Dutch merchant bank losses from asset-backed securities

Many people have asked why I predicted an implosion on or about August 15th. First let me be prefectly clear that I did not believe problems were contained to subprime, as we were told in earlier reports. Nor did I believe problems were contained to the United States, as others would like us to believe. In fact my partner and I tracked subprime and predatory loans every day since 1999, often receiving reports from borrowers. The problem is spreading to asset-backed securities and the credit card market. My position is supported by this article:

Dutch merchant bank NIBC disclosed on Wednesday 137 million euros ($188.6 million) of losses on U.S. asset-backed securities in the first half, and has indefinitely shelved plans for an initial public offering. NIBC, which had already postponed a planned IPO in March due to volatile market conditions, added that it expected further losses from its asset-backed securities holdings.

NIBC, which provided preliminary results ahead of its Aug. 15 earnings announcement, said it made a net loss of 3 million euros in the first half. NIBC blamed the investment loss on asset-backed securities on “severe instability in the U.S. credit fixed income markets and continuous credit spread widening”.

Asset-backed securities are short-term investments that contain stable or certain cash flows that are, for example, backed by the payment streams from a variety of loans, leases, or credit card receivables. The first public offering of a security backed by an auto receivable was in 1985, while the first credit card receivable was floated in 1987. Without the payment streams the securities are worthless. Many credit card companies forced credit card holders to sign binding arbitration agreements, attempting to strengthen such receivables. In the case of hard goods even the smallest credit card purchase may be collateralized by the credit card company.