FDIC takes over 2 more banks

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troll's picture
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Ahhh, more calls from my "doom and gloom, the entire financial system is going to fail" clients.  Great.

troll's picture
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Primo wrote:Ahhh, more calls from my "doom and gloom, the entire financial system is going to fail" clients.  Great.You should sell annuities. Those clients never worry.

doberman's picture
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Frank Marino wrote: Primo wrote:Ahhh, more calls from my "doom and gloom, the entire financial system is going to fail" clients.  Great.You should sell annuities. Those clients never worry.
 
Maybe they should.
 
What type of companies are big investors in mortgage-backed securities(MBS)? Insurance companies are one of the largest investors in MBS's. Would you buy a 30-year bond from a company that received a substantial portion of their revenues from MBS's? If not, why would you buy annuities?
 
Perhaps, annuities aren't the slam-dunk everyone seems to think. If you must sell annuities, sell the one with the strongest financial rating. Now, that annuity may not be the one with the "best" deal, but it may be the only one still around, a few years from now.
 
 
 
 

troll's picture
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Ahhh doberman, you forget annuities are gauranteed.  Not by FDIC mind you, but by the personal written gaurantee of the insurance company.  Certainly a financial company could not go belly up in the current environment.  Oh wait....

troll's picture
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doberman wrote:Frank Marino wrote: Primo wrote:Ahhh, more calls from my "doom and gloom, the entire financial system is going to fail" clients.  Great.You should sell annuities. Those clients never worry.
 
Maybe they should.
 
What type of companies are big investors in mortgage-backed securities(MBS)? Insurance companies are one of the largest investors in MBS's. Would you buy a 30-year bond from a company that received a substantial portion of their revenues from MBS's? If not, why would you buy annuities?
 
Perhaps, annuities aren't the slam-dunk everyone seems to think. If you must sell annuities, sell the one with the strongest financial rating. Now, that annuity may not be the one with the "best" deal, but it may be the only one still around, a few years from now.
 
 
 
 You do understand that the assets in an annuity are invested in securities outside of the insurance company, don't you? It seems like you don't.

troll's picture
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Primo wrote:Ahhh doberman, you forget annuities are gauranteed.  Not by FDIC mind you, but by the personal written gaurantee of the insurance company.  Certainly a financial company could not go belly up in the current environment.  Oh wait....You do understand that the assets in an annuity are invested in
securities outside of the insurance company, don't you? It seems like
you don't.

doberman's picture
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Frank Marino wrote: Primo wrote:Ahhh doberman, you forget annuities are gauranteed.  Not by FDIC mind you, but by the personal written gaurantee of the insurance company.  Certainly a financial company could not go belly up in the current environment.  Oh wait....You do understand that the assets in an annuity are invested in securities outside of the insurance company, don't you? It seems like you don't.
 
It seems my analogy about buying a "30-year bond" flew right past you. However, it appears that you need to do some research about what insurance companies invest in, with proceeds from annuities. They are required to invest in "high quality", fairly predictable type investments: bonds, etc. 
 
Hmmmm, just a few years ago, it seems that there were a lot of subprime mortgages that were bundled, tranched, and rated AAA. I wonder who could have purchased those types of "high quality" securities? Hmmmmm.... 
 
My personal, layman's crystal ball:
 
Now, do I think the government is going to let any of these big insurance companies go down the tubes, as a result of their having cr*p to back-up these annuities? No (not with our bail-out mentality), but those annuities with "bells & whistles" could be severely modified by regulators if the insurance company goes under, a la Bear Stearns. For example, annuities with built-in annual increases could have those increases reduced or eliminated. VA's could also be stripped of their "bells & whistles", leaving just the MF investments.
 
Don't believe me? There is precedence. When the FDIC arranges for the takeover of a weak bank by a stronger one, the stronger bank can change the terms of the deposit accounts. So, if you're in a 5 year CD paying 8% and your bank is taken over, the new bank can change your rate to 3%. Of course, this all speculation, on my part. It's like trying to predict the outcome of a car wreck.
 
All I know, is that insurance companies were and are big investors of mortgage-backed bonds. Subprime was once rated AAA. Hence, insurance companies bought these AAA-rated securities to back their annuities. Subprime is cr*p; thus, a substantial portion of these insurance company portfolios are cr*p. So, what does that make annuities?
 
 

troll's picture
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Frank Marino wrote: Primo wrote:Ahhh doberman, you forget annuities are gauranteed.  Not by FDIC mind you, but by the personal written gaurantee of the insurance company.  Certainly a financial company could not go belly up in the current environment.  Oh wait....You do understand that the assets in an annuity are invested in securities outside of the insurance company, don't you? It seems like you don't.
 
Sure do, but what does that have to do with the guarantees offered by annuity contracts.  They rely solely on the claims paying ability of the insurance company.  See if you can follow along.  If a big insurance company were to go under, how do you think those securities invested outside the annuity are doing?  Probably not well, as we are in a bear market!  Now take away the gaurantees.  Now all you have is an overpriced mutual fund portfolio that you have a surrender charge to get out of.  Great deal.

Lakers's picture
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Insurance companies are highly regulated by the states. They also reinsure each other, resulting in layers of protection.
 
Let's not think all insurance portfolios are invested in subprime mortgages. I remember the same fear mongering back in 98 during the "Asian Contagion" when it seemed everyone held derivatives and the financial markets would collapse. Also in 90- 91 come to think of it.
 
Not sure where subprime securities were ever rated AAA-Might have to cough up your source on that one. Mortgage companies are one of the largest investors of subprime mortgage backed securities based on dollar values, but we know we need to look at percentages. Subprime holdings generally are very low with government notes and bonds making up the majority.
 
 Truth is, no one who's held a  fixed annuity to maturity has ever lost a dime. Seems like annuities are like politics- you either lovem or hatem.

troll's picture
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Not sure where subprime securities were ever rated AAA-Might have to cough up your source on that one.
 
 
Might want to pick up a newspaper occasionally.  I will give you a source.  S&P

babbling looney's picture
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About 12 years ago, I had a client who had purchased a fixed annuity (from another agent) with a company in Pennsylvania...don't remember the name of the company.   It went belly up and she came to me in tears, not knowing what to do.  
The end result was that the State took the insurance company over and she ended up getting paid .40 on the dollar.  It probably was a shakey company to begin with and I'm sure the annuity was a "super" rate and all that stuff.
It can happen.  Buyer beware.  If it seems too good to be true.  It is.

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Good debate here.  Dobe, I do agree to go with the strongest of the insurance companies.  I was meeting with a wholesaler of one company and asked him, "How does your company back these guarantees?"  He said, and I quote, "Well they don't really tell us what they do, but we just generally think we will outperform the guarantees over time".  That shocked me.
 
I heard someone from a different company actually answer to the same question that they had a AAA rating so everything would be fine.
 
I'm not blaming the companies, but I do think some of these wholesalers are very ignorant.  So I do prefer the financially strongest companies.
 
As to the comments about if the insurance guarantees were stripped away leaving only the investments, my clients at least would be doing just about as well as any other client not in the VA.  Many of my VA contracts have outperformed the market net of fees, so I don't think the risk/reward of the insurance guarantees going away justifies not being in an annuity.

troll's picture
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Primo wrote:Frank Marino wrote: Primo wrote:Ahhh doberman, you forget annuities are gauranteed.  Not by FDIC mind you, but by the personal written gaurantee of the insurance company.  Certainly a financial company could not go belly up in the current environment.  Oh wait....You do understand that the assets in an annuity are invested in securities outside of the insurance company, don't you? It seems like you don't.
 
Sure do, but what does that have to do with the guarantees offered by annuity contracts.  They rely solely on the claims paying ability of the insurance company.  See if you can follow along.  If a big insurance company were to go under, how do you think those securities invested outside the annuity are doing?  Probably not well, as we are in a bear market!  Now take away the gaurantees.  Now all you have is an overpriced mutual fund portfolio that you have a surrender charge to get out of.  Great deal.I agree that we are in a bear market and that it can last for many more years. All your theorizing about what COULD happen doesn't change the FACT that given a choice, lots and lots of people are putting their money into annuities. "Fight the tape" all you want. All I've done is to figure out what people want to buy and I sell it to them. If they decide that they want to put  their money into unprotected expensive, crappy mutual funds, guess what I'll be selling? You might try to reassure people that "everything will come back", but I KNOW that they're not buying that BS anymore. I understand your hatred towards annuity salesmen. Thanks for making it so easy for guys like me to capture your assets.

Lakers's picture
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I must've been misunderstood by Primo. Please post the specific information where subprime securities are rated AAA, the specific cusip and S&P reference, and where in the"newspaper" are you referring to? You may want to consider the source for your newspaper reference as you are probably referring to an opinion piece framed as news with no specific proof, as I am not that naive.
Hopefully you don't rely on the newspaper for your information. I'm assuming you are licensed, and the investing public deserve better than that. 
 
Subprime securities aren't rated AAA- hence the name "subprime". There may be unscrupulous brokers out there selling these tranches to investors as AAA,(like you, perhaps, as you think they are), but insurance company investments are subject to much greater scrutiny particularly by the states.

babbling looney's picture
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Subprime securities aren't rated AAA- hence the name "subprime". There may be unscrupulous brokers out there selling these tranches to investors as AAA,(like you, perhaps, as you think they are), but insurance company investments are subject to much greater scrutiny particularly by the states.
 
I believe the issue is that some/many AAA CMOs and pass throughs have been adding more subprimes into their mix.  They, the companies, may still be AAA or slightly less, but if the subs in their packaging begin defaulting it won't matter what the issuing companies rating WAS.
 
And your statement that no one has ever lost money in an annuity is wrong wrongety wrong. 

Lakers's picture
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you must be referring to GIC's? GIC's aren't annuities. I don't claim to know everything, I know in my research thousands of so called banks have failed, while It's pretty hard to find an insurance company that's failed, leaving investors broke.
Thru depressions, recessions, wars, energy crisis, several presidential administrations, unemployment rates a high as 20%, markets down by 80%, and still insurance companies thrived.
 
For those of you that  believe this time is different, you'll believe anything.
 
 

babbling looney's picture
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No.  I have a pretty good memory and while I don't think we are in imminent danger of insurance companies crashing and burning and not paying in full their claims.  I can happen.  My client didn't get paid in full and LOST MONEY.
 
http://www.safemoneyplaces.com/guaranty.htm
"Research by Advantage Compendium Ltd. indicates that in the last decade there were only three failed carriers that did not provide all of the annuity value for all of their annuity customers; owners of annuities issued by London Pacific Life, National American Life Insurance Company of Pennsylvania and Summit National Life Insurance did receive up to guaranty limits but account amounts above those limits may never be fully paid. There may be other carriers out there that have not returned a hundred cents on the annuity dollar, but they have not been found."
 
I knew it was  Pennsylvania company

Lakers's picture
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Thanks for that info. I remember a poll Jack took not that long ago challenging anyone to list instances where they've lost money in an annuity. I'll rephrase my statement to "no one has ever lost ALL their money in an annuity.
 
Here's the only other info I could find.
http://money.cnn.com/magazines/fortune/fortune_archive/1991/05/20/75024/index.htm

troll's picture
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Lakers wrote:
I must've been misunderstood by Primo. Please post the specific information where subprime securities are rated AAA.
 
You are aware that this "subprime credit crisis" is largely due to less than stellar mortgages being packaged with other mortgages and then sold as a package at a AAA rating, right?  Maybe you've read about some of the monolines being in trouble?  I was being sarcastic with the newspaper comment as this has been all over the news.  But if you insist.  Google "s&p" "aaa" "mbs".  50m+ hits.  Hear you go, I hope Bloomberg is a reliable source for you.
 
From Bloomberg:
Even after downgrading almost 10,000 subprime-mortgage bonds, Standard & Poor's and Moody's Investors Service haven't cut the ones that matter most: AAA securities that are the mainstays of bank and insurance company investments.None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that's triggered $188 billion in writedowns for the world's largest financial firms. AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.``The fact that they've kept those ratings where they are is laughable,'' said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. ``Downgrades of AAA and AA bonds are imminent, and they're going to be significant.''Bass estimates most of AAA subprime bonds in the ABX indexes will be cut by an average of six or seven levels within six weeks.The 20 ABX indexes are the only public source of prices on debt tied to home loans that were made to subprime borrowers with poor credit histories. About $650 billion of subprime bonds are still outstanding, according to Deutsche Bank. About 75 percent were rated AAA at issuance.....S&P and Moody's, the two biggest rating companies, are lagging behind Fitch Ratings, their smaller competitor....The ratings methods balance estimated losses against so-called credit support, a measure of how likely it is that owners of each piece of the bond will incur losses. For AAA rated debt, credit support needs to be five times the expected losses, according to Sylvain Raynes, author of The Analysis of Structured Securities, a college textbook.All but six of the 80 AAA ABX bonds failed an S&P test for investment-grade status, which requires credit support to be twice the percentage of troubled collateral. The guideline was one of four tests used by S&P, and a failure to meet the standard wouldn't have automatically resulted in a downgrade. The other companies used similar metrics to grade bonds, Raynessaid. Investment grade refers to all bonds rated above BBB- by S&P and Baa3 by Moody's....On a $118 million Washington Mutual bond issued in 2007, WMHE 2007-HE2 2A4, 5.6 percent of its loans are in foreclosureand its safety margin, or the debt available to absorb losses, is less than the combined total of its loans at risk. Both S&Pand Moody's rate it AAA.Fitch rates that bond B, five levels below investment grade and 15 levels less than its rivals....The problem extends past the mortgage bonds. Financial firms own high-grade collateralized debt obligations, which package securities such as mortgage bonds and slice them into pieces with varying risk. As the underlying mortgage bonds are downgraded, those securities will also lose their ratings and tumble in value.A bank would have to increase its capital against $100 million of bonds to $16 million from $1.6 million if a bond was downgraded to below investment grade from AAA, under global accounting rules.....Bond insurers such as MBIA Inc. and Ambac Financial Group Inc. also have to hold more capital against insurance they writeif the securities' credit quality declines.The prospect of losses may be holding the ratings companies back, said Frank Partnoy, a University of San Diego law professor and former Morgan Stanley banker who has been writing about the impact of credit ratings companies since 1997.``If the 800-pound gorilla moves, it's going to crush someone, so it's not going to want to move,'' Partnoy said. ``They know they will trigger a price collapse. They are understandably reluctant.''

doberman's picture
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Lakers wrote:
 
Not sure where subprime securities were ever rated AAA-Might have to cough up your source on that one.
 
Truth is, no one who's held a  fixed annuity to maturity has ever lost a dime. Seems like annuities are like politics- you either lovem or hatem.
 
As to the first statement: With all due respect, anyone who makes a statement like this should have their license revoked. You are a danger to your clients' financial well-being.
 
As to the second statement: In the late '80's, my father lost the entire value of his whole life policy when a well-regarded national insurance company went under. The name of the company escapes me, but the scandal was nationwide. So, don't preach the sanctity of insurance companies to me. The logic you employ concerning annuities (never failed, thus can't fail) only reinforces my opinion that you are a danger to your clients. No doubt you employ the same logic toward securities and bonds. 
 
You are in for one big disappointment my friend. Your clients will be wiped-out, your license will be revoked, and you'll be tied-up in arbitration for years. 

doberman's picture
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Primo wrote:
 
Might want to pick up a newspaper occasionally.  I will give you a source.  S&P
 

troll's picture
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doberman wrote:Lakers wrote:
 
Not sure where subprime securities were ever rated AAA-Might have to cough up your source on that one.
 
Truth is, no one who's held a  fixed annuity to maturity has ever lost a dime. Seems like annuities are like politics- you either lovem or hatem.
 
As to the first statement: With all due respect, anyone who makes a statement like this should have their license revoked. You are a danger to your clients' financial well-being.
 
As to the second statement: In the late '80's, my father lost the entire value of his whole life policy when a well-regarded national insurance company went under. The name of the company escapes me, but the scandal was nationwide. So, don't preach the sanctity of insurance companies to me. The logic you employ concerning annuities (never failed, thus can't fail) only reinforces my opinion that you are a danger to your clients. No doubt you employ the same logic toward securities and bonds. 
 
You are in for one big disappointment my friend. Your clients will be wiped-out, your license will be revoked, and you'll be tied-up in arbitration for years. 
 
 
Well said. 
 
I'm assuming you are licensed, and the investing public deserve better than that.  Lakers
 
Funny when your own comment applies to you.

troll's picture
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doberman wrote:Lakers wrote:
 
Not sure where subprime securities were ever rated AAA-Might have to cough up your source on that one.
 
Truth is, no one who's held a  fixed annuity to maturity has ever lost a dime. Seems like annuities are like politics- you either lovem or hatem.
 
As to the first statement: With all due respect, anyone who makes a statement like this should have their license revoked. You are a danger to your clients' financial well-being.
 
As to the second statement: In the late '80's, my father lost the entire value of his whole life policy when a well-regarded national insurance company went under. The name of the company escapes me, but the scandal was nationwide. So, don't preach the sanctity of insurance companies to me. The logic you employ concerning annuities (never failed, thus can't fail) only reinforces my opinion that you are a danger to your clients. No doubt you employ the same logic toward securities and bonds. 
 
You are in for one big disappointment my friend. Your clients will be wiped-out, your license will be revoked, and you'll be tied-up in arbitration for years. I'm glad your dad's policy went tits up, though I think you're lying about it. Try using Google and see if you can "capture" you the name of the company.

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Frank Marino wrote:
I'm glad your dad's policy went tits up, though I think you're lying about it. Try using Google and see if you can "capture" you the name of the company.
 
Correction: It wasn't a whole life policy that went belly-up, it was a Guaranteed Investment Contract (GIC) issued by the insurance company. And the name of the insurance company was Executive Life, once the largest insurance company in California. They held billions in junk bonds in their portfolio. How 'bout you google that, dumb *ss? 
 
Guess what's in the portfolios of many of the big name insurance companies, nowadays? (Hint: These investments were once rated AAA.)
 
Some people have no tolerance for the truth.

Lakers's picture
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Frank, No need to Google it, refer to the link I posted in reply to Babs. That is where he got the information. Too predictable.

troll's picture
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Not sure where subprime securities were ever rated AAA-Might have to cough up your source on that one.

 
 
More from this brain surgeon?

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