Kurt_and_Hunter
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Tue Mar-24-09 04:10 PM
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A question about these toxic assets... |
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Edited on Tue Mar-24-09 04:15 PM by Kurt_and_Hunter
Much disagreement here has turned on the question of how worthwhile these assets are.
Some think of them them as bundles of mortgages, noting that most mortgages are performing and that mortgage bundle will pay some return.
My assumption, based on the way they've usually been described, is that these things are mostly highly leveraged derivatives based on mortgages.
Leverage can make an instrument more sensitive. Stock options are much more sensitive than stocks. If you buy "out of the money" call options on Microsoft and it fails to go up enough you lose all your money even if Microsoft is having a good, but not great day. On the other hand, if it goes up a little you can make ten times your money on the right option.
So the question is, are these things mostly leveraged derivatives or actual mortgages? It makes a great difference in how we discuss whether they are worthless, valuable, etc..
If housing goes down another 10-15%, which even optimists concede, that would hurt a bundle of mortgages some. But it could cause certain derivatives to lose ALL value.
What do folks think?
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Fresh_Start
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Tue Mar-24-09 04:11 PM
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1. there are both in play |
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Edited on Tue Mar-24-09 04:23 PM by Fresh_Start
there are synthetic assets as well as actual Mortgage backed assets. Here's a couple of paragraph explanation of the problem. http://www.npr.org/templates/story/story.php?storyId=96395271
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Hamlette
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Tue Mar-24-09 04:14 PM
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2. it is my understanding they are mortgage backed securities |
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the reason they are "toxic" right now is that housing prices are down and some homes are in foreclosure. The ones that are not in default or foreclosure are probably worth more than "book" value as housing prices will likely bounce back before the owners sell.
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Fri May 03rd 2024, 05:26 AM
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