In the News: This Time It Will Definitely Work…Right?
It’s that time again…you know the one…when banks turn garbage into gold, crap into caviar; in other words, subprime loans into AAA bonds. Morgan Stanley has picked up the pieces and is selling over $87 million of securities (CDOs to be specific) that it expects to receive AAA credit ratings.
In spite of everything, we are back to printing money – while Morgan Stanley is the first to once again run with CDOs, several other banks have already started repackaging commercial mortgage-backed securities, with several more banks waiting in queue. Another company planning a similar repackaging is Goldman Sachs, who plans to flip nearly $217 million in commercial mortgage debt. Over the last three weeks, banks have issued nearly $2 billion in debt – to put that in perspective, over the entire 2008, banks issues just $5.8 billion. The upside here is in the fact that with asset values in the toilet, the risk in further value destruction should be much smaller than in the boom of two years ago when values were through the roof. Nevertheless, this one should be watched as it could quickly get interesting.
