Tuesday, July 29, 2008
Home Prices Fall, Covered Bond Market, Merrill's CDOs
This time, it's 16% year over year, from last May. Meanwhile, regulators, bankers and traders, led by Treas Sec Hank I'm-Sorry-I-Ever-Left-Goldman Paulson came together on Monday to figure out how banks can come up with cash for mortgages. They're hoping to develop a “covered bond market." Not sure what the hell that is? Read this.
Merrill has decided to sell $30.6 BILLION of their securities at .22 cents on the dollar. These are Collateralized Debt Obligations--CDOs--that is, finance instruments comprised of mortgages, many of which are crap: subprime mortgages. As these mortgages go underwater or default and turn worthless, the securities plummet. Instead of waiting for this to definitively happen, Merrill has gone ahead and "valued" (or "devalued" them). This may set a precedent for other banks. In response, shares at other banks are falling.