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The Myth of the Credit Market 'Push'
I believe that what Barry must have been referring to was the ability of securitization to "turn dross into gold"... more specifically, by grouping geographically dispersed and or otherwise economically divergent source mortgage originations into large pools and than securitizing the pools into a variety of different tranches with distinctly different characteristics, it became possible to raise the weighted average investment rating for nearly all of the pool.
Such that --- if much of the component mortgages, or other assets, rolled into the pool had been sub-prime, and thus on a stand-alone basis would have implied a 'below-investment grade' financial rating --- by the financial alchemy of pooling them from many different locales the resulting slices of financial paper were *assumed* by the ratings models to have a much higher overall quality... a more dependable expected rate of return, because the dispersed nature of the component parts mitigated the odds of any one regional slowdown seriously impacting the expected returns from the new whole.
So... perhaps what Barry was saying was not that "it was the first time loans were made because there was an external appetite for the loans as byproducts" but rather that there was vastly increased demand as a result of the syndications (and the ratings models) themselves... which created a significant increase in the amounts of product available to sell that carried higher implied financial ratings?
Sep 28 04:25 AM
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