10/01/2008

Short Course in Fucking the Public

When you've read this you will see how hard impossible it is to value these Harvard MBA "investments."

One big issue is how to define the range of mortgage-backed securities (MBS) to be included in any auction. The complexity of the MBS market is rather overwhelming:

In a typical $1 billion mortgage pool, there would be upwards of 15 different tranches of MBS created, from the top A level securities through mezzanine to even lower priority class securities. Suppose there was $2 trillion of subprime and alt-A mortgages securitized in this way. That would mean 2,000 different pools/trusts created and about 30,000 different classes of MBS securities! With me so far?

Tranches
In the world of investing, it is used to describe a security that can be split up into smaller pieces and subsequently sold to investors.

Mortgage-backed securities (MBS), such as a collateralized mortgage obligation (CMO), can often be found in the form of a tranche. These securities can be partitioned based on their maturities and then sold to investors based on their preferences. And tell me you know anything about preferences on shit like this. "Fuck, I just want to make money and not lose my ass."

For example, an investor might need cash flows in the short term and have no desire to receive cash in the future. Conversely, another investor could have a need for cash flows in the long term but not right now. To take advantage of this selling situation, an investment bank could split some security or asset, such as a CMO, into different parts so that the first investor receives the early cash flows of a mortgage and the second investor has the right to receive the latter cash flows. With the creation of these tranches, a security or issue that was once unattractive may enjoy some new found marketability.

Dividing a financial product into parts can certainly increase its perceived value, hence be easier to sell to the mooches (you). Per Mr. Roubini:

Think about it, how many Mexicans (Or Blacks on welfare) are running investment banks, hedge funds, private equity firms. How many involved in commercial mortgages deals. This credit crisis was caused by mismanagement by the best and brightest, those in the financial elite, and in the federal reserve.
I think this "crises" is the end of the current capitalist system as we have come to know it. We cannot avoid the conclusion that we have been fucked, agreed our greed is equally culpable but speaking for myself, I always trusted the "experts."

1 comment:

MB said...

Any comment on this article?

http://www.atimes.com/atimes/Global_Economy/JJ02Dj02.html