I don’t think anyone believes there is any bank that’s 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 can’t 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 doesn’t understand this nuance shouldn’t 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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