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  • Wall Street Breakfast: Must-Know News [View article]
    Going back to a comment by Matt Blackman from his article,
    Back to the Future in the Credit Derivative Time Machine, SA March 10

    "As Jim Grant said in his March 2007 interview, the CDO creators and rating agencies built their models that basically discounted the probability for a real estate price meltdown (since median prices had not dropped significantly since the Great Depression). There were no contingencies for such an event as evidenced by the fact that a large number of SIVs did not have accompanying mortgage documents (which is now rendering them unenforceable in the courts). In other words, such an outcome was considered a black swan event when such events were determined to be near impossibilities.

    My contention is that mortgages represent a relatively small part of the total $530 trillion derivatives market that has been built on similar assumptions. Like a black hole, few have any idea how these instruments work and what will happen when the unexpected happens."
    Looks like we are beginning to see how they work.
    Jun 19 08:11 am |Rating: 0 0 |Link to Comment
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