I watched the evan davis programme the other night about the banks and the current situation etc. In it he described securitisation and how it enabled banks to package their assets (ie mortgages etc) and sell them on, meaning they didn't have to worry about them. This ability to liquidate assets allowed them to use the money from their sale to pay off some of their own debt, borrow more, issue more loans, package them and sell them off, etc in a ongoing cycle. The guy from northern rock described it as a 'conveyor belt of money'. This is all very well so long as people buying the packaged 'assets' understand the risk they are taking on from the products but they didn't as for whatever reason the ratings agencies weren't doing their job properly, no one understood the products but they were made out to be AAA.
Now the thing that struck me is that this allowed the banks to issue credit to people/businesses etc they wouldn't usually go anywhere near... as IB's like lehman brothers were confident in their own ability to package all this **** up and make it look like gold. They effectively weren't taking on the risk themselves they were passing it on and as they could get any old rubbish rated AAA.
If this is the case could it not be that the subprime debt is the most obvious place for where people will start to default? Could there not be a whole host of other debt, sold on as safe, which was only issued because it could be sold on so essentially the people issuing it didn't have to worry about it and they could make any old crap look good because of the ineptitude/greed/whatever of the ratings agencies? Because it seems that there could be a huge amount of credit that could have been issued on very dodgy foundations because of this ability for it to be packaged up and sold on that could be yet to fail on us?
Or have these securities now been properly assessed? Or is there a load of defaults waiting to work their way through the system? The current downturn will make things worse... I'm probably missing something and look forward to someone pointing it out but if i might be right things could go very bleak indeed if there are more AAA securities out there that aren't AAA at all .....
Now the thing that struck me is that this allowed the banks to issue credit to people/businesses etc they wouldn't usually go anywhere near... as IB's like lehman brothers were confident in their own ability to package all this **** up and make it look like gold. They effectively weren't taking on the risk themselves they were passing it on and as they could get any old rubbish rated AAA.
If this is the case could it not be that the subprime debt is the most obvious place for where people will start to default? Could there not be a whole host of other debt, sold on as safe, which was only issued because it could be sold on so essentially the people issuing it didn't have to worry about it and they could make any old crap look good because of the ineptitude/greed/whatever of the ratings agencies? Because it seems that there could be a huge amount of credit that could have been issued on very dodgy foundations because of this ability for it to be packaged up and sold on that could be yet to fail on us?
Or have these securities now been properly assessed? Or is there a load of defaults waiting to work their way through the system? The current downturn will make things worse... I'm probably missing something and look forward to someone pointing it out but if i might be right things could go very bleak indeed if there are more AAA securities out there that aren't AAA at all .....
