[lbo-talk] frontiers of financial innovation

Jordan Hayes jmhayes at j-o-r-d-a-n.com
Wed Jan 19 17:01:06 PST 2005



> The "banks that underwrite them"
> don't really bear much risk at all. Most are pooled
> and securitized as CMOs and pass-throughs by private
> financiers and, mainly, quasi-federal bodies.

Yes, who are also underwriters in the same sense: if you sell a man a bag of dog shit each tuesday, you won't see him for very many tuesdays. I simplified for those playing the at-home version, but as a loan goes up the food chain, the risk analysis involved becomes _more_ sophisticated, not less. And whether these folks make or lose money is of no concern here: they are, presumably, consenting professionals.


> Ultimately the risk then is borne by the Treasury (a
> convenient shorthand for you, me and my grandkids).

Speaking of simplification . . . all risk of everything is borne by the Treasury and your grandkids. So? Note that it's only GNMA that acts with the full faith and credit ... the so-called-quasis do not.

We're way off track here: Doug said that taking out a negative amortization adjustable rate mortgage is like going to Vegas (or worse!). He's just plumb wrong. By a lot.

/jordan



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