That's what David Gaffen implies when on the Market Beat today.
And herein lies the peril of mark-to-market accounting. The company says “difficult market conditions that have resulted in a significant deterioration of prices of mortgage-backed collateral.” Market strategists have pointed out often that the assets in question being held — in Thornburg’s case, adjustable-rate mortgages with high credit ratings — are being priced at levels that reflect the expectation of a higher rate of defaults than most expect.
Thornburg CEO Larry Goldstone signs on with this view in its release, saying “the mortgage financing market’s complete inability to differentiate and appropriately value superior AAA-/AA-rated mortgage securities from all other mortgage assets is as unprecedented as it is frustrating,” said Mr. Goldstone. “Quite simply, the panic that has gripped the mortgage financing market is irrational and has no basis in investment reality.”
We understand why Thornburg's believes that his company is a victim of a panic but we're not ready to sign off on that analysis. We doubt Goldstone regarded the markets as irrational when Thornburg was flying high and real-estate values climbing. Irrational markets are like rogue traders: people only notice them when they're losing money.
Market Remains Irrational Longer than Thornburg Remains Solvent [Wall Street Journal]
Posted by guest, Mar 07, 2008 2:39PM
Exactly. I do not think Goldstone cared much about market irrationality when he was leveraging up the Jumbo assets to death.