daniel and technovelist, you guys know a lot more about this than I do. Can you write more about how these products are packaged and insured, why investors are gobbing them up without demanding a risk premium, and how a possible financial sytemic crisis (FDIC and Greenspan’s words) is related to issuance of this debt?
sdrebear, I think you are right. GoldenWest was a big seller of OptionARMS in the last RE cycle, and they made money through the entire downturn. This cycle, they started lending heavily to subprime borrowers, but said, “We manage our risk well. Look, we didn’t lose anything in the last downturn”. They forgot to complete the sentence, “because at that time we made option loans only to high FICO borrowers, but we are scared to death of our portfolio at this time, so we are selling out entire bank to Wachovia. Wish you good luck with that, Wachovia,hahahahahahahahahahahah”. The Sandlers got the last laugh, and Earnest Rady was the bigger fool.
By the way, Rady was a sponsor of the UCLA Anderson Forecast conference in San Diego, you know, the one where Thornerbg is not allowed to mention exotic lending in their forecasts. A connection, or coincidence?
