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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: forceOfHabit who wrote (101222)	2/12/2009 5:55:18 PM
From: Hawkmoon	2 Recommendations Respond to of 110194

No argument that lack of regulation in the MBS, CDO, CDS, your favorite acronym goes here, market was a huge mistake/factor. Totally concur.. It was idiocy to take "mark to model" mortages, package them up as securities (let alone create CDO-Squares based on specific slices), pollute them with toxic sub-prime and make it nearly impossible to figure out the valuation without a month of supercomputer time. And then on top of that, we have the FASB apply "mark to market" to them and speculative shorts manipulated the CDS markets to deflate the value even more. So the question is how to try to put Pandora back into her box.. I strongly suspect that regulating the CDS markets HOLD THE KEY to restoring some confidence in the commercial paper and corporate bond markets. If you're not directly involved in the issuance, or purchase/sale of those bonds, you should not be able to purchase/sell a CDS against them. Furthermore, all mortgage related CDO, CMOs, and RMBS that are of 2006-2008 vintage need to be placed in some form of resolution trust until their expiration (which I understand, but may be incorrect, is in 5 year increments). I'm not completely opposed to the CDO concept, so long as what they package is transparent and pure. No more mixing Alt-A and Sub-Prime with AAA. And as you mentioned, no more toleration of Rating Agency COI's in rating these instruments. RA's must be put behind the Chinese Wall and return to buy-side analysis, not sell-side. They need to work for the investors, not the issuers. Also, we need to backstop the financial surety sector. As a financial "force multiplier", it is my belief that we will get more bang for the buck supporting that sector than we will merely by pumping endless billions into the banks. If there are ANY VICTIMS in all of this, it's the insurers who relied upon the ratings by the RA's to assess their premiums for insuring those assets (or valuing the CDS when they wrote them). And to resolve this issue, the insurers rightful claims against the IB's, RA's, and originators of these toxic mortgages need to be resolved via settlements and not in the courts. Finally, if we don't get this unemployment issue under control, we're going to see even more defaults. It's one thing to see people's home values decline below their purchase price (motivating them to walk away), but it's even worse when it's combined with a pink slip and woefully inadequate unemployment benefits. People need to work to have the ability to service and pay off their debts. Hawk