stating the obvious
I've been a little too busy to contribute much, and don't really have time to develop this idea just now, but I want to get it on the record before it happens.
The "subprime mortgage market," which is the popular term for the market in cmo's and cdo's - loans, that is, high-risk mortgages in particular -- that have been aggregated into pools, divided into units, and sold as securities to sophisticated investors, mostly hedge funds -- is having a bit of a comeuppance of the sort that is not only normal but healthy for any market in the throes of a buying frenzy.
But, since America is in the throes of an election cycle, and Wall Street has very deep pockets which political operators are oh so creative at picking, let's look for this to become this millenium's version of the "junk bond scandal" of the 1980's and 1990's. They'll pick a poster boy, they'll confiscate his money and send him to jail for a few years, they'll put a firm or two out of business, and get themselves elected in the process, on the pretext of saving you from those evil and greedy mad scientists of high finance.
That's what they did to Michael Milken. It works every time.
The "subprime mortgage market," which is the popular term for the market in cmo's and cdo's - loans, that is, high-risk mortgages in particular -- that have been aggregated into pools, divided into units, and sold as securities to sophisticated investors, mostly hedge funds -- is having a bit of a comeuppance of the sort that is not only normal but healthy for any market in the throes of a buying frenzy.
But, since America is in the throes of an election cycle, and Wall Street has very deep pockets which political operators are oh so creative at picking, let's look for this to become this millenium's version of the "junk bond scandal" of the 1980's and 1990's. They'll pick a poster boy, they'll confiscate his money and send him to jail for a few years, they'll put a firm or two out of business, and get themselves elected in the process, on the pretext of saving you from those evil and greedy mad scientists of high finance.
That's what they did to Michael Milken. It works every time.
[edit 6/30/07: not 24 hours after this was posted, Bloomberg ran a story about the "subprime meltdown" that actually invoked the dreaded "D" word: Drexel, as in Drexel, Burnham, Lambert, the firm Michael Milken worked for that was bankrupted when then US Attorney Rudolph Giuliani set his sights on toppling the "junk bond king." I wish this stuff wasn't as predictable as wide ties and bell-bottoms coming back into fashion.
Speaking of recurring fashion nightmares, wait 'til Elliot Spitzer sinks his teeth into this. He's known for stealing plays out of Giuliani's book. This one has all the makings. Because the investors, in this case hedge-funds, have no political capital, the created-victims are the "minorities" who were "victimized" by "predatory lending." That's when someone walks into a mortgage lender and fills out an application, while a lending officer holds a gun to his head and forces him to take out a loan and buy a house he really can't afford. Clearly a despicable crime worthy of the full force of the law.
Other "victims" will be, of course, all the widows, orphans, and pensioneers whose retirement plans were invested -- by professional money managers -- in such hedge funds. The fun is just beginning.]
