Comments on: Securitisation

By: know_nothing

know_nothing — Tue, 16 Jun 2009 22:55:03 +0000

How about this: the entire bonus pool for whomever structures this stuff will be comprised of the cash flow from the residuals.

By: Gary

Gary — Tue, 16 Jun 2009 16:27:32 +0000

joe — Citi (and many others) held lots of residual tranches on their books. This was in addition to the allegedly “AAA” tranches they shoved into the SIVs. Also, to get stamped “AAA”, most of these deals were (supposedly) overcollateralized — meaning the underlying trust (that pays all the tranches) held more collateral than the sum of all the tranches. First loss was supposed to be absorbed by that overcollateralization, leaving the securitized tranches with a “AAA” rating (losses “could *never* be greater” than the overcollateralization)

The securitizers already had “skin in the game” — which is why so many have failed and so many others are on Fed/Treasury life support.

The fact that Obama and team don’t understand that, not even with 20/20 hindsight, is just plain scary

By: Bman

Bman — Tue, 16 Jun 2009 16:26:36 +0000

The shell game continues – “toxic, “distressed”, “legacy assets” – whatever you want to call them, are still out there and I do not see a 25% rise in home values happening anytime soon. Still waiting to hear what Plan B is……

By: joe

joe — Tue, 16 Jun 2009 16:06:49 +0000

Citi et al did not (at least initially) hold the Aaa’s on balance sheet they held them in SIV. So, the SIV would by Aaa RMBS for $100, Citi in turn would provide a 364-day liquidity line to the SIV. The SIV would hold Aaa paper and liquidity backed by a Prime-1 Bank so it could issue CP. Since the liquidity line was a 364-day facility, Citi didn’t need to hold capital against the liquidity line. So its return on equity was infinite and it collected say 20-25 bp in fees to provide the liquidity line and other sundry services to the SIV. When the CP market for asset backed paper dried up, these liquidity lines were drawn and then these Aaa came back on balance sheet and then you needed capital. In short they had skin in the game but structured in a way that the regulators and investors said they didn’t. If you had required more capital to back these liquidity lines to SIV, I think it would have led to these structures being more expensive as it would have required them to raise additional capital to support these and in turn it woudl have limited demand.

By: Gary

Gary — Tue, 16 Jun 2009 16:04:37 +0000

Obama’s great plan, presumably made with the advice of TurboTax Timmy and Subprime Contagion Well Contained Ben, is to require overcollateralization and/or residual tranches… which was already the case when all this credit stuff exploded

Whatever words we were supposed to read on Obama’s lips — the underlying message Obama was sending is very clear:

Obama and his team don’t understand the problem and are not up to the task of fixing the system.

By: DFTT

DFTT — Tue, 16 Jun 2009 14:59:13 +0000

The suspicion on the street was that ML had lots of “skin in the game” whether they liked it or not because they couldn’t sell the lower or N/R tranches.

By: Griff

Griff — Tue, 16 Jun 2009 14:35:08 +0000

Paulson talked up covered bonds quite a bit last year, initially following the BSC “acquisition” by JPM. I don’t recall the exact mechanics, but want to say that credit card issuers (using a master trust for issuance) retain a small %% as at-risk; the lowest-rated credit card ABS publicly issued I think was BBB.

Merrill should’ve listened to their CDO trader in late 2006…the game was over.

By: Alex Golubev

Alex Golubev — Tue, 16 Jun 2009 14:30:36 +0000

“overcollateralization”, “residuals”. look them up, obama. This WILL help but only to the extent that 5% is greater than the expected loss on the whole securitization. So basically it will help a little with the nonexistent subprime market, but unnecessarily hurt the (nonexistent) prime securitizations. BTW, is he going to require the same of gov’t agencies or can we just keep skinning the taxpayers?

By: EMGuy

EMGuy — Tue, 16 Jun 2009 14:01:14 +0000

Question 1: Isn’t the proposal akin to forming a covered bond market here ala Europe?
If so, question 1.5: Is it wise to emulate the Europeans when it comes to “markets”? Thanks.

By: John Jansen

John Jansen — Tue, 16 Jun 2009 13:54:32 +0000

John,
Thank you,
John