Reddit Posts
Mentions
Damn $BNC was just close to $5; too bad I have to wait \~15 to do anything with Schwab...
BNC moving this morning
We were one of the Investmant Banks Depicted in "THe Big Short." A more intersting and much more Technically POINTENT was "Margin Call"*,* they use a fictional setting to capture the generalized panic, MATHematical reality of the situation and moral ambiguity of that exact night. The Risk Management Scene in this movie is REAL. Reality was that ARM Mortgages were all the rage with little to no regard for the reality of a rising interst environment. Adjustable-rate mortgages peaked in popularity around 2005, accounting for roughly 36% to 45% of all U.S. mortgage originations before fueling the subprime mortgage crisis and subsequent foreclosure wave. Second catch was the very popular variant where borrowers could choose monthly payment types, including a "minimum payment" that was less than the interest accrued. This caused negative amortization—meaning the unpaid interest was added to the principal balance, increasing the total debt over time. Popular because home valuations were rising very rapidly and you would take this type of mortgae and resell your house before the first Rate Adjustment. Then we had this line of BS: Lenders widely offered "no-doc" or "low-doc" loans (stating income without verifying it), often called liar loans, combined with lax credit score and down payment requirements. So you really were not making 100K , you just told them you were and no one ever checked. Those loans were very popular with customers without a W-2 5 year history. Countrywide ( big ARM issuer) received preferential treatment and carved out highly specialized, "sweetheart" arrangements. Later during further congressional investigation it was revealed that this "special treatment" was bidirectional, forming a complex web of mutual benefits that ultimately contributed to the 2008 subprime mortgage crisis The ML short was strictly based on their purchase of the subprime mortgage lender First Franklin Financial from National City Corp. for $1.3 billion. The purchase brought massive exposure to toxic mortgage assets, contributing heavily to Merrill Lynch's multi-billion dollar write-downs during the 2008 financial crisis. Simple to connect all the potential dangerous DOTS. Washington Mutual bought this subprime lender in 1999, which pulled the bank deep into high-risk mortgages.They were also issuing the very popular and in massive amounts of adjustable-rate mortgages with payments so low that the total debt increased every month. AIG was easy, their London-based unit sold insurance contracts called CDS on collateralized debt obligations (CDOs), which contained bundled subprime mortgages. AND, they owned a subprime mortgage lender called Wilmington Finance, which faced regulatory penalties in 2007 for ignoring borrower creditworthiness and charging high fees. Shorting LEHMAN , BEAR, were really easy because the entire STREET knew their exposure both in MBS TBA's , MBS pools, RMBS and CMBS and they tooooooooo LEHMAN acquired major subprime and Alt-A mortgage lenders Aurora Loan and BNC Mort. and by 2006 were collectively issuing $50bln MONTHLY in loans by mid [2006.In](http://2006.In) the CMO arena they had created many tranches using sub-prime collateral which will shortly stop pay P&I on those loans, hence LEH was not paying out that return to Customers who owned those bonds, DEFAULT was IMMENENT. Ans your carrying all the other pieces of crap you had created. Overnight borrowing cost were get real by now. One month , 2 BIG ASS chalk boards , thousands of pieces of colored chalk , curtains covering up everything, meetings well into the following mornings , many a day wore the same clothes from the day before, LOTS and LOTS of spray deodorant. We had a VERY large Balance Sheet once presented to the Firm, very little variance on return, could not lose anymore than 10%, and they monitored it hourly (LIVE P&L) , needed a Repo Facility that was not ours so no one knew anything and that facility could take on BILLIONS in Repo. OH, no hedge because when your short any upward movement means you have made a serious miscalculation. All in is exactly that ALL IN , no hedging your bets