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It is in spanish.. but here is an excelletn link.. and an explanation of why the mortgage buy is generally a good idea and will shield the spanish economy...

http://www.soitu.es/soitu/2008/10/09/actualidad/1223568245_318730.html

I do not know if you read spanish.. I hope... it basically says tat cedulas are not SIV (they were forbidden) nor CDS nor CDO... they were bonds given by the bank insttuion to pay with the guaratee of the insitution, the mortgage and the building (whcih  belogns to the bank if its nt paid) plus the 20-30% amount of direct cash payment.

If there is a massive mortgage default, banks will have to deleverage by caliming debt or selling houses, to pay for the interest rates to te costumers that bought it... so if there is a meltdown they could end up having to sell hundreds of houses to pay and rebuy the cedulas... that would be crazy during a recesion.

With this buy, the government will take a risk up to a certain level.. if defaults are contained the treasury will earn a lot of money if there is a meltdown, the banks will have no meltdown and teh treasury willr aise debt 4 pints over the GDP.

Another completely different issue are the private comapanie debt that banks have now...

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Oct 10th, 2008 at 12:58:59 PM EST
[ Parent ]
... mortgage market of the 50's and 60's, especially the cap on mortgages at 80% of property value.

And, no, I do not read Spanish well enough to read that in the original, but I read Spanish well enough to follow it in the Babelfish translation.

The systemic risk is that broad-based default of the mortgages would lead to solvency problems at the institutions that guarantees the bond. The difference between an unstructured CDO on the same pool of mortgages is that with an instructured CDO, the holders would pay for the haircut if there was a spike in foreclosures, while with the mortgage-bonds, its the bank pays for the haircut.

And, no, there is none of the concentration of systemic risks that comes with structured CDO's.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Oct 10th, 2008 at 01:41:47 PM EST
[ Parent ]
Exactly... this is why I did nto see that a big problem ont he mrotgage problem.. it is a tailor-amde solution for Spain...

but as you I ahve said pre cisely, the bank debt and credit on companies can look very much a structured vehicle created and bought byt the treasury...

so your point about asking for guarantees in equities makes a lot of sense.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Oct 10th, 2008 at 04:13:40 PM EST
[ Parent ]

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