Bloomberg is reporting Non-Agency Mortgage Bonds Fall Amid Selling Concern.



Subprime, Alt-A and prime-jumbo mortgage securities reached or approached record lows this month as forced asset sales contributed to the decline in values.



Prices dropped to the "hi-teens to mid-20" cents on the dollar last week on the least protected types of originally AAA rated 2006 and 2007 bonds backed by Alt-A loans with five years of fixed rates, according to a RBS Greenwich Capital report yesterday. The bonds were at the high-20s to mid-30s in early September. "Super-senior" bonds fetched in the "mid-50s to mid-60s," down from 60 to 70 cents, according to the report.



Non-agency mortgage bond prices have also fallen along with optimism about the $700 billion U.S. financial-market rescue plan signed into law on Oct. 3, the report said. Enthusiasm dimmed because the program began with capital injections into banks, instead of mortgage-asset purchases, they wrote.



Super senior securities from 2006 and 2007 created out of pools of "option" adjustable-rate mortgages dropped to 53 to 55 cents on the dollar last week, RBS said, as other types of initially AAA rated debt created from loans with growing balances were in the "low" or "very low" 20s.



The securities fell from 58 to 60 and the "mid-20s," respectively, in early September, according to an RBS report then. Super senior bonds are the types offering investors the most protection against defaults among the underlying loan pools.



Less protected top-rated securities from the past two years of prime-jumbo loans with five years of fixed rates traded in "hi-40s to low 50s," up from the "hi 30s/low 40s," while super-senior AAAs fetched in the "low to mid-80s," down from the mid-80s, the report said.



"It's actually underreported how bad" demand for loans that can't be packaged into those securities has become, he said. Issuance of subprime, Alt-A, and prime-jumbo mortgage bonds fell to $11 billion in the first nine months of this year, from $605 billion a year earlier, according to newsletter Inside MBS & ABS.

Paulson Plan Under Review

New York Times Theory



Paulson asked for taxpayer bailout money explicitly to get banks to merge.

To cover up his tracks, Paulson changed his mind three times on how to spend that money.

To guarantee the merger outcome, Paulson called all the big banks in a room, forced them to take loans at a rate that would ensure they would not want to lend it, but instead would want to use it in mergers.

Prior to the above three points, the Fed embarked on a series of lending facilities cleverly disguised to make it undesirable for banks to lend to each other or for anything else, while purporting to do the opposite.



My Theory



The economic constraints and poor policy decisions by the Fed and Treasury make mergers a better alternative than lending money or sitting in cash.

Fed Becomes Lender Of Only Resort

Rising unemployment

Rising credit card defaults

Rising foreclosures

Rising bankruptcies

Massive overcapacity



The TAF, PDCF, TSLF, CPFF, MMIFF, ABCPMMMFLF

Pigs at the Trough