Ali’s blog

Mostly quant stuff with occasional digressions

The wonderful world of structured finance

Posted by alifinmath on January 12, 2008

Another piece from the same site (but have a couple of stiff whiskies before you start reading):

First of all, the residential bubble is only the first of very many bubbles the alchemists created within what was once a fairly sane global credit system. It is our contention that “subprime” is a media generated word used without proper definition as they do not understand all the ramifications of residential real estate credit and that the eventual greater losses in residential will extend far into what the media call “prime” as well as encompassing the class labeled “Alt-A” and the bulk of the world of that labeled “home equity,” including loans, lines, the bulk of the government or GSE insurers of residential credit and yet another category to now be reckoned with.

By the way, in case you are not sufficiently scared by the above, some of the largest writers/counter-parties of credit default swaps are these very same hedge funds. Pardon the author’s opinion that the “private equity players” are also deep in the game. The reason for our suspicions is that the OCC recently announced the total number for credit default swaps in the banking system exceeds $ 14 trillion! Since every CDS written has an equal and opposite counter-party as the recipient of the protection, we may have the explanation of how “Guvmint Sachs” found their way to the lowest loss among the broker-dealer community by purchasing “hedges” on the garbage they previously sold their customer base. Too bad their sales force didn’t sell the customers some of the same protection! Obviously, in this opaque world of over-the-counter, off-balance sheet product, much of the losses, likely most are still simply “off-sets.

I really ought to start drinking in earnest. It might help salvage the last remaining shreds of my sanity.


2 Responses to “The wonderful world of structured finance”

  1. Anonym said

    You might also like , which states much of the same.

  2. Anonym said

    Apparently I can’t figure out basic HTML.

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