They are supposed to be financed through the issuance of commercial paper backed by pools of home loans and credit card debt, but the loss of confidence in the quality of subprime mortgage bonds has also tainted these securities.
We are back to levels seen in 2007 and early 2008 in some credit markets, as represented by the action in the residential mortgage-backed bond index, ABX, a prime indicator of the credit quality of subprime real estate loans.
Paulson wanted to bet against subprime, but he was having trouble: mortgage securities are mashed-together bundles of all kinds of mortgages, some of good quality, some of excellent quality, and some of subprime quality.
Arturo Cifuentes, whom Mr. Michalek called a former mentor at Moody's, testified that the rating agencies had misjudged the quality of the subprime mortgages that backed the securities they rated, as well as the risk associated with repackaging the loans.
They also weren't told that Goldman expressed reservations about the quality of the subprime mortgages that helped make up Anderson.
Though the bank said it had lowered its subprime exposure at the end of December to $27.6 billion, down from $29 billion in November, it revealed $26.6 billion of exposure to so-called Alt A mortgages, which though of higher quality than subprime mortgages, are also considered risky.
Mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac are typically higher-quality prime mortgages and not pools of subprime loans, meaning they carry less risk.
These private providers take more than a fifth of fees in profit and spend even more on marketing to cover up the poor quality of what they are offering – subprime degrees not worth the paper they are printed on being sold to very young, very gullible consumers.
As might be expected, the quality of this debt deteriorated markedly, particularly with the epidemic of subprime mortgages.
But that's a false comparison: state and local governments haven't changed the frequency or quality of bonds issued, as occurred with subprime mortgage bonds.
This same type of activity rendered mortgage-backed securities so far removed from the original loans and the value of the homes they financed that it became impossible to determine the quality of the loans, contributing to the subprime crisis.
