Sign In
SHARE
Getting Empirical on Subprime Losses
Tom Brown has a very interesting essay over at bankstocks.com, where he looks at 2006-vintage subprime mortgages and tries to come up with a cumulative loss rate for them. He makes the reasonable assumption that the ABX index represents subprime bonds more generally, and then looks at the ABX index on a bond-by-bond basis. It turns out that the numbers aren't nearly as gruesome as you might think:
Of the $600 billion or so of subprime mortgages originated in 2006 (again, by the lights of what have gone on with ABX bonds), $282 billion have already been repaid, while realized losses have come to just . . . $12 billion.
Brown does a bit more mathematics and comes up with a cumulative loss rate of 12.8%, which is much lower than just about any of the estimates doing the rounds, and is also much lower than the loss rate priced into the ABX:
UBS, the only firm on the sell-side that's analyzed the credit performance of the ABX bond by bond, uses loss estimate embedded in the price of the ABX itself and comes to an estimate of 18%.
Maybe now's the time to start going long the ABX? The ABX-HE-AA 07-2 index, which I thought was a buy at 45, is now just 21. If Brown is right, it's a screaming buy. But it has to be said that buying the ABX has been an astonishingly good way of losing money for the best part of a year now.
Loading...
Thank you for registering as a Portfolio.com Insider. Your comment has been added.
Create Your Public Profile
- The Times' Rorshach Geithner Story
- Apr 27 2009 9:26AM EDT
- Sinking Animal Spirits
- Apr 27 2009 8:45AM EDT
- Counter-cyclical Urban Policy
- Apr 26 2009 10:00AM EDT
- Be Your Own Counterfeiter
- Apr 26 2009 9:36AM EDT
- Being Tim Geithner
- Apr 25 2009 12:37PM EDT
- Notes From a Press Conference Naif
- Apr 25 2009 9:41AM EDT
- What Good is the News?
- Apr 25 2009 8:32AM EDT
- Stressful Enough
- Apr 24 2009 2:29PM EDT
- Not Regretting the Pound
- Apr 24 2009 1:09PM EDT
- Introducing the New Ford Squeeze
- Apr 24 2009 9:47AM EDT
- Non-Economic Questions of the Day
- Apr 24 2009 9:12AM EDT
- The Stress Test Blind Alley
- Apr 24 2009 8:36AM EDT
- Happy Hour
- Apr 23 2009 9:40PM EDT
- Recovery Without Rebalancing
- Apr 23 2009 6:13PM EDT
- The Shape of Your Recession
- Apr 23 2009 5:11PM EDT
Archive
Categories
Links
- Email Ryan Avent
- Econospeak
- Financial Crookery
- The Epicurean Dealmaker
- Naked Capitalism
- Alphaville
- Marginal Revolution
- The Panelist
- FP Passport
- Overcoming Bias
- Andrew Leonard
- Barry Ritholtz
- Brad Setser
- Carbon Tax Center
- Calculated Risk
- Greg Mankiw
- Free Exchange
- Dean Baker
- Alexander Campbell
- Kash Mansori
- The Bayesian Heresy
- A Fistful of Euros
- John Quiggin
- Michael Mandel
- Lance Knobel
- Mark Thoma
- Dan Gross
- Curbed
- Streetsblog
- Chris Anderson
- Deal Journal
- MarketBeat
- DealBook
- DealBreaker
- Carl Bialik
- Michelle Leder
- Brad DeLong
- Ultimi Barbarorum
