Waarom ging het mis met de hypotheken?

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Ter vermaak ende lering ;)

Hieronder de saillante delen van de artikelen (klik op links voor
volledige teksten). Moet waarschijnlijk meermalen gelezen worden om goed
te begrijpen.

Samenvatting:
Om de risico´s van de CDO´s in te schatten werd een formule gebruikt, die
het mogelijk maakt om met behulp van historische gegevens over de risico´s
van CDS´s het onderlinge verband goed vast te stellen.

Het is alleen jammer dat de periode van de CDS´s samenviel met de periode
van de onstuimige prijsstijgingen op de huizenmarkt.

Het verband tussen de CDO en CDS werd hierdoor héél eenzijdig weergegeven
(alléén voor een stijgende markt).

Daarom viel het kaartenhuis in elkaar, zodra de werkelijke risico´s
verbonden aan het laagst gewaardeerde deel van de CDO´s (de sub-prime
hypotheken) duidelijk werden in de werkelijke wereld.

Dit houdt NIET IN dat deze risico´s niet bekend waren!
Zie daarvoor de context van ´There weren’t enough Americans with shitty
credit taking out loans to satisfy investors’ appetite for the end
product.´

Groet / Cees

PS C.D.O. = http://nl.wikipedia.org/wiki/Collateralized_debt_obligation
   C.D.S. = http://nl.wikipedia.org/wiki/Credit_default_swap

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

His dinner companion in Las Vegas ran a fund of about $15 billion and
managed C.D.O.’s backed by the BBB tranche of a mortgage bond, or as
Eisman puts it, “the equivalent of three levels of dog shit lower than the
original bonds.”

FrontPoint had spent a lot of time digging around in the dog shit and knew
that the default rates were already sufficient to wipe out this guy’s
entire portfolio. “God, you must be having a hard time,” Eisman told his
dinner companion.

“No,” the guy said, “I’ve sold everything out.”

After taking a fee, he passed them on to other investors. His job was to
be the C.D.O. “expert,” but he actually didn’t spend any time at all
thinking about what was in the C.D.O.’s. “He managed the C.D.O.’s,” says
Eisman, “but managed what? I was just appalled. People would pay up to
have someone manage their C.D.O.’s—as if this moron was helping you. I
thought, You prick, you don’t give a fuck about the investors in this
thing.”

Whatever rising anger Eisman felt was offset by the man’s genial
disposition. Not only did he not mind that Eisman took a dim view of his
C.D.O.’s; he saw it as a basis for friendship. “Then he said something
that blew my mind,” Eisman tells me. “He says, ‘I love guys like you who
short my market. Without you, I don’t have anything to buy.’ ”

That’s when Eisman finally got it. Here he’d been making these side bets
with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche
without fully understanding why those firms were so eager to make the
bets. Now he saw.
***************************************************************************
There weren’t enough Americans with shitty credit taking out loans to
satisfy investors’ appetite for the end product. The firms used Eisman’s
bet to synthesize more of them.
***************************************************************************
Here, then, was the difference between fantasy finance and fantasy
football: When a fantasy player drafts Peyton Manning, he doesn’t create a
second Peyton Manning to inflate the league’s stats. But when Eisman
bought a credit-default swap, he enabled Deutsche Bank to create another
bond identical in every respect but one to the original. The only
difference was that there was no actual homebuyer or borrower. The only
assets backing the bonds were the side bets Eisman and others made with
firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the
interest on a subprime mortgage. In fact, there was no mortgage at all.
“They weren’t satisfied getting lots of unqualified borrowers to borrow
money to buy a house they couldn’t afford,” Eisman says. “They were
creating them out of whole cloth. One hundred times over! That’s why the
losses are so much greater than the loans. But that’s when I realized they
needed us to keep the machine running. I was like, This is allowed?”


http://www.usnews.com/blogs/barone/2009/02/25/wall-street-became-over-dependent-on-numbers-lost-touch-with-reality.html

Li's copula function was used to price hundreds of billions of dollars'
worth of CDOs filled with mortgages.
***************************************************************************
And because the copula function used CDS prices to calculate correlation,
it was forced to confine itself to looking at the period of time when
those credit default swaps had been in existence: less than a decade, a
period when house prices soared. Naturally, default correlations were very
low in those years.
***************************************************************************
But when the mortgage boom ended abruptly and home values started falling
across the country, correlations soared.

Bankers securitizing mortgages knew that their models were highly
sensitive to house-price appreciation. If it ever turned negative on a
national scale, a lot of bonds that had been rated triple-A, or risk-free,
by copula-powered computer models would blow up. But no one was willing to
stop the creation of CDOs, and the big investment banks happily kept on
building more, drawing their correlation data from a period when real
estate only went up.

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