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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (159469)	10/23/2008 2:23:34 PM
From: Yogizuna	Respond to of 306849

Worse than New Jersey beach toxic sludge!

To: Jim McMannis who wrote (159469)	10/23/2008 2:54:28 PM
From: MulhollandDrive	Read Replies (2) \| Respond to of 306849

and some countries are saying enough! how many more to follow? Taiwan says no to agency MBS and Chinese walls asianinvestor.net. The FSC has not only limited insurance company exposure to Fannie, Freddie and Ginnie bonds and mortgage-backed securities, but has decided that existing credit ratings are meaningless. The Insurance Bureau at the Financial Supervisory Commission in Taipei announced revised rules on how insurance companies can treat investments in mortgage-backed securities (MBS). The FSC says it cannot see how the United States will develop a valid mechanism to assess the credit quality of MBS issued by US federal housing loan agencies, namely Fannie Mae, Freddie Mac and Ginnie Mae. Taiwanese insurers are now ordered to back off from investing in mortgage-backed securities arranged by the three institutions, or from holding their debt. The rules set maximum allowed exposures; beyond that, they don’t explicitly order insurers to sell their holdings, although the impression in reading the regulations is certainly one of disapproval. Such a ruling will be a blow to US Treasury authorities, who are currently pointing out that in the case of the two mortgage bodies that have been bailed out with government cash and explicitly nationalised (Fannie and Freddie), bondholders have been protected. The US financial system needs to maintain the willingness of Asian investors to buy its assets. Exposures to US agency MBS have created massive holes in Taiwanese insurers’ balance sheets, as their value has been in freefall. In response, the Insurance Bureau has rewritten rules on fair value accounting, on October 16. It has allowed Taiwan’s insurers to stop market MBS to market and reclassify securities deemed held for ‘trading purposes’ to be booked as ‘held to maturity’ or ‘assets for the purpose of sale’. The October 16 move has drawn criticism from Taiwan’s public that the FSC actions will lower disclosure standards and deepen the opacity in Taiwan’s financial industry. It is a sensitive issue in a business world already steeped in the murkiness of dominant financial groups owned and controlled by secretive families. The FSC is responding by providing a transition period for insurance companies, to let them maintain up to 25% of their approved overseas allocations in exposures to MBS issued by an individual US mortgage agency, and up to 50% of an insurer’s total overseas allocation to all US agency MBS and debentures. In doing so, the FSC has explicitly decided to ignore credit ratings on these issues, noting that it does not recognise any ratings of A-minus or above for agency MBS, or rating scores at 680 or above for their collateralised issues. Insurers will need to figure out how they can meet their internal capitalisation ratios if the MBS issues they have on their hands no longer meet up to scores and rating requirements. AsianInvestor’s questions to sources at major life and reinsurance companies drew a blank – these investors are used to laying out thousands of assets and filling in allocation numbers on their books based on the A to C credit ratings by credit agencies. The credibility of third-party credit rating agencies’ grades has hit an all-time low in Taiwan. The alphabet soup of A to C ratings used by Fitch, Moody’s Investor Services and Standard & Poor’s no longer holds any meaning. Where once upon a time, sell-side research was taken over by their supposedly impartial and fair analysis, the research function is now migrating back to the buy-side under the institutional investor scene in Taiwan. Investors say they are hit by a double-whammy of investment losses plus the necessity to add costs from expanding their internal analyst coverage. Ian Lui, CIO at Shin Kong Insurance, says his firm is still posting positive investment gains, but that few others can do so. He expects tough times ahead, as institutional investors must continue to revisit even the most basic assumptions about asset behaviour and portfolio modelling.