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Strategies & Market Trends : January Effect 2003
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To: Londo who wrote (542)6/10/2003 2:19:00 PM
From: RockyBalboa  Read Replies (2) of 666
 
I don't think there's much going on in FRE.
After all its an agency, and too big too fail, so to speak. That doesn't imply that the FRE equity (ie its book value) could be preserved in a downturn - actually this is the "first loss" but the better rated tranches of the bonds shall keep their value save for a few ramifications in the meantime.

The first shunts which would explode are the mortgage funds who have been ready buyers of FREs residuals and the lower tiers.
Then we will see. If enought credit enhancements or the providers of such have been wasted away (those providing support for the better tiers) then somebody has to step in and buy up the residual tranches for new deals otherwise the system could grind to a halt (leading to a credit crunch). This is something which nobody wants because it could interrupt the real estate business. But a severe loss of confidence could lead to such fallouts.
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