Oh no! not mark to market

The last thing the investment banks want is a real market price for the toxic waste they've been flooding the asset backed securities markets with. That may force them to revisit the imaginary values in their books and take some decent sized write downs.

Yesterday THE BIG PICTURE picked up on a sharp downward movement in the value of the ABX.HE indices as measured by markit. What exactly are the ABX.HE indices I hear you ask? This from Deutsche Bank:

On 19 January 2006, ABX.HE, a new group of credit default swap (“CDS”) indices linked to subprime RMBS securities, began trading. Collectively, the ABX.HE indices form a subgroup of the ABX index family, which is expected to eventually extend to other asset classes in the ABS market. The index has transparent rules and relies on dealers for pricing. ABX.HE is owned and administered by CDS IndexCo and Markit, the same entities that manage the well-established CDX family of indices for corporates. In the first week of its launch, trading on the indices was extremely active, with some sources estimating traded volume as high as $10 billion.

The main point here is that in bold. The dealers price them. However it seems someone or a number of investors are trying to reduce their exposure and are willing to take sharply lower prices to exit. BBB and BB rated indicies began to tank a few months back. Now the contagion seems to have spread to the AAA and AA tranches.

Remember AAA rated securities are supposed to be top quality yet as the mentioned in the article 8% of these AAA securities are sub-prime toxic sludge with about 12% in the AA catergory. Click here for the full article. Click here for the ABX.HE prices, note that all tranches regardless of quality are all at their historical lows.