A Great New Innovation In Banking–Repackaging Debt and Upgrading Its Credit Rating!
Morgan Stanley and Goldman Sachs have come up with a great new idea! They are going to repackage "collateralized debt obligations," backed by loans, call them "debt investments," and give them a AAA credit rating along the way! Goldman is also repackaging commercial mortgage debt, on its own. HOW COULD THIS IDEA FAIL? How could anyone not want to put their money in this? This is so dizzying, it's like it is 2003 outside, and everything is new and shiny again.
Calm down. This is a good idea to create liquidity and produce pricing transparency. A segment of any portfolio has lower default rates than other segments, but because the entire portfolio is frozen and can't be traded, its price is zero. Re-securitizing the cash flows from the portfolio allows investors to buy just the low default segment (AAA rated, for realz) while properly rating the crap. Even the lower rated segments will at least have a market for them, which will create a price other than zero.
Yeah but those guys are like serial cheating husbands. "Honey I know I've lied before but I'm a changed man, you have to believe me…"
L.O.L.
Is that a California debt obligation or a actual guffaw?
How long are we supposed to hide in the basement when this happens?
Ssshhh! If we don't tell anyone, it'll all be ok this time!