CloroxCowboy

Revisiting the MBS Debate (Which We Should Already Be Past)

On Jun 10 09:24 PM Crocodilian wrote:

> My guess is that the banks got stuck with "slower-moving" inventory
> as the price of putting these deals together. That is, they didn't
> carry the inventory because they _wanted_ it, they carried it because
> these were the parts that they were having a hard time selling.

Your guess is correct.

Revisiting the MBS Debate (Which We Should Already Be Past)

Your analysis is spot-on. I was also involved in this industry, trading loan pools for a sub-prime lender from '05 to '07 and I remember many of the same comments. Our "executives" knew plain and simple that the paper we sold was crap. To be a sales or underwriting manager at that company meant that you spent 90% of your day pressing the manual override button on loans that were kicked from our automated system. There was always some justification to push a loan through.

One of the most interesting meetings I remember was when I saw that our latest operating costs were hovering around 2%. This was mid-2007 and by that time our net revenue from sales to the secondary market was about 1.75%... You might be able to guess the company motto? "Outrun it with volume!" All we had to do was keep selling more loans each month than the month before, and we could make the dream last forever. Luckily, I found a new job soon thereafter.

But as you say, none of this is new. People still defending these business practices are probably also Holocaust deniers and would buy every stock Jim Cramer mutters about in his sleep.

The U.S. on the Precipice

Thank you for an article that is not afraid to be blunt and piss some people off!