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Strategies & Market Trends : CFZ E-Wiggle Workspace -- Ignore unavailable to you. Want to Upgrade?

To: Galirayo who wrote (8707)	9/25/2008 2:04:15 PM
From: Perspective	Read Replies (3) \| Respond to of 41414

No, you misunderstand these derivatives. When there is an event of default, it starts something akin to a bank run. Everyone stands in line, and your position is determined by what tranche you hold. There are super senior, senior, and more subordinate tranches. If there's money in the bank when you get to the front of the line, you get paid. When it's gone, it's gone. That's why a lot of these securities are, and will remain, utterly and completely worthless. There is an element of uncertainty that surrounds how many individuals will actually default within a given pool, so there is uncertainty in the exact breakpoint where the subordinate tranches become worthless. That gives some of them a limited market value right now. But many of them will ultimately be worth absolutely ZERO. `BC