The Actual Pricing of "Shovel Ready Bank" Assets

There is an article today on the actual pricing of Mortgage-Banked Securities (MBS). The numbers are scary. I want to tie it into the “Shovel Ready Bank” post from the other day.

In the post from the other day, I wrote about the disconnect between the way assets are being priced by Banks and the way they are being priced by the Markets. The Banks are pricing the high-quality mortgages in the mid-90s (90% of the maturity prices) and the Sub Prime mortgages at 100 (100% of the maturity prices).

Of all the mortgages originated since 2002, 42% of all securities have seen some level of default in their portfolios. Of the late 2005 – 2007 originations ($450 billion), $305 billion of them are in some state of default.

$102 billion have already been liquidated. The actual recover rates on defaulted paper are 32% on AAA paper (Top Quality Mortgages) and 5% on Sub-Prime (junk) paper.

http://www.ft.com/cms/s/0/ddaa47f4-f79b-11dd-a284-000077b07658.html

Regulators and Banks pretending that assets are worth more than they are really worth, helps nobody. It actually hurts confidence and paralyzes lending. The markets figured it out long ago.

This is becoming a replay of the “Lost Decade” in Japan (1992 – 1998).