MGIC Posts First Loss, Predicts No Profit Next Year

Sour grapes...

MGIC Investment Corp., the largest U.S. mortgage insurer, posted its first quarterly loss in 16 years and said it won't be profitable in 2008 as foreclosures increase from record levels.

Mortgage insurers help reimburse home lenders when borrowers don't pay. Lenders often require homeowners to buy private mortgage insurance if they put down less than 20 percent in cash or if their credit rating is weak.

The number of borrowers more than 60 days behind on privately insured loans jumped 30 percent from year-earlier levels in August, the most recent data from Washington-based Mortgage Insurance Companies of America showed.

``Things are going to get worse from here,'' said Rob Haines, an analyst at CreditSights Inc. in New York. ``We've got a couple of scary quarters ahead of us.''

Fitch Ratings said it may downgrade MGIC's claims-paying ability because mortgages insured in 2007 appear to be performing at least as badly as 2006 loans.

``We have modeled in, I think, very draconian loss estimates,'' Culver said during the call. ``We have got more than enough capital to pay those.''

The company will probably end the year with about $300 million in cash, enough to weather current conditions, he said. MGIC also has $200 million available on a line of credit that requires it to maintain a minimum market value of $2.25 billion, the company said. MGIC was worth $2.14 billion at today's closing price.

The risk of owning MGIC's bonds rose, according to credit- default swap traders. The contracts, used to speculate on the company's ability to repay its debt or hedge against the risk it won't, rose 45 basis points to 210 basis points, according to broker Phoenix Partners Group. An increase suggests deterioration in investor confidence.

``It's a huge miss,'' said Geoffrey Dunn, an analyst at KBW Inc. in Hartford, Connecticut. ``Our fears that 2008 might be even worse than we forecast are being realized.''

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Frame by Frame Subprime Crash analysis

The best way to understand a securitized mortgage obligation explosion is to read this article

What is not being seen or talked about en mass via the media, is where are the large lawsuits and counter party claims that usually unfold from such a situation. I am assuming that at some point, Goldman should be several tranches of lawsuits from all this. Caveat Emptor aside, the big issues for Goldman in defending itself is:

Goldman said it made money in the third quarter by shorting an index of mortgage-backed securities. That prompted Fortune to ask the firm to explain to us how it had managed to come out ahead while so many of its mortgage-backed customers were getting stomped.

I would like to see what the Eliot Spitzer's of the world think of this situation. I'm sure more is about to unfold.

Dollar has Fallen more then Crude has risen

Crude reaches a ALL-TIME high in dollars.

Crude oil rose above $88 a barrel for the first time in New York on concern Turkey may attack Kurdish militants in Iraq and disrupt oil shipments.

Yesterday, prices passed the previous all-time inflation- adjusted record reached in 1981 when Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today's dollars.

Crude-oil has also risen this year because the U.S. dollar declined against the euro, enhancing the appeal of commodities as an investment. A lower dollar makes oil relatively cheaper in the countries using other currencies. The dollar, which is up 0.3 percent today, has lost 12 percent of its value against the euro over the last 12 months.

In U.S. dollars, West Texas Intermediate, the New York- traded crude-oil benchmark, is up 44 percent so far this year. Oil is up 34 percent in euros, 38 percent in British pounds and 41 percent in yen.

OPEC members have said a falling dollar justifies higher prices because oil-producing countries sell oil in dollars and often buy goods in euros. The group will discuss the falling dollar when members meet on Dec. 5, Algerian Oil Minister Chakib Khelil said yesterday.

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Structured investment vehicles and a bailout.

Structured investment vehicles, or SIVs are at the heart of another financial rescue plan private banks are dealing with under government supervision. From the Wall Street Journal:

Over the weekend, the Treasury hosted talks to help a group of banks set up a $100 billion fund to buy troubled assets in exchange for new short-term debt. The banks hope to have the fund up and running within 90 days.

According to people familiar with the matter, the Treasury hopes the plan, which could be announced as early as this morning, will jump-start demand for commercial paper, which froze up this summer amid the credit crunch that roiled global financial markets.

Some influential investors think the Treasury-backed strategy might work. Other object to the Treasury's role in seeking to help banks avoid a big financial hit for making bad bets.

The problems stem from affiliated funds called structured investment vehicles, or SIVs, which Citigroup and others set up as a way to make money without taking the risk involved onto their balance sheets. Such vehicles are formally independent of the banks that create them. They issue their own short-term debt, usually at relatively low rates that reflects their high credit rating. Then, they use the proceeds to buy higher-yielding assets such as securities tied to mortgages or receivables from midsize businesses seeking to raise cash.

The popularity of SIVs has boomed since two Citigroup bankers, Nicholas J. Sossidis and Stephen Partridge-Hicks, invented the strategy in London in the late 1980s. (They later left to form their own company, London-based Gordian Knot, which operates the world's largest SIV.)

Behind Treasury's concern were banks like Citigroup, whose affiliates owned $80 billion in assets backed by mortgages and other securities. The world's biggest bank, by market value, held the assets off its balance sheet and was facing the prospect of either having to unload them in a disorderly fire-sale fashion or moving them onto its books.

Either scenario would have hurt financial markets and could have damped the economy by curtailing banks' ability to make new loans to consumers and corporations. Treasury envisioned a potentially "disorderly" unwinding of assets that could worsen the credit crunch, said a person familiar with the matter.

Under the proposed rescue package Citigroup, J.P. Morgan Chase & Co. and Bank of America Corp. will set up a fund, or "superconduit," to act as a buyer of last resort. It will pay market prices for SIV assets in an effort to prevent dumping.

J.P. Morgan and Bank of America don't have SIVs, but they plan to participate because they would earn fees for helping arrange the superconduit, whose lifespan, according to people briefed on the plan, is expected to be about a year. The superconduit can buy assets from any bank or fund around the world.

Details are still being worked out but the oversight committee of the three banks will set criteria for what the new fund, to be called the Master-Liquidity Enhancement Conduit, will buy.

Citigroup took the lead in pushing for the rescue plan. Large sums of SIV debt were coming due in November. And increasingly debt analysts were forecasting a tough future for SIVs. A Citigroup research report, issued two days before the banks and Treasury met for the first time, noted, "SIVs now find themselves in the eye of the storm."

Some bankers objected to the plan, calling it an escape hatch for Citigroup, which has more SIVs than any other bank, according to people familiar with the situation. The bank has accounted for about 25% of the global SIV market. As of August, assets held by SIVs totaled $400 billion

Auditors in recent weeks also had taken a hard-line when it came to assessing losses within SIVs. As the credit crunch worsened in August, many financial institutions argued that losses due to market volatility didn't reflect the assets' long-term value.

But on Oct. 3, the Center for Audit Quality, backed by the Big Four accounting firms, issued analysis that said market prices were real and couldn't be ignored. One paper argued that banks must periodically reassess the condition of off-balance-sheet funding vehicles and take account of market prices and any resulting losses, even if these were seen as an anomaly. If the losses become so great that a bank sponsoring one of these vehicles may have to shoulder some of their cost, "the sponsor would be required to consolidate" the vehicle, the paper said.


Peter Schiff on On the Money CNBC

The latest edition of Peter on CNBC

I'm looking to exit GS

I rarely would recommend any particular equity or trade, but as a holder of GS, I am now looking to sell shares on any rallies. Shorts need to scale into this position over the next several months as we pass 250.00. Final upside target is around 260. Watch insider selling. Look for strong new highs on failing volume for good short positions. Quote today is 232.00


Technically, the new highs are not confirmed by my proprietary indicators. All the loose change from other ailing financials made there way into this stock. But the cracks are showing even here. Its setting up for a slow drop. It is being buoyed fundamentally by the strength of overseas markets...level 3 accounting etc... but i think in 2008 the global economy will begin its descent in reduced growth. In 2010, my forecast calls for a unified global reduction in growth that might last 4-8 quaters as we move into 2012. I've held GS since its IPO.

Krugman on the US housing bubble

Paul Krugman from Princeton University predicts the biggest housing bust in history. From Bloomberg

Bill Moyers hosts housing bubble guest

Bill Moyers leads an interesting interview on how the housing bubble occurred.

Gap widens between rich and poor

Well here it is

According to recent data from the Internal Revenue Service, the richest 1 percent of Americans earned 21.2 percent of all U.S. income earned in 2005. That is a significant increase from 2004 when the top 1 percent earned 19 percent of the nation's income.

To make the top 1 percent of wealthiest Americans in 2005, a taxpayer had to earn at least $364,657. That figure is an increase from 2004, when the cut-off point stood at $328,049.

Check the full article here