[quote=davelj]
I looked at the Mr. Mortgage piece and agreed with a lot of what he wrote, although two things stuck out: (1) “The Market is fully functional at the right price.” Factually true and completely useless statement. If forced to, I can sell my condo tomorrow “at the right price.” But if I have a year to sell it, I’m thinking the price will be much better. (2) “There are plenty of funds who will buy hundreds of millions of loans…” Again, factually true, but due to the scale of the situation, completely useless. The residential MBS market is in the $trillions. Let’s assume that there’s $50 billion of long-term capital looking to take advantage of some of these purportedly mispriced securities. That $50 billion in demand is a tiny drop in the bucket compared to what’s out there in supply. His argument appears to be that because he anecdotally knows of funds that want to buy this paper, then therefore there’s plenty of demand out there and the prices are efficient. If you look at the scale of the market, that’s just complete nonsense.
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I read his argument as something like this: “The smart buyers out there do not yet see value at the prices these things are selling formarked at.” Presumably, their valuations are based on the future income streams of the TLAs. So yes, I agree that the funds Mr. Mortgage speaks of can’t soak up all the supply, but they can put a value on these things based on expected future income streams.
[quote=davelj]
I don’t have an opinion on his index idea. Maybe it’s a good idea, maybe not. I just don’t know.
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Since the banks don’t want this, that makes me think that this index is a very good idea. 🙂
