David Lentz

At 73% of Book, There's Significant Value in Deerfield Triarc

In a company that deals in CDOs, isn't there a significant risk that at least some of the book value will vaporize?

As I understand things, a major component in the sub-prime debt problem is that we are unable to tell good mortgages from bad, at least up until the payments stop coming in.

If we could identify the specific mortgages heading for the ditch, then this whole area could be dealt with much better than it has been to date. The mortgages that will likely go bust when ARM rates reset could be refinanced using realistic estimates of value, and the term adjusted to fit the borrower's ability to make payments, even if it meant stretching a 30-year mortgage to 60 or 70 years.

But without the ability to detect which mortgages are not going to survive, we are left with the uncertainty, and the inevitable treatment of ALL sub-prime debt as toxic, which clearly is not the case. But without the ability to precisely identify which loans are going to implode, we are left with statistical guesstimates based on past history, which is increasingly unreliable as the situation worsens.

I'm sorry, but it seems to me that an assessment of 73% of book makes some assumptions about the solidity of book value that might not be valid. Therein lies the crux of the sub-prime debt problem.