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Some Excellent Points Here



September 24, 2008 – Comments (1)

Read 'em all. Number five is pretty interesting, and would stimey the "stem the foreclosure" motive of both Paulson and the Democrats.

5. A number of comments by the secretary and the chairman, during today’s hearings, hinted that ownership of the impaired securities might result in the ability to restructure underlying mortgages. While wholesale takeovers of actual mortgages and securities in certain classes, such a subprime mortgages, may result in the Treasury having some potential ability to restructure underlying debt, the fact is that with regard to C.D.O.’s, C.D.S.’s and subordinate tranches of Alt-A and prime mortgage securitizations, there would normally be zero access by the Treasury to the underlying mortgage collateral. Such toxic paper, where the bulk of the write-downs have been experienced to date, is specifically designed to grant control of the mortgages to the senior-most classes of the securitizations, many of which senior tranches are still performing. The securitizations were designed to pass risk to the subordinate tranches for precisely this reason. The fact is that much of the subordinate M.B.S. classes, C.D.O.’s and C.D.S.’s were never really “money good” because existence of a bubble that everyone chose to ignore given the quick profits to be made by flipping out of that paper.

1 Comments – Post Your Own

#1) On September 25, 2008 at 6:44 AM, saunafool (< 20) wrote:

So, what this means is that if the government uses American taxpayers' bailout money to buy the CDO's, MBS's, and CDS's, that the return on investment will likely be 0.

After all, why would the banks be begging to have someone buy this stuff if it weren't worthless?

Trade of the Century! U.S. buys $700 billion in paper, turns around and sells it for $0.

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