Wednesday, July 08, 2009


(h/t Atrios)

First, let's do the basic numbers:
Two years after the credit markets began to seize up, costing the world’s biggest financial institutions $1.47 trillion in writedowns and losses...

Finance companies have been forced to raise $1.27 trillion in capital, according to data compiled by Bloomberg.

These losses occurred in part because people believed with a little higher math, they could turn BBB securities into AAA securities. Guess what's happening AGAIN?
Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds

By Pierre Paulden, Caroline Salas and Sarah Mulholland

July 8 (Bloomberg) -- 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, said two people familiar with the sale.

... 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.


Maurerguy said...

Nobody has forgotten anything. For many years, this "worked" from the point of view of a lot of folks who got rich or richer.

Unless we change the incentives -- for one thing making sure that nobody can gamble in any way with mortgages, saving deposits, and "people's money" in general -- of course this will happen over and over. Because for the people that do it, it works.

Steve J. said...


You're right, we need to change the incentive structure.