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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: JBTFD who wrote (11522)	9/21/2008 6:14:39 PM
From: Don Earl	1 Recommendation Respond to of 71475

Mark, I think we're more or less saying the same thing a different way, and that's that the paper is only as good as the assets the paper is backed by. I've only casually researched MBS loan pool securities from odds and ends I've run across, here and there. The basic concept never struck me as bad, but I agree with you 100% that the way the underlying loans were being executed, and the way the pools were put together, drove the risk factors through the ceiling. At the end of the day, that's probably what makes me so furious that taxpayers are getting stuck with the losses. Anyone with half a brain could spend 15 minutes researching the set up and have a reasonable feel for the risks involved. As you mentioned, the prime paper always had a mix of sub prime blended in, because the sub prime paper couldn't be moved any other way. That being the case, only an idiot would fail to understand the risk reward factor would have to figure in losses on the junk, and anticipate interest income on the quality paper to pick up the slack. A billionaire investment banker didn't need to be a rocket scientist to look at the set up and say, gee, I could put a billion in money markets or bonds at 3%, with limited risk, or I could buy MBS at 6% and count on losing at least 10% on the junk. So, if I can collect an extra 3% for three years, I start seeing a fat profit on the riskier investment fairly soon - maybe more if the market stays good. And, if the market gets bad, there are at least some assets that can be liquidated to recover part of the initial investment. With the bailouts, they got to keep all the profits from when times were good, and now taxpayers are expected to cover their investment losses when things are not so good. If the average citizen fully understood just how badly they're being ripped off, they'd be rioting in the streets this weekend. No one offered to cover the $4 trillion average Americans lost on their mutual funds and retirement accounts when the stock market bubble burst in 2000, so why should we be expected to pick up the trillions in losses of the ultra rich when the real estate bond market bubble bursts? They made the plays. They accepted the risks. They took the profits. Let them take the losses that go with the risks they accepted.