Comments on: Early Pay Defaults Drove the Subprime Crisis – Zimmerman Transcript http://housingdoom.com/2007/06/07/zimmerman-transcript/ Sat, 11 Feb 2012 07:12:54 +0000 hourly 1 http://wordpress.org/?v= By: John M. http://housingdoom.com/2007/06/07/zimmerman-transcript/#comment-5528 John M. Thu, 07 Jun 2007 17:44:19 +0000 http://housingdoom.com/2007/06/08/zimmerman-transcript/#comment-5528 As the complicated structured finance deals supporting mortgage securitization in subprime begin to fall apart, they have to be unwound somehow. <strong>These deals strongly resist being unwound.</strong> Tanta is <a href="http://calculatedrisk.blogspot.com/2007/06/modifications-buybacks-true-sales-and.html" rel="nofollow">looking into The Throat Of Hell</a> [6] on this issue today. She cites a <a href="http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-06-06T221005Z_01_N06437055_RTRIDST_0_FASB-SUBPRIME.XML" rel="nofollow">Letters Of Fire</a> [7] quote from FASB that relates to the "gee, we were really just kidding about that SFAS 140 sales accounting" issue. Long time Doom readers may recall my concerns on this (relating to Fannie Mae's QSPE trust funds) expressed in the post <a href="http://housingdoom.com/2006/08/07/gse-risks-2/" rel="nofollow">"Safety Net IV" (August 7, 2006)</a>. This is a very complex story, but here's my quick summary -- <strong><em>MANY OF THE LARGE PLAYERS IN FINANCIAL SERVICES HAVE WAY LESS CAPITALIZATION THAN THEY NEED</em></strong> [6]: <a href="http://calculatedrisk.blogspot.com/2007/06/modifications-buybacks-true-sales-and.html" rel="nofollow">"Modifications, Buybacks, True Sales, and Puzzlement"</a>, by Tanta, <em>CalculatedRisk blog</em>, June 7, 2007. [7]: <a href="http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-06-06T221005Z_01_N06437055_RTRIDST_0_FASB-SUBPRIME.XML" rel="nofollow">"U.S. accounting board to explore subprime concerns"</a>, by Al Yoon and Emily Chasan, <em>Reuters</em>, June 6, 2007.<blockquote>"What has become clear to me is that, when we look at the way investors and analysts treat securities transactions, if there hasn't been a free and clear sale, they are unwinding the accounting and putting assets and liabilities back on the books," [FASB member] Seidman said. <strong>"I've come to the conclusion that ... we're going in the wrong direction -- trying to maintain a standard that's taking assets off the books when investors view it as economically still associated with the seller."</strong></blockquote> As the complicated structured finance deals supporting mortgage securitization in subprime begin to fall apart, they have to be unwound somehow. These deals strongly resist being unwound. Tanta is looking into The Throat Of Hell [6] on this issue today. She cites a Letters Of Fire [7] quote from FASB that relates to the “gee, we were really just kidding about that SFAS 140 sales accounting” issue. Long time Doom readers may recall my concerns on this (relating to Fannie Mae’s QSPE trust funds) expressed in the post “Safety Net IV” (August 7, 2006). This is a very complex story, but here’s my quick summary — MANY OF THE LARGE PLAYERS IN FINANCIAL SERVICES HAVE WAY LESS CAPITALIZATION THAN THEY NEED

[6]: “Modifications, Buybacks, True Sales, and Puzzlement”, by Tanta, CalculatedRisk blog, June 7, 2007.

[7]: “U.S. accounting board to explore subprime concerns”, by Al Yoon and Emily Chasan, Reuters, June 6, 2007.

“What has become clear to me is that, when we look at the way investors and analysts treat securities transactions, if there hasn’t been a free and clear sale, they are unwinding the accounting and putting assets and liabilities back on the books,” [FASB member] Seidman said. “I’ve come to the conclusion that … we’re going in the wrong direction — trying to maintain a standard that’s taking assets off the books when investors view it as economically still associated with the seller.”

]]> By: John M. http://housingdoom.com/2007/06/07/zimmerman-transcript/#comment-5527 John M. Thu, 07 Jun 2007 16:49:37 +0000 http://housingdoom.com/2007/06/08/zimmerman-transcript/#comment-5527 Here's yet another theory on "what hit us" with subprime (hat tip <a href="http://ml-implode.com/" rel="nofollow">Implode-O-Meter</a>): <a href="http://www.bobsguide.com/guide/news/19695.html" rel="nofollow">"Operational risk at the core of the ‘subprime meltdown’ in the USA"</a>, <em>Bob's Guide - source: Algorithmics</em>, June 7, 2007. Here’s yet another theory on “what hit us” with subprime (hat tip Implode-O-Meter):

“Operational risk at the core of the ‘subprime meltdown’ in the USA”, Bob’s Guide – source: Algorithmics, June 7, 2007.

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