Wednesday, November 23, 2011

Peter Tchir on CDS, Fannie and Freddie, FHA, EIB, EFSF, IMF, Super Committee, Germany etc...

"...Is relying on implicit or explicit guarantees
as a way to raise money indirectly over?

AIG never “owned” any mortgages,
all it did was write insurance or CDS contracts on them.

Combined...Fannie and Freddie...have over $1.5 trillion in debt.

Fannie and Freddie...have had a Credit Event but didn’t restructure,
still need more money quarter after quarter,
and still don’t count against the debt ceiling limits
because in spite of all of the government money,
“technically” we aren’t fully guaranteed.

Eksportfinans...5 year bonds dropped from 115 to 88 in a month.

Our debt is at least $24 billion in total,
but that may not include all the private placement structured notes
we helped issue.

[The] Federal Housing Administration’s Mortgage Insurance Fund
provide[s] insurance on assets.

[FHA's] capital ratio is down to 0.24% instead of the mandated 2%.

[FHA's] portfolio
still won’t count as a US government obligation.

Recently the French wanted to increase
[the European Investment Bank's] powers
so [the French] could rush to the rescue of Europe.

[the European Investment Bank (EIB) has]
over $500 billion of debt outstanding.

[EIB]... 10 year bonds have dropped over 5 points in the past week,
and spreads have widened

[EFSF] ...convoluted capital structure based on 3 tiers of guarantees
(1 group guarantees but “steps” out,
1 group guarantees but has no hope of paying if called on,
and 6 actual bona fide AAA guarantors [AAA for now]).

Spreads on existing debt have widened.

[EFSF has] ....struggled to issue even a fraction of the $590 billion
of risk [the EFSF] should be able to take.

[Kreditanstalt fuer Wiederaufbau] has issued $460 billion of debt.

[The IMF is] a supranational that has not yet raised debt
but it looks more and more likely that we will in the future.

[The IMF has] a currency but no paper money.

[The IMF is] ...convinced that [thier] our bonds would be rated AAA,
though [the IMF's] ...guarantees come from countries
that on average are below AAA a
nd the funding would often be in currencies
that aren’t there domestic currency...

...It may seem “strange” that [The IMF may] issue bonds with guarantees
because [the IMF's] member nations don’t have the money
or don’t want to provide the money directly...

[The European Bank for Reconstruction and Development (EBRD)]
has $40 billion in debt
[whose backers] overlap with the backers of EFSF, EIB, IMF,
and Kreditanstalt fuer Wiederaufbau .

[the Dexia bailout] will have $120 billion of money or guarantees
or something...

...the weak form of guarantee doesn’t seem to be fixing the problems...

...At the same time, the “donors” are reluctant to provide actual money
in the belief that the markets can be fooled into thinking
the guarantees work to solve the problem...

...most of these entities have a very similar profile.

Very small actual capital but guarantees,
or capital calls, or drawing rights, or merely implicit guarantees
from basically the same group of nations.

Germany, which seems clean on its own debt,
has [Kreditanstalt fuer Wiederaufbau], the Landesbanks,
and lots of European obligations on top of it.

The Eksportfinans situation is testing the resolve of Norway.

...The super committee failed to do anything,
and we move along,
but at some point things like Fannie and Freddie
may put pressure on our debt.

It is time to be careful, because as all this debt is really sovereign debt
in one form or another (I think I got close to $3 trillion pretty easily)
and as rating agencies focus on it, expect downgrades,
since the backers have deteriorated, and as investors focus on it,
expect pressure on spreads of these entities,
and the countries with the biggest obligations and commitments to them."

Peter Tchir

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