The Contrarian

[aim hier]

Hey TF,

I don't have up to date information about the banking industry. At times, I'm not sure anyone does. I'm not sure that publicly available information is sufficient to really determine the true condition of many financial institutions.

For example, is an investment grade security really an investment grade security. Just as individuals are always looking for a free lunch, so are bankers. Take a bunch of subprime mortgages, have them guarantee by an insurer, and presto, you have a higher yielding investment grade security. If the insurer had not properly discounted the decline of housing prices and moral risks of subprime mortgages, they may have guaranteed more such securities than prudent for their capital reserves. If the bank primarily relied on the investment grade rating, you have the makings of an instrument defying analysis by a layman. Add in, that such securities may have been used as collateral for borrowings, you have more uncertainty. Presently, there are margin calls being issued as these securities are steadily being marked down. Thus an institution may sustain horrendous losses or even fail, even in a case where the actual performance of the securities turns out to be favorable.