Subscribe to this blog's feedThis interesting paper from Daniel Gros looks at the scope of the bailout and asks: what, if anything, are subprime MBS worth?
Not a whole lot, is the answer. Because US mortgages are non-recourse, they effectively contain an embedded put - at any time, the holder can sell his house to the bank for the amount of the outstanding loan. Depending on your assumptions of future house price movements, this could mean that subprime MBS are collectively worth pretty much zero.
Alea and Yves Smith both have news of the proposed €300 billion European bailout.
Comments (1)
Yes - it was a very interesting article - clear cogent and informative but readable to an informed observer.
Astounding then that NONE of the legions of wonk's, quant's, geeks and assorted lawyers never spotted the presence of this "Put" - the collective "DOH"'s and forehead slaps would have been heard globally were it not for the cacophony of tumbling asset prices.
Can we sue someone for malfeasance??
How to go from 'Masters of the Universe' to 'Emperors without clothes' in 5 min's!
Posted by Arthur | October 2, 2008 6:39 PM
Posted on October 2, 2008 18:39