The Wall Street Journal provides a grisly visual dissection of a subprime mortgage package - thanks to The Contrarian Investor for the lead.
If I follow correctly, the trickery seems to come in step 4, where a CDO largely composed of middling-rated mortgage risk sells bits of itself with unreasonably optimistic ratings attached. "Skimmed milk masquerades as cream".
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For those who enjoy reading, we recommend this article from Platinum Asset Management.
Thanks - the first page of that article has a bit on regulation Q that relates nicely to our £100-billion Northern Rock debacle:
"Just imagine running a bank when your assets are long-dated mortgages yielding seven percent while your deposit costs rise to twelve percent"
... I shall read on!
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