeks, we may publish additional ratings changes.

ACA cut to CCC from A, AMBAC and MBIA outlooks revised to negative from stable. More to come ...

by Calculated Risk on 12/19/2007 10:11:00 AM

From MarketWatch: Morgan Stanley write-downs grow by $5.7 billion

Morgan Stanley said Wednesday it's writing down an additional $5.7 billion of mortgage-related assets, taking the total fourth-quarter loss to nearly $10 billion in the latest sign that the credit crunch is worsening.
...
New York-based Morgan Stanley booked the additional $5.7 billion of write-downs in November.
...
Morgan Stanley blamed the $9.4 billion total write-down on "the continued deterioration and lack of liquidity in the market for subprime and other mortgage-related securities since August."

MarketWatch has a chart of the Bankers' Writedowns ($70 Billion so far) and much more to come.

The confessional is very busy.

by Calculated Risk on 12/19/2007 01:01:00 AM

“It’s a zero-sum game. If you put trades on that worked so well that you bankrupt your counterparty, you will not collect on those trades.”
(edit, quoted wrong person) Jim Keegan, a senior vice president and portfolio manager at American Century Investments

I'm starting with Keegan's comment because that was my first reaction to a possible bailout by the banks. Since ACA currently has a negative net worth, wouldn't the bailout amount have to be equal to the amount that ACA lost (and the banks saved by buying insurance)? How does that help?

From the NY Times: Banks Study Bailing Out Struggling Bond Insurer

Officials from Merrill Lynch, Bear Stearns and other major banks are in talks to bail out a struggling bond insurance company that has guaranteed $26 billion in mortgage securities, according to two people briefed on the situation, because the insurer’s woes could force the banks to take on billions in losses they had insured against.

Worth reading.

by Calculated Risk on 12/19/2007 12:04:00 AM

Press Release: Hovnanian Enterprises Reports Fiscal 2007 Results

Sales:

... the Company delivered 13,564 homes with an aggregate sales value of $4.6 billion in fiscal 2007, down 24.4% from 17,940 home deliveries with an aggregate sales value of $5.9 billion in fiscal 2006. In the fourth quarter, the Company delivered 3,969 homes with an aggregate sales value of $1.3 billion in fiscal 2007, a decline of 22.0% in sales value from the fourth quarter in fiscal 2006.

Cancellation rate:

The Company's contract cancellation rate, excluding unconsolidated joint ventures, for the fourth quarter of fiscal 2007 was 40%, compared with the rate of 35% reported in both the fourth quarter of 2006 and the third quarter of fiscal 2007.

The headline number will be their losses and writedowns, but for the overall housing market, I think sales and cancellations are interesting. I use changes in the cancellation rate to adjust the New Home sales number from the Census Bureau (since the Census Bureau excludes cancellations). With rising industry wide cancellation rates, the Census Bureau understates the increase in inventory.

by Calculated Risk on 12/18/2007 08:11:00 PM

Krugman speaks at Google on Dec 14th. Krugman was on book tour, but he spoke about the current economic issues instead.

Paul Krugman is a professor of economics and international affairs at Princeton University, and the author or editor of 20 books and more than 200 professional journal articles. In recognition of his work, he has received the John Bates Clark Medal from the American Economic Association, an award given every two years to the top economist under the age of 40. The Economist said he is "the most celebrated economist of his generation."