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This is post is primarily to document my assertions of self insurance by the banks in their alleged efforts to prop up the monoline (or should I say multilines?). Below you will find a chart with links that provide, in extreme detail, the insured holdings of a handful of banks and one homebuilder with a large mortgage operation (I do mean extreme detail, including asset name, CUSIP #, ratings by all major agencies, vintage, etc.). Let me add that I don't know how much of this is actually bank inventory versus what was sold off, but my guess is that the banks got stuck with the vast majority of everything from the last year or so. In addition, most of the underwriting banks can get stuck with the stuff that was found to violate the agreed upon underwriting guidelines (which is potentially a lot) for a certain period, even if it was sold off. This is something that can sink the smaller equity base banks such as First Franklin.
This is $120 billion dollars right here, and it is nowhere near comprehensive. These are RMBS, CMBS, and a smattering of consumer finance ABS insured by MBIA and Ambac. I know everybody thinks that we may be coming to the end of the writedowns from real estate related devaulations, but if that is what everybody thinks then everybody is wrong. This bubble took at least 6 years to build, it is not going to dissipate in 1 year. We are about 50% through the subprime crisis, but since this problem was never a subprime issue to begin with, we have lot more to go. There are all of the other classes of mortgages, the commercial real estate market, which I went over in detail , there is the consumer finance markets (recession, anyone?), then the big grand daddy of them all, the leveraged loan, junk bond CDO and CDS market - crashing at a financial institution near you. I am 50% through a forensic analysis that will expose the junk bond CDOs held by monolines that will probably knock your socks off. Alas, I digress...
This credit problem and real asset bubble is a result of combining very cheap money with the lax, "other people's money", moral hazard to be had whenyou don't need to be responsible for your own underwriting - otherwise known as the natural consequence of asset securitization. Why fret over due diligence when we're just going to sell the stuff off. The following are a sampling of whose holding the bag...
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| The Partial Cost of Monoline ABS Failure | ||||
| Par | Equity | Exposure Ratio | ||
| Bear Stearns | $15,673,088,703 | $11,793,000,000 | 132.90% |  BSC ABS inventory |
| Morgan Stanley | $22,956,101,796 | $31,269,000,000 | 73.41% | MS ABS Inventory |
| Lehman Brothers | $3,151,328,632 | $22,490,000,000 | 14.01% | LEH ABS Inventory |
| Citigroup | $8,100,028,623 | $127,113,000,000 | 6.37% | C ABS Inventory |
| Countrywide | $12,639,385,566 | $15,252,230,000 | 82.87% | CFC ABS Inventory |
| Wells Fargo | $4,700,835,231 | $47,738,000,000 | 9.85% | Wells Fargo ABS Inventory |
| Goldman Sachs | $18,673,869,328 | $42,800,000,000 | 43.63% | GS ABS Inventory |
| WaMu | $7,658,982,498 | $23,941,000,000 | 31.99% | WaMu ABS Inventory |
| Merrill Lynch | $10,224,387,634 | $38,626,000,000 | 26.47% | ML ABS Inventory |
| Centex | $511,740,636 | $3,197,130,000 | 16.01% | CTX ABS Inventory |
| Wachovia | $5,328,228,928 | $76,872,000,000 | 6.93% | Wachovia ABS Inventory |
| Totals | $118,950,151,688 | $477,918,010,000 | 24.89% | |
First Frankin appears to have significantly more exposure than equity (a lot more, so much so that it actually through my Excel charts out of whack): First Franklin Monoline ABS Inventory
This chart is using gross equity as reported, not tangible equity or foresnically scrubbed equity which is bound to be a lower number. For examples of how we use forensic analysis to reconstruct reported numbers and financial statements, see the Lennar and General Growth Properties (with conference call update ) analyses.
I am short Morgan Stanley and Bear Stearns, for the very same reasons that they are numbers one and two on this list (excluding Countrywide, whose short position was covered a while back, although I still have a bear position on WaMu). To see my take on these two banks, read my overview on the industry: Banks, Brokers, & Bullsh1+ part and Banks, Brokers, & Bullsh1+ part 2 then read or download the full analyses: "The Riskiest Bank on the Street" and "Is this the Breaking of the Bear?".
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