“Quality Diversified Assets, Steady Current Income”. Sure sounds good…too bad diversity was nothing more than $22 Billion in residential mortgage backed securities.
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Just announced on CNBC World. Carlyle Capital is liquidating. I’ll update this post as more info comes out.
UPDATE:
Here is the full story. However, if you take a close look at the numbers, it doesn’t make sense:
1] The fund held some $22 billion in U.S. AAA-rated residential mortgage-backed securities issued by Fannie Mae and Freddie Mac.
2] Carlyle Capital said on Thursday it has defaulted on $16.6 billion of debt.
3] Carlyle Capital faced margin calls of $97.5 million caused by the decline in the value of its mortgaged assets. That was on top of the $400 million it was already facing.
4] Carlyle Capital has received default notices from its remaining two lenders, who have now taken possession of substantially or all of its securities.
If you have $22 billion in AAA securities and only $16.6 billion in debt, wouldn’t you make a measly $497.5 million in margin calls?
CONCLUSION
The question is a slightly rhetorical one for those of you that have followed this blog – but it just goes to show you that AAA isn’t worth anywhere AAA. The question is, what is it really worth and which AAA-bloated bank is the next to have lenders come knocking.
Regards,
George
Last modified: July 13, 2026
Dom, thanks for the post. This, in fact, is the crux of the entire sub-prime meltdown. The ratings companies and insurers all dropped the ball. Expect to see plenty of class actions in the future…but not until lawyers figure out which “deep pocket” is last man standing.
Until then, do yourself a favour and watch this funny but educational cartoon sketch about the very problems you complained about…good stuff that is worth the 5 minutes.
http://test.local/2008/02/28/forget-the-jargon-this-animation-tells-you-how-sub-prime-really-works/
Regards,
George
Pardon my french, but WTF..?
Who are the organizations that place ‘AAA’ (and other) ratings on the various banks?
Can they not be held accountable?
If AAA doesn’t mean what it used to mean then we can expect continued volatility in the US dollar and markets, higher gold and commodities, and higher safe haven currencies (Euro, Swiss Franc)