What could possibly go wrong? 
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Hmm, I get the 404 error so canât read the article. But the title sure sounds bad.
just edited linkâŠsee if that works.
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Works! Uh oh.
After the gains are privatized, will the losses be socialized (because the banking and finance industry is too important to the rest of the economy) if/when it crashes?
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This is legalized gambling using other peopleâs money. And when the rich folks lose, theyâll get bailed out by the rest of us. We absolutely should have learned our lesson, but the people telling us not to look back, just forward? Those are the people who stand to gain. And I imagine they have figured out ways to manipulate things that we havenât seen in the past. SMH.
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Remember âToo Big to Failâ?
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oh-oh and the watchdogs under attack or firedâscary times indeed!
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Remember this?
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I believe that the company that owns CC attended and participated in this event. The origination and securitization of student loans is one of many asset classes discussed at ABS west.
Through securitization these companies provide access to college educations that many students couldnât otherwise afford.
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âSales of securitized debt have been surging since the Covid-19 pandemic, when the Fed lowered rates and investors were awash with cash and looking for investments, Flanagan said. âEverything is going to end up here,â he said.â
This is more of a symptom of excessive money supply. Too much money floating around, too few financial products, or any product for that matter, to buy, enticing them to create financial products. Last time, it was excessive savings in china, from their export surplus, looking to invest. I am sure FED knows it and hopefully their tightening will rein them in.
If proper controls and due diligence are applied when doing deals, it is a great source of funding for loans. I knew of firms that were very careful what they could securitize and whom they could sell some riskier bonds to. It is when people get greedy that things go south. I think there are more guardrails in place now to make sure the history does not repeat.
I think if continue to have stringent requirements in underwriting those collaterals (SF mortgage, commercial loan, car loan, credit card, personal loan, etc) then those securitized products will perform.
Let me use an analogy to show what securitization is about. You could sell the whole cow to one buyer to get $P price, or you could take a cow cut it up into different types of meat to sell to different consumers and get $P X 1.25 price because people may pay a premium for certain cut of meat. If the cow is not of a good quality or if you misrepresent what kind of meat you are selling then you have a problem.
When you do securitization, you take loans (couple of thousands loans) with maturity date of 30 years and carve up payments to meet different investor needs. It would drive down cost of funding those loans which would ultimately benefit the consumers.
No, I donât think it is all bad if it is done properly. The prospectus would have all info about the collateral and securities, including the best and worst returns under different economic scenarios.
Tell that to the comp and benefits analyst who lost his job when Bear Stearns blew up. Tell that to the facilities manager at Lehman- who not only lost her job, but lost most of her retirement. Oh, and the value of her home plunged by 20% in November 2008 because so many people in her town in NJ were employed by Bear Stearns or Lehman.
The conceptual backing is well and good. Reality on the ground is that somewhere there are products lurking which are NOT valued appropriately given the risk, and a buyer somewhere who is NOT savvy enough to know what is being sold, and a group of lawyers who prepared the documentation who up until last week were working on the M&A team, not the Structured Finance team, but since M&A is slow and Securitization is heating up, they got transferred temporarily.
Too big to fail.
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I donât think anyone believes there is any bank thatâs too big to fail any more. Just look at the CS and UBS merger.
In reviewing some of those structured products back then, those structurers tried to squeeze too much juice out of those collaterals.
Those structured products were not meant for unsophisticated investors.
If you look at our commercial mortgages now, they all have bullets (principles due in 5, 7 or 10 years). When the principle is due most borrowers would refinance it and then have another mortgage with a bullet in 5 or 10 years. The problem is if the principle is 100 million, due to Covid vacancy maybe too high and the value of their property may now be at 80 million, which means they would need to come up with additional 20 million in order to pay back their original lenders. If they canât they would need to default. The interest rate is also at an all time high, so a lot of borrowers may not be able to afford to refinance. If those commercial mortgage borrowers start defaulting on their loans, it may trigger a banking crisis and some of those MBS backed by commercial mortgages may decrease in values. Hopefully this scenario has been taken into considerations during pricing. Any investor who doesnât understand this nuance shouldnât really be investing in this type of securities.
My best friend lost couple of millions in her Lehman stocks. She used to let me know whenever Lehman stocks went up. My rule of thumb, even now, I never own my company stocks, no matter how much of discount they give me. If they give me stocks or stock options, I convert them to cash equivalent as soon as I could.
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I knew novice investors who were sold âauction rate preferred securitiesâ and found their money frozen for a while.
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We were told no orphans, widowers or elderlies. All kidding aside, only sold to institutional investors. They did packaged some of those securities for retail though, but another department.
How was the term âinstitutional investorsâ defined ?
Did it include retirement funds/pension plans ?
Yes, if they were allowed to buy those bonds. I know you are going to say that they are for retirees. Those funds probably should have a charter to say what they are allowed to invest in. FYI - probably ~70-80% of bonds in a deal are AA to AAA bonds. They are not junk. They shouldnât be investing in residual bonds.
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