HowardBear Stearns: When Debt is Not an Asset
September 7th 2007 21:46
What are MBS (Mortgage Backed Securities)? It is someone's mortgage debt repackaged as an asset. However, what happens if 20-percent of the income stream is cut off? A chain reaction of collapse. This is what happened to Bear Stearns and its hedge funds sometime this summer. They set up hedge funds that bought MBS, but then they had to bail them out when the Mortgages behind the MBS went bad, for billions of dollars.
It gets worse, because at a certain point, you don't know what percentage of the people behind the MBS will pay their mortgage. So you don't know what the MBS is worth. Mr. Geezer has said we need US legislation to construct a firewall, to stop the defaulting of mortgages by freezing them. Then we can have a chance to write down the MBS, and establish a value for them, whether 10-percent, 20-percent or 50-percent, or what. In the meantime, we have people making nominal payments, like rent, to keep in their homes. We can't have mass evictions. It were better to have no or few evictions than a total social disaster. FDR did this in 1934, it's nothing new.
Why did the sub-prime mortgages and real estate games go wild in 2004-2005? Because the bubble was already bankrupt then, and they wanted to keep it going. Everytime more mortgages were sold, then they could be combined and sold off (say to a Chinese Communist billionaire, or Indian industrialist) as MBS.
It gets worse, because at a certain point, you don't know what percentage of the people behind the MBS will pay their mortgage. So you don't know what the MBS is worth. Mr. Geezer has said we need US legislation to construct a firewall, to stop the defaulting of mortgages by freezing them. Then we can have a chance to write down the MBS, and establish a value for them, whether 10-percent, 20-percent or 50-percent, or what. In the meantime, we have people making nominal payments, like rent, to keep in their homes. We can't have mass evictions. It were better to have no or few evictions than a total social disaster. FDR did this in 1934, it's nothing new.
Why did the sub-prime mortgages and real estate games go wild in 2004-2005? Because the bubble was already bankrupt then, and they wanted to keep it going. Everytime more mortgages were sold, then they could be combined and sold off (say to a Chinese Communist billionaire, or Indian industrialist) as MBS.
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