Collateralized Debt Obligations Quotes

If nobody can sell mortgage-backed securities based on trillions of dollars of unpayable instruments, there's a lot less risk in the overall system.

Much of the blame for the Great Recession lies with abuses in the housing market - namely the creation of risky and unsustainable home loans that were packaged and sold as quality investments around the globe.

Over and over again, financial experts and wonkish talking heads endeavor to explain these mysterious, 'toxic' financial instruments to us lay folk. Over and over, they ignobly fail, because we all know that no one understands credit default obligations and derivatives, except perhaps Mr. Buffett and the computers who created them.

Like many other banks and finance companies, Green Tree used a process called securitization to resell its home loans to outside investors. Green Tree grouped thousands of these small loans into a pool worth hundreds of millions of dollars.

Securitization was one of the most brilliant financial innovations of the 20th century. It freed up a lot of capital. If it had been done responsibly, it would have been a wondrous thing because nothing is more stable, there’s nothing safer, than the American mortgage market.... It worked for years. But then people realized they could scam it.

I view the [credit] ratings agencies as one of the key culprits. They were the party that performed the alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.

In bypassing barriers between different classes, maturities, rating categories, debt seniority levels and so on, credit derivatives are creating enormous opportunities to exploit and profit from associated discontinuities in the pricing of credit risk.

What the mortgage bubble was all about was big banks like Goldman Sachs taking big bundles of subprime mortgages that were lent out largely to low-income, highly risky borrowers, and applying this kind of magic-pixie-dust math to these bundles of securities and slapping AAA ratings on them.

In early 2005, I really studied the prospectuses of these mortgage pools that were tranched out into different-rated slices rated by agencies like S&P and Moody's. They had names like Park Place and People's Choice. It was clear to me that many of the buyers of these repackaged subprime mortgages were doing little analysis.