Wednesday, December 26, 2007

Catch 22 of structured financing

So - the insurance company is guaranteeing the value of the banks mortgage loans, using money that it borrowed from the bank, which the bank had to borrow because it’s got these bundles of leans insured by the insurance company. In other words, the banks are insuring their loans themselves, using the loans to pay for the losses on the loans. It’s circularity on circularity on circularity - cycles within cycles of stupidity, relying on stupidity to prop it up.

And there are people - lots and lots of them - who are falling for this as a scheme to save the banks from the bad loans.

full article

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