Credit Markets Wobble
An announcement that rattled the housing sector came from AIG this morning. "AIG appears to be guilty of errors similar to those committed by mortgage-finance giant Freddie Mac a few years ago. Regulators found that Freddie, which has a massive derivatives portfolio, had been undervaluing some of its hedges as way to smooth earnings."
Besides being a guarantor of the GSE's mortgage backed securities (MBS), the firm holds a lot of mortgages directly. "New York-based Loews Corp. is currently the largest holder of GM debt. American International Group Inc.'s AIG Global Investment Group Inc., is second."
Those MBS's are already in trouble. "GM and GMAC bonds have plunged in value, trading at prices comparable to even lower-rung junk-rated debt. GM's widely traded 8.375 percent bonds, maturing in 2033, were recently changing hands at 76.688 cents on the dollar, down 26 percent since the beginning of the year."
"AIG has lost $58 billion in market value since its troubles came to light in February."