Euromoney’s 2012 FX survey results

Euromoney’s 2012 FX survey results

Access the results now

The money network:

The money network:

Why crowdfunding threatens traditional bank lending

Thursday, October 2, 2008

Forgive a portion of the underlying debt


It's not too late to enact a better plan than the one the Treasury has put on the table. Peter Lee looks at alternative strategies that might prove sharper than Paulson's bailout plan.


Fix the underlyings

Tim Bond, head of global asset allocation at Barclays Capital, pointed out in a research note on September 25 the size of the gap between present market prices for often synthetic securities derived from mortgage indices and derivative instruments and the underlying value in actual mortgages to real homeowners. “The ABX 07-2 CDS index currently implies a 45% total loss in the underlying mortgages. If we assume a recovery rate somewhere around 50%, the price is therefore suggesting that around 90% of the mortgages will default.” In the real world, he points out: “Total sub-prime foreclosures are currently running at 11.8%, with seriously delinquent loans at 17.9%, according to the MBA.”

The problems of US banks stem from the collapse in values of homes, an asset class, like all others, hugely dependent on the availability of finance for buyers....


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