MOnkey Mind writes:
Teh Frist?
MOnkey Mind | 03.31.08 - 11:19 am | #

dilbert dogbert writes:
$1.35B that is not going to be paid back at 18 percent doesn't sound like a good deal to me.
dilbert dogbert | 03.31.08 - 11:21 am | #

Anonymous writes:
Burning toast Sniff*Sniff
Anonymous | 03.31.08 - 11:23 am | #

Neal writes:
How many 20% mortgages does Thornburg have in their portfolio?

Time to pull the plug.
Neal | 03.31.08 - 11:24 am | #

Anonymous Bosch writes:
If it's not going to be paid back, do I hear 20? once? 20? twice?
Anonymous Bosch | 03.31.08 - 11:29 am | #

Mr. Beach writes:
Iceland is being forced to raise their interest rates to 15% to defend their currency.

Can the margin call at Thornburg and Iceland eventually happen to the entire US of A?

http://www.bloomberg.com/apps/news? pid=newsarchive&sid=arSACxBR9m6A
Mr. Beach | 03.31.08 - 11:30 am | #

Troy writes:
One thing I still don't understand in this mess is how much actual "fractional reserve" lending is going on vs. CDOs etc.

Let's say Th. borrows $1B of Capital at 18% interest . . . it, technically under the "fractional reserve" practices of the industry easily lend out $9B @ 6%.

Cost of capital = $180M, Interest return on loans = $540M.
Troy | 03.31.08 - 11:31 am | #

ipodius writes:
Holy Moly Batman! 18% interest? How can this even be thought to work? Who in the name of god would buy into this? That rate isn't even enough to offset the risk.

Someone should send the CEO a nice funeral basket arrangement.
ipodius | 03.31.08 - 11:34 am | #

Ralph Cramdown writes:
I haven't looked at their financials in detail, but they're listed at having $34B in liabilities. So $1B at 18% is going to give them a blended rate that's still pretty low.
Ralph Cramdown | 03.31.08 - 11:36 am | #

Kp writes:
I'll bet Bernanke's beard that JP has one or two CDS on Iceland's banks.
Kp | 03.31.08 - 11:36 am | #

barely writes:
I know! Maybe the Fed can lend TMA the loot?

I am still waiting to see the UBS Client haircut statements on the net. Anyone have any links?
barely | 03.31.08 - 11:36 am | #

Kp writes:
I guess we bail out Iceland next?
Kp | 03.31.08 - 11:37 am | #

crispy&cole writes:
18% - They will never see one dime of their principal!
crispy&cole | Homepage | 03.31.08 - 11:37 am | #

crispy&cole writes:
We are all TMA and Iceland now!
crispy&cole | Homepage | 03.31.08 - 11:38 am | #

bacon dreamz writes:
Thornburg, which is based in Santa Fe, N.M., has been beset by "margin calls," or lenders demanding their money back.

that line is almost as bad as "foreclosed tenants." demanding your money back would be calling the loan. a margin call is maintaining the terms of the loan.
bacon dreamz | 03.31.08 - 11:38 am | #

Nemo writes:
Maybe they should just issue equity instead, like 1 billion shares at $1 apiece. $948M with room to spare!

Or maybe they should issue adjustable-rate bonds. LIBOR+15% or something.
Nemo | Homepage | 03.31.08 - 11:38 am | #

Anonymous writes:
They can use my credit card at 25%
Anonymous | 03.31.08 - 11:39 am | #

Anonymous Bosch writes:
Now Iceland?

Sheesh! If we bail out everybody, where will we put all that water?

Hey, I got it! On the Moon. I can see it now... Luxury Aquatic Domes

Buy now or forever be priced out!

Anonymous Bosch | 03.31.08 - 11:40 am | #

crispy&cole writes:
They can just refinance in a year, when things turn around - that worked for the homedebtors...oh wait nevermind.
crispy&cole | Homepage | 03.31.08 - 11:41 am | #

Peripheral Visionary writes:
Couldn't they simply have their employees open up one or two "0% interest for the next year" credit cards each, max them out, send the money to the company, and borrow the whole $948 M for nothing?
Peripheral Visionary | 03.31.08 - 11:46 am | #

ipodius writes:
Ralph, even with that WACC must be just that. I'll run a couple of things, but I have to do some digging. I've got to imagine that it's now in the double-digits if anything.
ipodius | 03.31.08 - 11:46 am | #

Anonymous Bosch writes:
Peripheral Visionary


Are you in Washington? Because if you're not, you're wasting your potential.

That's just the sort of innovative thinking we need there.

Anonymous Bosch | 03.31.08 - 11:49 am | #

ipodius writes:
That's just the sort of innovative thinking we need there.

Oh great, now you've done it. This is going to be in the next Bush Social Security Plan.
ipodius | 03.31.08 - 11:51 am | #

Anonymous Bosch writes:
That gets rolled into it too ipod.

I'm thinking 100 year mortgages. 0% down (of course) and like the CCs no payments due for... oh... let's say... 20 years.
Anonymous Bosch | 03.31.08 - 11:54 am | #

sdtfs writes:
Shouldn't the title be "Puts It on...?"
Or is this an East Coast thing?
sdtfs | 03.31.08 - 11:54 am | #

Jim writes:
If they raise 1.35 billion at 18% I would really ask for my money back...at once.
Jim | 03.31.08 - 11:54 am | #

wally writes:
It really is just idiocy. How do people once thought to be rational get to this point? Or is the financial system so goofy that people who were NEVER rational can get into positions of control and management?
wally | 03.31.08 - 11:55 am | #

Anonymous Bosch writes:
Naturally the last question was rhetorical.
Anonymous Bosch | 03.31.08 - 11:57 am | #

anon writes:
Kp writes:
I guess we bail out Iceland next?

well worth it. The women are spectacular.
anon | 03.31.08 - 11:57 am | #

anon writes:
why doesnt Thornburg apply for a few thousand credit cards at 12.9%. The idiot bankers would give it to them. Why not. The window at the fed is open for business
anon | 03.31.08 - 11:59 am | #

dryfly writes:
Can the margin call at Thornburg and Iceland eventually happen to the entire US of A?

The difference between Iceland & USA is most external debt in Iceland is in dollars & euros while most debt in USA is in dollars. So if Iceland prints their money it does nothing for them since they have to repay in another currency (which is why they have to defend the Krona so rigorously).

We on the other hand repay in the script we print ($$) & can get away with it UNTIL they no longer accept our script & require us to borrow in euros, yen whatever.

It really is different - but maybe not forever.

dryfly | 03.31.08 - 12:02 pm | #

dryfly writes:
well worth it. The women are spectacular.
anon | 03.31.08 - 11:57 am | #

Plus they have ponies galore!

dryfly | 03.31.08 - 12:03 pm | #

Tanta writes:
Or is this an East Coast thing?

It's that spell-checker thing again.

I'm officially going back to not using it.

Argh.
Tanta | 03.31.08 - 12:07 pm | #

Anonymous writes:
Ah, yes, the old 18% bonds, eh?

And why would anyone think they'll receive 2 interest payments, let alone their principal back?

Bye, bye, Thornburg!
Anonymous | 03.31.08 - 12:08 pm | #

Rob Dawg writes:
Ice Princesses riding ponies bearing 15% coupons!
Rob Dawg | Homepage | 03.31.08 - 12:08 pm | #

dryfly writes:
Ah, yes, the old 18% bonds, eh?

Talk like that makes me want to look for the Betamax version of 'Saturday Night Fever'...

dryfly | 03.31.08 - 12:10 pm | #

ipodius writes:
well worth it. The women are spectacular.

Ummm...last time I was there they all looked like Bjork.
ipodius | 03.31.08 - 12:10 pm | #

Anonymous Bosch writes:
You need spelchecker too, Rob Dawg?

Did you mean baring 15 % coupons

Anonymous Bosch | 03.31.08 - 12:12 pm | #

anon writes:
Ipodius
last time I was there they looked yummy. Why do you think they sent bjork to America?
anon | 03.31.08 - 12:14 pm | #

m writes:
http://www.mcall.com/business/ lo...0,1172881.story
m | 03.31.08 - 12:14 pm | #

daveNYC writes:
We on the other hand repay in the script we print ($$) & can get away with it UNTIL they no longer accept our script & require us to borrow in euros, yen whatever.

Yep, if we decide to print our way out of debt, we'll need to make damn sure that we won't have to borrow any money for at least a few decades.

18% is just funny. Didn't we have this a few months ago where if it's so risky that you're asking for 18%, then it's just too risky to even give them the money?

On the plus side, if Iceland goes down the tubes that's one country I might be able to afford to visit. The high euro is hell on any vacation planning.
daveNYC | 03.31.08 - 12:18 pm | #

Jim writes:
Aren't we already "printing our way" in general? How do you think we buy all those thingies from China, etc? We don't give them anything substantial in return. Not much difference between printing dollar bills and printing dollar bonds.
Jim | 03.31.08 - 12:22 pm | #

sdtfs writes:
Since they loan to the "better off", oh, let's call them the Rich and Powerful, are they getting those hardball: Since you need capital, "I'll buy my debt back for 85 cents on the dollar" calls?
sdtfs | 03.31.08 - 12:28 pm | #

Am I Late? writes:
Negative Carrion
Am I Late? | 03.31.08 - 12:37 pm | #

BG writes:
ipodius,

Clearly they wouldn't be lending for the 18%, but for a chance to pin down a position on the underlying assets. Which, presumably, said lenders would value at significantly better than $1 billion even after taking into account expected losses.

daveNYC,

18% is just funny. Didn't we have this a few months ago where if it's so risky that you're asking for 18%, then it's just too risky to even give them the money?

Adverse selection. Though the sitation changes if what you're really gunning for is the underlying. For management, it's a hail-Mary in the direction of improving liquidity for MBS.
BG | 03.31.08 - 12:42 pm | #

Moopheus writes:
I guess this is another example of how I do not understand the world of big business finance. The folks Thornburg owes money to think TMA doesn't have enough cash to make good, so TMA wants to raise cash by taking on more debt, and this is supposed to leave them in a better position? Guess that's why those guys get big salaries and bonuses and I don't.
Moopheus | 03.31.08 - 12:53 pm | #

Josiphos writes:
Last time I looked, the Hail Mary % was pretty bad.

18% huh? Welcome to the 'rest of us' financial world, Thornburg.

How does it taste?
Josiphos | 03.31.08 - 12:53 pm | #

ipodius writes:
Aren't we already "printing our way" in general? How do you think we buy all those thingies from China, etc?

For the love of dog STOP IT ALREADY with this! A cursory look at the balance sheet of the Fed and the available data on the money supply shows that it is CONTRACTING. Please explain to me how on earth you can keep posting this crap about the Fed printing money? The money supply has been SHRINKING and unless you know of some alternate financial formula that I don't, you're just spewing garbage.
ipodius | 03.31.08 - 12:55 pm | #

BG writes:
Josiphos,

Last time I looked, the Hail Mary % was pretty bad.

Doubtless. But if you're looking at zero, a 5% chance at recovery is better. And maybe the horse will learn to sing hymns....
BG | 03.31.08 - 1:03 pm | #

Barley writes:
Someone at this company must have a black AmEx - it would be cheaper, no?
Barley | 03.31.08 - 1:04 pm | #

sdtfs writes:
Tanta writes:
It's that spell-checker thing again.

I'm officially going back to not using it.

Isn't that punishment a little harsh? Puhleeze give BaconDreamz one more chance.
sdtfs | 03.31.08 - 1:14 pm | #

bacon dreamz writes:
i don't suppose anyone is interested in this, but the thread above this scares me, so i'm going to hang out here and amuse myself instead. anyway, when someone like thornburg enters into a repo borrowing agreement to finance its MBS, the term, rate, initial margin requirement (i.e. "haircut"), and margin maintenance requirements are contractually set based on the price volatility of the collateral and the counterparty risk of the borrower. the lender can't call the loan or change its terms after that, it can only require the borrower to post cash or more collateral to maintain the margin requirement if the market value of the collateral declines before the maturity of the loan (the lender also has the right to seize and liquidate the collateral if you don't meet the "margin call"). the borrower can demand cash or collateral used to maintain margin back if the value of the collateral subsequently recovers.

repos are generally short-term borrowings (like 30 days), so the other way a highly levered investor like thornburg gets in trouble is even if they meet their margin calls, lenders may (and have) decide they need more protection and increase initial margin requirements, meaning the borrower will have to come up with a lot more cash when it rolls its borrowing to continue to finance the same amount of assets. otherwise they will have to sell assets (at a big loss) and delever. which causes a downward spiral because these things tend to happen to everybody at the same time, which hurts asset prices, causes more margin calls, etc.
bacon dreamz | 03.31.08 - 1:33 pm | #

Mr. Beach writes:
ipodius:

No need to shout here -- you are not getting the point. Specifically, the pileup of dollars outside the US is in the trillions now. This is the direct result of us effectively convincing the world that our paper is worth their blood and sweat.

As Brad Stetser and others have argued, this Bretton Woods II regime is inherently unstable. e.g. It is irrational to buy treasuries at 3.41% when the currency itself may lose that much in the next year.
Mr. Beach | 03.31.08 - 1:36 pm | #

Roger Bigod writes:
Taking out multiple credit cards sounds kind of fanciful, since each account is so small. There are some intriguing possibilities on the internet, though. I frequently receive mail proposing that I help retrieve the accounts of a deceased or incarcerated official in an African country, Nigeria IIRC. The sums are quite impressive, and only a few could go far in restoring Thornberg's soundness. The schemes seem to require a certain amount of trust, but no more than they showed in making the loans.
Roger Bigod | 03.31.08 - 1:37 pm | #

Terry writes:
bacon dreamz said: "the thread above this scares me, so i'm going to hang out here and amuse myself instead"

Ah, a fellow refugee....
Terry | 03.31.08 - 1:47 pm | #

Zeuss writes:
I'd be happy to lend them money at 1200%, as long as they make the first month's interest payment to me in advance of receiving the lending.
Zeuss | 03.31.08 - 1:52 pm | #

ipodius writes:
Ah, a fellow refugee....

No guts no glory :)
ipodius | 03.31.08 - 2:01 pm | #

Rob Dawg writes:
Anonymous Bosch writes:
You need spelchecker too, Rob Dawg?

Did you mean baring 15 % coupons

I was torn. The double pun of "bearing bonds" and "bearish" won out over the single entendre of Lady Godiva oblique references.
Rob Dawg | Homepage | 03.31.08 - 2:30 pm | #

Tom Stone writes:
Thornburg definitely needs a new CEO,and Alphonzo Jackson needs a new job,there are possibilities here...
Tom Stone | 03.31.08 - 3:56 pm | #

halbhh writes:
Definitely a "yikes".

nice label.
halbhh | 03.31.08 - 8:26 pm | #