THE SENIOR MEN'S CLUB OF NEW CANAAN
Minutes of the Regular Meeting of January 11, 2008
President Dick DePatie opened meeting with 156 members present. Membership is 420. Minister of Health Bob Moylan pleased to report "nothing to report" and jested about some member's esthetics.
Pete Stair, Chairman of the SMC Membership Study Group, reported the underlying reasons for membership decline: a shrinking population demographic caused by a birth rate dip in the 1930s depression and WWII. During 2005-06, membership declined 21 members. 2006-07 decline was 57 members. Due to Membership Study Group activities, several changes already implemented, such as re-initiation of the Ambassador program to mentor new members, encourage existing members to include new members in their groups and transportation arrangements study. Pete reported SMC will need to handle opposite problem in 2012 as the "baby boom" generation retires.
ANNOUNCEMENTS: John Gillis invited members to attend The Navy League's meeting Thurs. 01-24-08 at Stamford Gov't Center. The CIA's Wayne Simmons will discuss Terrorism. Bob Shafter announced Absentee Ballots available at Town Hall starting January 15th for Feb. 5th presidential primary . The Republican Caucus is Mon./14th, 7PM, NCHS auditorium. SMC BOARD MEETING 01-25-07 at 8:30AM/St Marks. Geoffrey F. Cole, President/CEO-Norwalk Hospital is next week's speaker.
ACTIVITIES: Bridge, Paddle, Racquetball as usual. Chefs meet Thurs/17th at 11AM-Lapham. 4F's meeting Fri/25th at DiNardo's/Scotts Corner. Skyblazers to fly Mon/ 14th at 1PM-Lapham. Photograhers meet at Lapham, Mon/22nd at 1:30PM.
COUTH: NY Philharmonic rehearsal Wed/30th. Bus departs at 8AM! No Feb. trip. Lord of the Dance trip Fri/March 14th.
HUMORIST: Bob Moylan told us how an Iowa college freshman, after spending all his money, used his dog (he convinced Dad to send him money for the college's new reading and speaking programs for dogs-which of course did not exist ). When Thanksgiving holidays arrived, the son had to decide what to do with his dog. So, he phoned his Dad to ask what to do, explaining the dog kept asking "is your Dad still playing around with that little red head?" The Dad said without hesitation, "Shoot him!"
SPEAKER: VP Nick Zaccagnino introduced Gary Crittenden, chief financial officer for Citi since March, 2007. Mr. Crittenden, a New Canaan resident, is a graduate of BYU and Harvard Business School. Gary used slides to discuss Collaterized Debt Obligations, Leveraged Loans, and Strategic Investment Vehicles (SIVS). Gary said although we have experienced financial crises before, today we are faced with an unprecedented Credit Market Crisis event. This came about because of people wanting High Yield Money Market Funds (helped by accommodating Fed keeping true underlying interest rates low after 9-11), the large group of Americans desiring to buy more expensive homes, and the people with down payments that wanted homes but could not qualify for loans. Charts were used to discuss traditional mortgage lenders and how the Collateralized Debt Obligation market and the Subprime Market came together. Subprime mortgage dollars were created by investment bankers creating residential mortgage backed securities ( RMBS--all subprime mortgages). Consumers delighted, but when interest rates became not attractive enough to fund all the money market funds desiring higher yields than consumers, in stepped the structured finance business (SIVs) and created the CDO market. Gary used a Triangle to explain Tranching, a system used to split bunches of different mortgage backed securities (all backed by subprime mrtgs.) into different tranches, that allows the cash to flow from the underlying asset and divert to several groups . . . the top group receives lowest interest rate, but best rating (AAA), because it is paid first and has a claim on int. payments of all the underlying mtg. beneath it (perhaps 4% if 7% is average of all). Second group gets 7% but doesn't have claims that first does, and so on. . . The bottom group (the hedge fund people) takes on enormous risks for opportunity to earn perhaps 30% on equity that they hold, if 100 % of all the mrgs are paid.. thus, something that is a subprime security becomes very highly rated. The secret sauce in entire equation was the rating agencies that investment banks went to for help on structuring and how much cash flow they would need to get AAA rating (banks should have done work). Bad things started to happen early this year. Spreads associated with paper groups of subprime securities, even AAAs subprimes, dramatically widened last October, creating a crisis in valuation of these securities. Delinquencies started to rise, lenders cut back on originations, assets in process to be securitized became stuck (and will be for a number of years). Thus, dramatic impact on today's security lending market because source of funding for subprimes dried up (homes with mtgs can't be sold because potential buyers can't get mtg., thus value of the underlying securities go down ---requiring financial institutions to take larger and larger economic cuts in market value of these securities).
Odd relationships have occurred recently, such as recent spread between municipal bond returns and U.S Treasuries (for a time period, treasuries were trading higher than municipal bonds). And, many traders made mistakes buying credit default swaps, attempting to make money off of Private Equity firm's takeover candidates.
CDO problems have happened in the Corporate Loan Market, where the Private Equity Group has been essentially funded by CLOs (essentially CDOs) except instead of subprime mortgages being underlying security, they are corporate loans made primarily to buyouts-these loans are put into pool of securities and tranched out. About 75% of all Private Equity funding came from the CLO market, and today it has dropped to almost nothing over the last couple of months, for exactly the same reasons as CDOs.
SIVS (Structured Investment Vehicles) are basically mutual fund companies that go out and have all kinds of investors investing in underlying securities of SIVS. Generally, no underlying subprime mortgages but they are subject to loss. However, they have major investors-Bank of Tokyo, Chinese, --major institutions. When debt markets seized up earlier this year, SIV redemptions started. Citi, because of relationships with investors brought some $59 B of its structured investments back on its balance sheet. Fortunately, at this point, this portion of the market has stabilized.
A disconnect between the buyer of loan and the originator of loan is core of market problem (one of the first principals of banking).Gary said this has indeed been a time of unusual relationships in the financial industry and no one will be happier than him when it is declared over.
Bob Williams, Asst. Secretary
Here is a link to Gary Crittenden's
Presentation
.