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Financial Alchemy - turning toxic lead into triple-A gold

submitted by wagthedog1
1 decade 5 years 3 months 2 weeks ago

Turning asset-backed trash into triple-A rated securities - Re-REMICs-ing of CLOs explained on whiteboard

Now that the big banks have been bailed out thanks to us tax payers, they seem to be going back to their old tricks. In a bid to jump start the securitization market, Morgan Stanley is issuing collateralised loan obligations (CLO) with a AAA-rating by using the same Re-REMIC strategy that was applied to mortgage backed CDOs (collateralised debt obligations that make up a large part of the toxic assets underlying the financial crisis). Marketplace senior editor, Paddy Hirsch, explains the process on his whiteboard by way of an analogy - repackaging grape juice from a bad batch of grapes.

References:
http://marketplace.publicradio.org/display/web/2009/07/20/whiteboard_financial_alchemy/
http://ftalphaville.ft.com/blog/2009/07/20/62766/a-tale-of-multiple-cdos/
http://ftalphaville.ft.com/blog/2009/06/19/58146/re-mimicking-the-crisis/