socalhousingbubble_IHB
New member
Great walk-through of the mortgage cluster-eff by Allan Sloan.
http://money.cnn.com/2007/10/15/markets/junk_mortgages.fortune/index.htm?postversion=2007101609
Reasonably comprehensible explantion of mortgage tranches and how easily the lower ones get wiped out when things turn bad (like is happening now).
Most interesting aspect is that Goldman was shorting against the very securties they had wrapped up in a bow and sold to investors:
"Goldman said it made money in the third quarter by shorting an index of mortgage-backed securities. That prompted Fortune to ask the firm to explain to us how it had managed to come out ahead while so many of its mortgage-backed customers were getting stomped.
Goldman's profits came from hedging the mortgage securities it keeps in inventory in order to make trading markets. It said in a recent SEC filing, "Although we recognized significant losses on our non-prime mortgage loans and securities, those losses were more than offset by gains on short mortgage positions."
As we interpret this - the firm declined to elaborate - Goldman made more on its hedges than it lost on its inventory because junk mortgages fell even more sharply than Goldman thought they would. "
My question is, was is really just hedging, or did they realize how rotten this muck really was?
-SCHB
http://money.cnn.com/2007/10/15/markets/junk_mortgages.fortune/index.htm?postversion=2007101609
Reasonably comprehensible explantion of mortgage tranches and how easily the lower ones get wiped out when things turn bad (like is happening now).
Most interesting aspect is that Goldman was shorting against the very securties they had wrapped up in a bow and sold to investors:
"Goldman said it made money in the third quarter by shorting an index of mortgage-backed securities. That prompted Fortune to ask the firm to explain to us how it had managed to come out ahead while so many of its mortgage-backed customers were getting stomped.
Goldman's profits came from hedging the mortgage securities it keeps in inventory in order to make trading markets. It said in a recent SEC filing, "Although we recognized significant losses on our non-prime mortgage loans and securities, those losses were more than offset by gains on short mortgage positions."
As we interpret this - the firm declined to elaborate - Goldman made more on its hedges than it lost on its inventory because junk mortgages fell even more sharply than Goldman thought they would. "
My question is, was is really just hedging, or did they realize how rotten this muck really was?
-SCHB
