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For Sale: AAA Silk Purse (From A Sow's Ear)

Getting out of hot waterI couldn't find a photo I liked to illustrate this crap, so I chose the frog instead.  You know the fable about the frog swimming about in hot water, never realizing the danger until (as it were) his goose is cooked!  (Gotta love mixed metaphors.)

This little guy has decided to get while the getting's good. Not so the venerable firm of Morgan Stanley.

I thought of the frog parable when I read last night on Bloomberg that "Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind..."

The article goes on to say: "Two years after the credit markets began to seize up, costing the world's biggest financial institutions $1.47 trillion in writedowns and losses, banks are again taking so- called structured finance securities and turning them into new debt investments with top credit ratings. While the Morgan Stanley deal is the first to involve CDOs of loans, banks have been doing the same with commercial mortgage-backed securities in recent weeks."

But hey!  Banks and many other investors can't buy anything but AAA.  If it's not there, let's make something they can spend their TARP money on.  We'll make it out of these crappy collateralized debt obligation backed by leveraged loans!  Now there's an idea for the ages.

Isn't this just what got us in the mess we're in?!

 ___________________

I'm Mike in Tucson, your preferred Tucson, AZ Mortgage lender.
Mike Jones (Tucson Mortgage Company, LLC): Loan Officer in Tucson, Pima County, Arizona
Call me if I can help you with a purchase or refi mortgage;
(520) 349-9090

Comment balloon 9 commentsMike Jones • July 09 2009 07:45PM

Comments

It doesn't take long for someone to come up with a new twist on an old issue. I'm guessing they will sell them because people think it won't happen again. Doing the same thing over and over again and expecting a different result.

Posted by Terry & Bonnie Westbrook, Westbrook Realty - Grand Rapids Forest Hills MI Re (Westbrook Realty Broker-Owner) over 11 years ago

Mike,

Actually it sounds like a good idea, mixing a few higher risk higher yielding mortgages into more conserve portfolios. It shares the risk and the wealth. Even with all the foreclosures most individual mortgages made a profit. It's when high risk high yield loans are dominate in a portfolio that problems occur.

Got your note and went to the source. Clearly what I though I read is not what what was said!

I assumed that they were adding high risk loans to AAA portflios. It seams they're just relabeling garbage.

It's another case of the label having nothing to do with the content! Just like bills in Congress.

Bill

Posted by William J. Archambault, Jr. (The Real Estate Investment Institute ) over 11 years ago

Mike - where I come from this is just repackaging of 'fertilizer' (if you get my drift).  I can't help wonder ... if I tried to do this same thing, as a private citizen, I'd be on my way to a federal prison.  My brain is screaming misrepresentation.  Or maybe I'm just too tired to make sense.

Posted by Carol Smith (Casmi Photography) over 11 years ago

Mike, I find the whole darn thing INCREDIBLY frustrating and the sad part is there's nothing we can do about it but watch from the sidelines.

Posted by Marchel Peterson, Spring TX Real Estate E-Pro (Results Realty) over 11 years ago

Just the same stuff Carol mentioned, with a fresh coat of "Shinola" on it.  Tsk, tsk - and they'll want bailout money down the road.

Posted by Kent Simpson, Real Estate Is About People (Realty One Group Mountain Desert) over 11 years ago

I've always heard that if we don't learn from our mistakes, we're doomed to repeat them.  Looks like there are at least a few folks (ok, like a bajillion) who didn't learn diddly from the current meltdown. 

Posted by Jesse & Kathy Clifton, Retired (Jesse Clifton & Associates, REALTORS®) over 11 years ago

Jesse,

Perhaps the government hasn't taken over the banks. It looks like it's the other way around; the banks seem to have taken over the government.

Kent,

I'm a little more "ticked" than "tsk'd."

Marchel,

We can start now to become politically involved.  That takes the edge off of frustration.  There IS something that we can do other than sit on the sidelines and watch helplessly.

Carol,

Ditto my reply to Marchel!

Bill,

They're making AAA obligations out of stuff that's nowhere near AAA, and selling it as AAA!  Thanks for reading the original article linked on Bloomberg!

Terry,

Thanks for being the first to comment; it's not even a new twist.  It's the same old crap that got us into this financial meltdown mess.

Mike in Tucson

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) over 11 years ago

My wise old grandmother told me to study history so that I could learn from it. Sadly, my wise old grandmother could not adopt the world.

Posted by Russel Ray, San Diego Business & Marketing Consultant & Photographer (Russel Ray) over 11 years ago

Russel,

Sounds like your Grandma was a great lady!

Mike in Tucson

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) over 11 years ago

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