Jan VanDenBerg_

Wanted: Price Transparency in the Splurge

Disaggregate the MBSs and all their derivitive products.

It is the packaging -- the bundling and slicing -- which is ruining the value of a good asset. Most US mortgages are sound.

Pass a law which would unbundle these packages of bonds down to their constituent mortgages, then distribute the underlying mortgages to the current owners of these products on a prorata basis using guesses at the value of their current holdings based on these wacky models.

All current holders of these products -- a specified list of troubled bonds compiled by Treasury -- would be given a week to report exactly what they have to Treasury, so the ownership of everything would be of record.

The underlying mortgages are easily valued using standard software for calculating the discounted present value of a Deed of Trust. Missed payments take a specified nick from the value of the DoT. Mortgages near or in foreclosure can be valued at the independently appraised value of the underlying real estate. (Hire 3 local real estate appraisers, get three values and average them. Duh.)

Even the sickest real estate in the sickest parts of California and Florida is selling to vultures. It has a price.

The total of the discounted present value of the constituent mortgages and foreclosed-on real estate underpinning a given bond tranche is the value of that bond tranche and all its derivitives.

The underlying mortgages in each bond should be ranked by quality (determined by payment history) and distributed to the holders of the various "slices" of the bundle based on the risk level of the crap they bought.

The bozos who bought "equity slices," for instance, should get the stuff now in foreclosure.

As for the most exotic products, something which cannot be valued is essentially worthless and should be treated accordingly. Those who produce and buy this garbage should deal with the consequences of their own actions.

Unbundling would release significant increases in value, possibly enough to re-capitalize most holders of the products.

Those who end up with the mortgages in foreclosure should simply foreclose and market the underlying real estate as soon as possible.

Re-do corporate books with these new values. THEN, Paulsen can use taxpayer money to buy newly-issued stock in those banks which are still short of capital and too big to fail, at current stock prices (without releasing the results of the revaluation). Taxpayers would almost certainly make money over 5 years.

Remember, the point of this exercise is to preserve the flow of loans to Main Street. Investment banks and hedge funds don't make loans, so let them fail.

Even at 8% unemployment, something like 95% of US mortgage payments will continue to be made. The vast majority of US mortgages are still solid.

The problem is the way Wall Street has bundled the bonds and then sliced up the bundles to make these toxic products.

The individual Deeds of Trust or Mortgages inside these ugly wraps are going to continue to produce payment income in the vast majority of cases, even in a depression.

You're getting your monthly payment. You will continue to. Your rate of return is competitive with any other investment. There is no problem with this asset.

It is the packaging, slapped on by Wall Street, which is destroying the value of these DoTs.

Wall Street has created a mess, building something they don't understand and which doesn't work.

Looking forward, let's not package mortgages. They are too diverse and need closer management.

Jan VanDenBerg