The subprime MBS debacle, if you care to dive into it, is just another example in a long history of examples of shady Wall St manuevering to the detriment of unwitting (and therefore somewhat culpable) investors. For anyone who is truly interested in a behind the scenes look, a great and easy to digest start would be Michael Lewis’ book “Liar’s Poker”. It is particularly relevant to the existing market as the book, in part, discusses the origins of the mortgage bond market. It is very entertaining and by no means a dry read.
The real problem with the CDO’s is that they are rarely traded and hard to value. Pick a number, any number. And now that BS’s creditors have seized what – a billion dollars’ worth? – after a margin call, you have the creditors trying to sell these assets that no one has any idea how much they are really worth. Not good. And where is the poor investor in the mix? Tied to a concrete block at the bottom of the Hudson because BS suspended redemptions. Excellent! I think a key question now is are the creditors going to come on full force or are they going to sit back and let BS try to work some shady magic?
The game being played is really nothing new. The only question is what effect will we see on the greater market and economy. Will it be like a mortgage bond-junk bond-S&L crisis or will it be more contained. I really don’t know but it’s going to be an interesting show.
