Moody's Not Crazy Bout JP Morgan's $20 Billion Bridge Loan

Amidst all the cheering and hullabaloo over AT&T's proposed $39 billion bid to acquire Deutsche Telecom, a few sober credit folks over at Moody's would like to point out something in passing. Nothing major really, just the fact that JP Morgan is giving AT&T a $20 billion bridge loan to finance the acquisition. Certainly $20 billion is chump change, but despite the Fed's proclivity for spending trillions on mortgage and treasuries, it still hasn't stooped to buying bridge loans for large Telecom mergers in the event that no buyers turn up to buy the debt. Then again, earthquakes, tsunami's, nuclear reactor meltdowns, middle east unrest, nor the implosion of parts of the EU is going to stop this market from loving debt issued by anybody to finance anything. In any event, it's really great to see AT&T turning itself into an enormous crappy monopoly again. After all, the government is going to need something to break up in a couple of years. As long as the investment bankers keep getting paid, everybody's happy.

Yay Dividends!

After the latest round of stress tests, the Fed has decided to play nice and allow some of the 19 largest US banks to do the fun stuff they used to love to do before they all fell into the big black hole of 2008. Banks have the Fed's permission to pay dividends and buy back stocks again! Yippee!!

Everybody seems to have forgotten just how much $40 stock Citigroup bought right before it went straight to $3. Or Wa Mu. Yes, the same Wa Mu whose former executives (and their no-good, asset-shuffling wives!) are getting sued by the FDIC, used to spend all day paying $45 for its own stock, months before it was seized by the FDIC. These firms spent billions upon billions of capital, capital that would've really come in handy when all their fraudulent mortgage underwriting was finally unveiled, to help boost their stocks so that executives (and their money-sucking gold-digging wives!) could sell stock and collect north of $900 million in comp. The FDIC is looking for $900 million dollars, so you know the wives have run off with way more than that.

See, everybody just has way too much capital sitting around and it's just so wasteful. It's not like we're ever going to need that capital for any reason. Because if you can just go crying to the Treasury and Fed for more capital and cheap financing every time your own balance sheet throws up on itself after looking at its asset, then why would you need any excess capital? We've already rewarded employees, time to get back to our second favorite thing to do, rewarding our shareholders.

So if you're reading the news, and you're wondering why on earth the market is staging a comeback today given all the turmoil in the Middle East, possibility of nuclear armageddon in Japan, and the Fed's determination to continue to ease in the face of recent inflationary data, you have your answer: bank dividends. Whoopdy Doo.

Japanese Tsunami Wrecks Markets

US equities rallied marginally on Friday despite the devastating 8.9 earthquake/tsunami combo that struck Japan. After having the weekend to think it over, and watching the Nikkei plunge 6%, investors have reconsidered. Lately, it seems like equities can seem to talk themselves into rallying no matter what the headlines. It's like they read the news in their sleep and bought stocks out of habit. Hmmm.... Yawn, a natural disaster that cripples one of our largest economies and brings the Japanese to the brink of a nuclear disaster? No biggie. Price of oil is down, that's great for us, keeps inflation in check. Right? Goldilocks economy. Give some money to the Red Cross. Buy more stocks. A couple of nuclear power plant explosions, a few fuel rod fusions later and the news seems, well, maybe not so bullish anymore. Suddenly, things like the announcement of Berkshire Hathaway's intent to buy Lubrizol for $10 billion, which would've sent stocks into a euphoric lather a few weeks ago, seem pretty insignificant when compared to the aftermath of the Japanese tragedy. Is logic and reason returning to the markets?

China Posts a Trade Deficit

China posted a $7.3 billion trade deficit in February, surprising those who expected them to continue their usual habit of flooding the world with their manufactured goods without reciprocity. Analysts are blaming this anomaly on the Lunar New Year holidays, when apparently even the Chinese get lazy and party too hard to make stuff to export. Better to believe that, of course, then the alternative; that world economic growth might actually be slowing. If this continued, it would be extremely inconvenient for the Fed, who was probably hoping that somebody else would step in to buy a few Treasuries after it is done with QE2. I mean, somebody has to help keep US interest rates in check so our debt fueled recovery won't be crushed by the slightest uptick in rates. If it's not going to be the Chinese, who's it gonna be? Maybe everybody who is puking Spainish government bonds on Moody's downgrade this morning? All of those investors who are surprised, yes SHOCKED, that it's gonna cost Spain more to recapitalize its banks than the government's previous official estimates? They actually needed Moody's to tell them to sell. Anyway, the more havoc elsewhere in the world, the better the US looks in comparison.

What Kind of Sell-Off is This?

So is this the Middle-East-is-having-trouble-working-out-some-democracy-issues sell-off? Or the NAR-has-been-overestimating-home-sales + home-prices-are-still-falling + interest-rates-going-higher sell-off? Or OMG-the-Fed-is-going-to-stop-buying-the-market-in-June sell-off? Perhaps the-market-has-gone-straight-up-for-2000-points, maybe-wise-to-take-a-breather sell-off? In any event, if you were starting to wonder when on earth would've been a good day to finally initiate your short in Netflix? You should've done it on Friday.

The Budget and Zynga

The White House put out its budgetary needs for the 2011 fiscal year. Projections call for a $1.65 trillion deficit, which doesn't surprise me much. This is what happens when you spend like crazy, don't raise taxes, and finance it all buy selling yourself debt. The good news is that the White House is terrible at projections, so maybe, just maybe, it's overestimated the big black hole we're in and we still have some shot of getting out before the rioting begins.

Speaking of crazy amounts of money, the valuation explosion in social networking sites continues unabated. Zynga is wooing potential investors in an attempt to raise $250 million in new funding, which would value the three-year-old start-up at between $7 to $9 billion. Way back in April, the company was only valued at around $4 billion. But then, Facebook was a puny start-up with a mere $20 billion valuation. Whether any of these valuations fulfill investor's expectations is anybody's guess, at least until somebody goes public and we get some financials and see some real trading Gotta take advantage of the ability to raise gobs of money without having to reveal financials. But venture capitalists are certainly itching to cash out after many years of lackluster returns in the industry. Employees too want their cars, jewels, and houses. It's hard to keep a lid on that so we're gonna see some awesome IPO action.

Fannie, Freddie and Facebook

The administration has unveiled its proposal to wind down the mortgage market, I mean Fannie and Freddie, over the course of some very long and ambiguous time frame. I haven't read the white paper myself, but having read the WSJ's summary, it's abundantly clear that a few pesky details have not been addressed. Such as, who's going to buy the trillions of dollars worth of mortgages that will need to be originated in order to keep the housing market from collapsing? Or, how will the average American be able to afford to buy a house at current prices, when interest rates sky-rocket on mortgages because there is no federal subsidy anymore? Stuff like that. All minor.

Moving on to way more interesting and exciting news. According to Reuters, Facebook is mulling a $1 billion employee share sale that would value the company at $60 billion. This is not to be confused with the $1.5 billion share sale it did a month ago that valued the company at $50 billion. I'm not blaming the folks at Facebook for wanting to cash out a bit. Most 25 year old geeky programmers could really use a porsche and a 10,000 sq ft bachelor pad to get chicks at 25. But if the company is really going to tack on $10 billion in market cap per month, you might as well wait for the IPO, which is only a year away. Otherwise, you're gonna make it look like you really think your company's stock is overvalued and you've got to get out RIGHT NOW before it craters.

Good News For Housing, For Real

The WSJ reports today that home affordability has returned to pre-bubble levels in many US markets in the past year. Having prices return to a point where the average person can actually buy one is far better for the economy than any bailout, tax break or zero interest rate. It didn't stop our politicians and friends at the Fed from attempting to artificially inflate prices to keep this dreaded reality from occurring, by offering free money mostly to those who didn't need or deserve it. For there are many folks out there who were prudent, bought what they could afford, had bad timing, are underwater now, can't refi, and have had to watch the parade of hand-outs pass them by. It'd be like the government refunding everybody who bought pets.com stock on margin in 2000 at the highs, without giving a penny to those who bought Enron in their retirement accounts, even though Enron was a fraud and pets.com was just a really dumb business idea. Both of them pumped by Wall Street, of course. But back to housing...

The ratio of home prices to annual income had fallen to 1.6 by last September, below the historical average of 1.9 from 1989-2003 and down from the peak of 2.3 in late 2005. Great news for those who: a.) have a job b.) need a house and don't already own one and c.) can get a mortgage. In the bad news department, there are still: a.) lots of unemployed folks out there b.) people who bought at the highs who are underwater and might walk away if prices continue to decline, and c.) mortgage rates are marching higher.

Fannie and Freddie have been the mortgage market since all of our friendly neighborhood non-conforming specialists, ahem, got out of that market rather quickly in 2007-2008. The White House is planning to release its plans for the two mortgage behemoths on Friday. Although somebody leaked to the WSJ that the administration wants to phase out the housing-finance giants, it seems impossible to imagine. They are 90% of the market. We're talking trillions of dollars. Are banks really going to originate and hold on to all those mortgages? Cause nobody is going to buy them without government guarantees. Especially not after the CDO fiasco of 2007. We'll see what the government has to say, and then the market is just going to do what it wants to do.

China Raises Rates, US Yawns

Last I checked, our fearless Fed Chairman, Ben Bernanke, was busying himself with ZIRP + QE + QE2, oblivious to all signs of brewing inflation or bubbles. I mean, who cares about spiking food prices? And oil prices. And copper prices. Or the return of covenant-lite bonds? Or money pouring into emerging markets? Or record bonuses at US banks? None of these things have anything to do with US monetary policy. Because buying trillions in Treasuries and mortgages directly from broker dealers at any price is the best and most direct way to bring the unemployment rate down from over 9% to 5%. And it's not liable to leak out and cause distortions in other markets. Right. So that's working really well so far.

Anyhoo, at least the Chinese are paying attention. China raised its interest rates for the third time since mid-October. Admittedly, China's growth rates are a tad higher than ours and the chance of getting runaway inflation is more likely when your economy is experiencing explosive growth of 10%, rather than the anemic 3% or so we're getting in the US. Nevertheless, global markets actually respond to this kind of thing. Oil, copper, and emerging-market stocks fell across the board in response to China's interest rate move. Please make of note of that, Mr. Bernanke.

AOL Buys Huffington Post for How Much?

Nothing can revive the Rip Van Winkle of bloggers (yours truly) faster than the news of a $315 million purchase price for a blog. Mostly a blog aggregator at that. Sure, AOL's $315 million announcement to acquire the Huffington Post would be a much bigger deal if it weren't AOL doing the math on the financials, but still, pretty big news for aspiring bloggers everywhere. AOL has a history of pumped up acquisitions that wind up being worse investments than even the doubters initially imagined. Nevertheless, Tim Armstrong, AOL's fearless Chairman and CEO, has maintained his enthusiasm that maybe, just maybe, someday, one of these deals is going to turn into something other than a really nice tax write-off. "When people think about Google for search and Amazon for commerce, I think they're going to end up thinking about AOL for content" the FT quoth Mr. Armstrong. Ah, content. That's what he's going for. Identifying AOL with content. Instead of say, really slow dialup internet service, chat rooms, and enormously expensive acquisitions, which is what AOL is currently associated with. In any event, this time, for obvious reasons, I hope Mr. Armstrong hits the big time.

Mock the Market on Hiatus

Apologies for the lack of posting in the past few months. Many big things are in the works in the K10 household and it leaves virtually zero time for blogging. After an intense search for a new home, that involved looking at 110 houses over the course of the past year-and-a-half all over the Bay Area, we finally found one we liked at a price we could stomach, have made a purchase and plan to move in the next few weeks. Hopefully, once the move is complete, I will be able to resume my blogging activities on a somewhat regular basis. Maybe by then something interesting will be afoot in the markets.

AIB and AIG Again, With Some Details

The Central Bank of Ireland has finally put a price tag on the total cost of bailing out the state-owned Anglo Irish Bank, Ireland's equivalent to AIG. The bank was nationalized in January 2009 and has put on a real damper on Ireland's ability to borrow in the international bond markets. The losses have been capped at $46.75 billion in a worst-case scenario. In US-terms this sounds like chump change. But the government sponsored bailout of its financial sector will cause the budget deficit to rise to 32% of Irish GDP. Sure, the Irish plan to cut the deficit to 3% to make the bond market happy again, but that will be a bitter pill to swallow for the country's citizens.

Meanwhile, in the US, where $150 billion government bailouts are de rigueur, the US government and AIG have agreed in principle on a plan for the government's exit. The details are as follows:

• The government converts its $49.1 billion of preferred into common to increase its ownership stake to 92.1%.
• The conversion will take place in early 2011 if AIG can repay $20 billion to the Fed, which it can only do if it can IPO its Asian unit successfully.
• Current shareholders, who really really love this plan, will receive 75 million warrants with a $45 strike price (still out of the money as we speak, despite the inexplicable rally in the shares.)
• The Treasury takes over the NY Fed's interests in two SPVs that will theoretically recoup $26 billion from sales of AIG's overseas assets.
• The Treasury will commence gracefully puking 1.655 billion shares over some period of time to complete its exit.

Assuming everything goes according to plan, the US will recoup its money. Count me among the skeptics, of course. Alot of things have to go right for this hare-brained scheme to work. AIG needs to pull off a monster IPO. The stock market has to remain in its chipper mood where no economic number, no matter how bad, gets it down. Investors actually have to get involved in AIG's stock, instead of all the day traders that like to play on the limited float. And we have to avoid a double dip, without discouraging the Fed from purchasing every asset in sight to keep markets going higher. Given how the Fed is eagerly offloading its stake in AIG to the Treasury, it seems you can count the Fed out on purchasing anymore AIG assets.

AIB and AIG

Ireland is set to unveil yet another tax-payer funded recap of Anglo Irish Bank. The restructuring is being cobbled together as Ireland's cost of borrowing hits record levels and the expiry of Ireland's two-year blanket guarantee for bank liabilities looms. With any luck, this particular European black hole will be plugged and we can go back to worrying about Greece again.

Speaking of black holes, perhaps the Irish can take some solace from the US government's handling of AIG. Or rather, the US government's optimistic plans for exiting the financial debacle that is AIG. AIG's board is set to finalize a restructuring plan that would increase the US Treasury's stake in the insurer to 90%. The Treasury will be converting its preferred stake to common, thereby increasing its stake and diluting the bejesus out of shareholders yet again. The shareholders, mind you, think this is GREAT NEWS, as the stock is actually rallying today. I mean, everybody loves dilution. Right? To compensate shareholders for this particular kick in the groin, they get the pleasure of receiving warrants in AIG to buy MORE shares in the future at a discount to the current price. According to the genius quoted in the FT article "This would give other people the chance to buy shares on the cheap as well." Because, you know, the stock is definitely still gonna be trading at this price in the future, so the warrants are a real bargain. Also, since this is being called a "Government exit plan" and not an "entry plan," the government will be cleverly and sneakily off-loading its 90% stake (i.e. dumping large quantities of stock onto the market) which won't have any effect on the price, I'm sure. The stock can only go higher. So, you know, free money for everybody.

Markets Rip on Lackluster Data

Equities rallied this morning on the heels of some relatively lousy data. Durable goods orders were down 1.3%, slightly worse than the 1% decline the average economist was expecting. Sales of new homes remained at a 288,000 annual pace, also worse than expected and the second-worst month of new home sales data going all the way back to 1963. So what gives? Why are equities in such a good mood today? Can it really be excitement over German business confidence numbers? Has anyone involved in the US markets ever cared about German economic numbers until today?

Perhaps the truth is that the data was pretty bad. Bad enough for the Fed to want to keep the monetary spigot open. But not so bad that we're scared the economy is collapsing again. Not so bad that we're worried the European Union is going to fall apart again and create another credit crisis. Maybe the new Goldilocks is just limping along with virtually zero growth, just enough to keep the Fed involved, but not enough to fall off a cliff. After all, the market doesn't care if unemployment is at 10%. It wants interest rates at zero. It wants the Fed to keep buying securities. And as long as some people are shopping at Walmart, that's enough to keep us going.

The WSJ has an interesting article about how frustrated stock pickers are in this market. Correlations remain high, at roughly 66% in recent weeks, lower than the 80% during the European debt crisis, but still much higher than the 27% average between 2000 and 2006. How are you supposed to pick good stocks if everything just moves in lockstep for no apparent reason? Like ripping higher on lousy economic data? Further proof that nobody really cares about fundamentals. Only about the Fed's next move. Unless you're Bill Gross and you get to tell the Fed what to do, what's the point of investing in a market like that?

Larry Summers Out, Next Up: A Woman???

Larry Summers is stepping down from his post as the head of the President's Economics Council and returning to all of his female fans on the faculty at Harvard. According to the WSJ's account of his resignation, his departure is driven partially by a desire to return to Harvard before January so that he won't lose his tenure. You see, you never want to lose that tenure because outside of academics, it is impossible to be completely ineffective without eventually losing your job. Tenure guarantees the ability to do nothing, keep your paycheck, and occasionally run off at the mouth about something that offends a bunch of people, all while continuing to look either peeved or fast asleep in every single newspaper stock photo next to articles detailing your gaffes.

Moving on to the next question: Who's going to replace Mr. Summers in that ever crucial role of continuing to pour all kinds of stimulus down the drain? Or making sure the banking sector isn't truly reformed but just continues to siphon off money from the public sector? A few candidates: Anne Mulcahy, formerly of Xerox? But, um, she's a woman. How about Diana Farrell, the Deputy National Economic Council Director? Ack!! Another woman. The third candidate? OMG, Laura Tyson, an economist from UC Berkeley! What is with all these women? How are they ever going to do Larry's job? Everybody knows they are not that smart. Well at least back in the comfy confines of academia, Mr. Summers won't have to read the WSJ to find out who replaced him.

Mark Hurd Gets New Job at Oracle, HP Miffed

Those who have casually followed the HPQ-Oracle-Mark Hurd-sexual harassment imbroglio may be interested to hear it has taken an even more amusing/bizarre turn. Here's a quick recap of the history:

• Everybody Loves HPQ's CEO Mark Hurd.
• Mark Hurd settles a sexual harassment claim with a former HPQ consultant/employee whose job description was at best murky.
• HPQ board gets mad because, um, this is a bit embarrassing. Why is our CEO sexually harassing our employees? Wait, what did she do for us? What are these "expenses"? She used to be an actress? On reality TV??? Then she worked in real estate? Oh right, we hired her to be a greeter/escort at our fancy parties. Because we need one of those to sell our lousy printers.
• Mark Hurd "resigns" (aka given boot by board) and given massive severance payment.
• Everyone is shocked that CEO is fired, especially the harassee (didn't mean to get the guy fired, thought it would be all hush hush)
• Except for Larry Ellison who apparently doesn't care if his employees sexually harass (or whatever) other employees, as long as they "create shareholder value."
• Mark Hurd gets job at Oracle.

Which brings us to present day: HP's board is now really pissed off and is suing to block Mark Hurd from joining Oracle. I mean he's going to bring all of those trade secrets over to Oracle. And now Oracle is going to start making lousy printers too and it's going to eat into our monopoly and we won't be able to get away with selling printers that run out of ink a week after purchase, then charging $50 a cartridge for another week's worth of ink! Oh No!

Here are a few thoughts I'd like to share with HPQ's board:

• Next time you fire someone for cause, don't pay them a $35 million severance. Trust me, you'll feel better when they immediately go to a competitor.
• According to the FT, there was no non-compete clause, but something about not releasing trade secrets to competitors. Nonetheless, suing will likely be as big of a waste of money as his severance.
• Hire someone who will figure out why my two week old printer keeps giving me error messages instead of printing.

Whistle-Blowing Gets More Lucrative

With the economy double-dipping, bank profits screeching to a halt, and unemployment hovering at record high levels, where can enterprising folks look to make the big bucks? And fast? How about a job at the SEC? Not a salaried position. But how about as a consultant working for a contingency fee? One of the nifty new parts of the new Dodd-Frank financial law passed in July is the ability to net as much as 30% of the penalties and recovered funds collected by the SEC in fraud cases. Since the legislation passed in July, there has been a surge in tips from whistle-blowers looking to tip off the SEC to all that fraud that has been operating under its nose since the beginning of time.

"We've gotten some very high-quality tips," said SEC official Stephen Cohen.

Hopefully, it won't take the next financial crisis to unveil the next wave of ponzi schemes that build up during the proceeding bubble. And there will be a bubble. Because you can't have zero interest rates and QE without another bubble somewhere. And you don't have bubbles without hidden ponzi schemes and fraud. But maybe this time, with adequate incentives to folks looking to collect a bounty, the SEC will catch them before they morph into $65 billion ponzi schemes, or $8 billion frauds, or $650 million...well, you already know the story.

GDP and 3Par

Second Quarter GDP growth was revised downward from an initial estimate of 2.4% to 1.6%. Economists were anticipating a larger downward revision to 1.3%, so the market is breathing a sigh of relief at the moment. It has moved on to bigger and better things, such as Ben Bernanke's upcoming speech, but more importantly, the exciting bidding war between HP and Dell over 3Par.

You know the market is grasping at straws when a $1.8 billion merger war over a company that nobody outside of Silicon Valley had ever heard of a few weeks ago is plastered all over the front page of the financial press. Moments ago Hewlett-Packard topped Dell's bid (again), by the way. Analysts are struggling to make sense of the valuation, but at this point, who really cares? The feeding frenzy over this company is beginning to rival the Sotheby's auction of the Giacometti "Walking Man I" back in February. Sure it's a neat sculpture and all, but really, $104.5 million? Ok, it's three times taller than the "Toppling Man" that sold for $19.3 million last November. But even the optimistic art lovers at Sotheby's were shocked by the final sales price. Don't those rich folks have better things to do with their cash?

Therein lies the rub. The folks at the Fed are desperately trying to goose the economy with super easy monetary policy. When banks can borrow at zero percent, but they are refusing to lend to lousy credits, they buy Treasuries. As the economy remains sluggish, firms refrain from expanding payrolls and increasing costs, so they look for other ways to generate growth. So they get into ridiculous bidding wars over the few companies out there that are in growth industries. The irony is that even though Wall Street might love M&A because of the fees, M&A isn't exactly a growth engine for the economy. M&A frenzies, particularly dumb deals, typically happen at market tops. After all, what is the first thing that happens when a company buys another one? Layoffs. I mean "synergies." How's that gonna get GDP on the right track?

Existing Home Sales Hit Already Nervous Market

Equity markets were off to a rough start, nervous about the existing home sales number, even before the actual data came along to make matters worse. Existing home sales plunged 27.2% to an annual rate of 3.83 million in July, a number much worse than anticipated. Also, the lowest level in 15 years. Inventories leapt to a 12.5 month supply, up from the previous month's 8.9 months. Bad news all around.

Before everyone goes into a giant tizzy about the sky falling, let's just contemplate what exactly this number means. As the always enlightening Calculated Risk pointed out yesterday in a post by economist Tom Lawler, it was impossible to understand given how horrible the pending home sales index had been, the expiration of the tax credits in June, and huge fall-offs in activity in many local markets, how on earth economists had arrived at such an optimistic consensus forecast of a mere drop of 10%. So really, had economists done a better job of forecasting, nobody would've been surprised by this horrendous economic number. Then again, bad economic forecasting or not, the number still stinks.

What does this mean? Bad economic news points to deflation which leads the nervous nellies at the Fed to buy more treasuries, mortgages, whatever it takes to reflate assets, which doesn't actually get rid of housing supply, instead just leads to pockets of inflation, say in commodities, which leads to takeover battles for fertilizer companies (see Potash) and niche tech firms (see 3Par.) See? It really is all so predictable...

Banks and Loan Buybacks

The WSJ reports today on the battle banks are facing over potential loan buybacks. Banks face the prospect of a new round of losses from loans they originated right before the credit markets collapsed. While originating and securitizing loans as fast as they could to fuel the bubble machine, some banks forgot to do a few basic things, like make sure the borrowers had income, for example. So they just filled out loan docs and made up the info that didn't fit normal underwriting standards. While it was easy to just shovel the loan off and forget about it, Fannie and Freddie, at the behest of their regulator the FHFA, are stepping up efforts to recoup losses on delinquent loans if they find any violations of "reps and warranties" (i.e. lies lies and more lies on loan docs.)

Last month, the effort to claw back loan losses was stepped up when FHFA broadened its probe to include private label, or non-agency, MBS. The FHFA sent out subpoenas to 64 issuers of MBS and other parties to probe for potential loan repurchases. Even the Fed has stated it may make repurchase claims after reviewing some of the dogsh-, I mean "collateral", it inherited from Bear and AIG.

What does this mean? More losses for banks and more pummeling of MBS securities. Who is this going to affect the most? The analyst quoted in the WSJ article, Chris Gamaitoni of Compass Point Research & Trading, believes losses at Bank of America might hit $21.8 billion for the bank. Losses at Wells and JP Morgan are estimated to be a mere $6 billion or so. The article does not mention how much he believes non-agency losses might be. In any event, the banks are not going down without a fight, as it pays to spread the losses out for as many years as they can. The irony is if they would've spent as much time and effort underwriting the mortgages to begin with, they wouldn't be in this pickle.