Jan VanDenBerg_

Further Evidence of TARP Error

I have long held that the Treasury needs to get legal authority to locate and disaggregate the CDOs, then redistribute the underlying mortgages on a pro-rata basis back to current owners of shares of the CDO.

The underlying mortgages can be, individually, priced quite easily. There is good existing software to spit out the discounted present value of a stream of payments, with appropriate demerits for late payments, etc. This is easy. It is done daily by banks and dealers in Deeds of Trust.

There is a robust market for these individual mortgages.

They are worth far more disaggregated than bundled in the CDO.

It is the packaging which makes the CDOs difficult to value.

I have suspected that the Treasury may have decided to let private actors have a go at attempting to gather all bonds of a given CDO back together so they can legally sign off, as the sole owner, on a disaggregation, thereby making a pile of money.

The value of all the underlying mortgages in a CDO, disaggregated and priced individually, is far higher than the value of all the bonds in a CDO, as the CDO bonds are an opaque, illiquid instrument.

However, maybe this is turning out to be harder than anticipated.

The government should require that ownership of all bonds sold in a given CDO be registered with the government within a few days, and any unregistered bond be worthless. That would flush out the locations of these things and make private or public accumulation and disaggregation more feasible.

Most of the underlying mortgages are OK and have good value. We just need to get off them the toxic wrapping put on by Wall Street.

Jan VanDenBerg