Using Veritas to Construct the "Per…

29-04-2017 Hits:94607 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:85520 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:85895 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:89997 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:88431 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:88173 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:59310 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:87763 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:87307 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:87654 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:94066 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:91347 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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This is an update of the work I am doing on AGO. Since I don't feel like putting out my usual eloquent proseCool, I'll just get right to the point. We have built-in subordination where tranche-wise information is available. For RMBS, we have this information only at an overall level (year wise) and not tranche-wise. We have subordination rate of 38% for 2007 for Prime Closed End Seconds. Had this information been available into AAA, AA, etc tranches, we would have applied this to compute net loss. However, we have tried to be realistic (to the extent there is visibility under the current credit market conditions) while applying default percentages.  

Later on, I will post AGO’s pro-forma statements incorporating loss and mark-to-market write-downs. 

At an overall level, AGO’s future performance and losses hinge upon the credit market which is being squeezed by serious credit crunch. My previous post gave anecdotal evidence of the the underlying RMBS and CMBS facing fire sales, thus putting serious downward pressure on the CDS that AGO writes. The current turmoil is likely to get much, much worse in view of aggravating recessionary conditions and worsening macro-economic factors.

We have estimated default loss under three scenarios: 

Loss on default ($ mn)

Best Case

Base Case

  Worst case

 U.S Public Finance




 U.S Structured Finance








Total Loss










While the above loss figures have been based on detailed assumptions on default percentages for each category of AGO’s exposure, it can also be substantiated by AGO’s exposure to some of the high-risk securities

·         CDO exposure:   AGO has huge outstanding amounts of exposure in leveraged structured products, and even more so when viewed in light of their equity capital. The total notional amount of insured CDS exposure to CDOs outstanding as of December 31, 2007 and 2006, and included in the Company's financial guaranty exposure was $71.6 billion and $49.4 billion, respectively against its equity base of $1.6 bn.

·         Mark to market loss:  As a result of continued widening of spreads, AGO is expected to report mark-to-market loss of $600 mn and $474 mn in 2008 and 2009, respectively. Continued market-to-market loss on the company’s CDO’s exposure will impact AGO’s financial performance.

·         HELOCs:  As of December 31, 2007, AGO had nearly $2.4 bn of exposure in HELCO ($1.6 bn in direct and $0.7 bn in reinsurance). Within direct writing, AGO has nearly $1.5 bn exposure in below grade investments (nearly its entire equity) while in reinsurance AGO has nearly $0.3 bn of exposure below investment grade.

Of $2.4 billion related to HELOC securitizations, $2.1 billion are transactions with Countrywide which were recently downgraded by Moody's and Fitch and placed on watch negative by Standard & Poor’s. Countrywide Financial Corp was forced to take a $704 million charge against its $32.4 billion prime HELOC portfolio in 4Q2007. Look here for a glimpse of info on why anything originated out of Countrywide is totally bad news. 

In view of the recent problems relating to Countrywide further fuelled by the fact that AGO has just under 1% subordination in HELOCs, we believe that AGO could see some additional mounting losses under HELCO exposure. Under our base case scenario, we expect total losses from RMBS exposure to be approximately $1,045 mn out of which $895 is relating to HELOCs.

  • Exposure to troubled markets:  AGO has its largest exposure in the most troubled markets with California and Florida together accounting for nearly 10% of its net par outstanding as on December 31, 2007.
  • Closely monitored risk : Even in view of the company (which is not as bearish as I am, of course), it has nearly $2.2bn of its exposure under closely monitored risk, out of which $838 mn is towards category 2, 3 and 4 which have high probability of loss. This is approximately 50% of their equity capital, and still over one third of the equity capital even if they get the full equity commitment from Wilbur Ross, which is far from a done deal.


Stay tuned for a more explicit analysis and my strategy regarding where I think the bubble burst momentum is going next. As usual, this is my collection of insurance and monoline analysis in the  Insurers and Insurance section of my blog.