Sunday Musings: A Friendly Game Of Texas Hold ‘Em

Thursday’s report by MarketWatch titled “Let’s see ‘em” reminded me of a poker game like Texas hold ‘em with the only difference that the eventual last guy bluffing will be not the winner but the big loser.

This week, one player after another was forced to show their cards:

Over in London, Carlyle Capital Corp., an arm of private-equity giant Carlyle Group, has failed to meet margin calls from four counterparties and has already received one notice of default.

UBS fell amid fears that the banking giant dumped a $24 billion portfolio of risky mortgages into the market. UBS is believed to have received about 70 cents on the dollar from face value in the sale. See full story.

Back in the U.S., Merrill Lynch & Co. tried to avoid a similar fate for its own issued securities. The nation’s biggest brokerage is raising the payout on its option notes by 17%.

And finally, Thornburg Mortgage Inc. said late Wednesday that it defaulted on several of its financing agreements, among them a $28 million margin call from J.P. Morgan Chase & Co. (JPM:JPMorgan Chase & Co.

The securities and instruments in each case may be different, but the underlying relationship is the same.

Merrill is trying to keep the interest of investors by sweetening terms. UBS as an investor has lost faith that it can recoup the full value of the mortgage securities. Lenders to Thornburg and Carlyle have squeezed the mortgage companies in a bet that they can’t meet obligations. They’ve been proven right, and their payoff will be avoiding future losses and recouping what they can from borrowers.

These credit “calls” are not unlike the ones found in poker. Just as in the game of cards, we are finding out which firms were bluffing.

And this is just the beginning. There are many more players left in these bluffing contests who are hoping for better cards down the road in form of higher prices of the Subprime slime they own before putting down their cards.

As in poker, know when to hold ‘em and know when to fold ‘em can certainly be applied to those companies hoping for a miracle even though all cards were dealt a long time ago.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
This entry was posted in Uncategorized. Bookmark the permalink.

Comments are closed.