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Education

Journal Jeremiah Cornelius's Journal: 101 5

"Banks love securitization because it's cheaper for them than holding loans on their books, and having to pay for them in equity capital and FDIC insurance. But those requirements are precisely what make a market safe and fair. They are buffers against risk, which in securitization gets transferred to investors. The market proved incapable before and during the crisis of properly pricing that risk, and now everyone knows it. So the investors are wisely staying away. And if these markets no longer work, then perhaps it's time to rethink the wisdom of the 30-year fixed rate mortgage (which most other countries don't have) and come up with a way for lenders to retain the risk while still protecting themselves against catastrophe."

http://www.nakedcapitalism.com/2013/07/david-dayen-a-revealing-episode-in-dc-groupthink.html

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  • "And if these markets no longer work, then perhaps it's time to rethink the wisdom of the 30-year fixed rate mortgage (which most other countries don't have) and come up with a way for lenders to retain the risk while still protecting themselves against catastrophe."

    I strongly suspect the reason the 30 year fixed rate mortgage no longer works, is because the 30 year fixed location job no longer exists.

    • I strongly suspect the reason the 30 year fixed rate mortgage no longer works, is because the 30 year fixed location job no longer exists.

      Ain't that the truth.

  • The market proved incapable before and during the crisis of properly pricing that risk, and now everyone knows it.

    Regulatory capture afforded a means of transferring risk to taxpayers. What everyone knows is that you have to be willing to weather a winter, if spring is an interest item. The gloomy autumn of central management is building up a sweet Russian winter for us.

  • Ah yes [youtube.com]...

The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth. -- Niels Bohr

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