muzie_IHB
New member
A few days, the Merryl Lynch bank was able to sell off some of its toxic mortgage loans to another entity, Lone Star Funds.
What is remarquable about the transaction is it's just about has shady as those subprime loans the banks were giving.
How about if I sold you an asset:
- For 22% of what I paid
- But I will finance 75% of the transaction as the seller
- So you only need 5% money down
- As a seller I guarantee you can't lose more than your downpayment and will buy back the depreciated asset if it depreciates more than the downpayment
- If you the buyer default on the loan, my only collateral is the toxic mortage paper I was trying to get rid of in the first place
- You as the buyer get all the upside and only your 5% downpayment as downside.
Now isn't that a great deal for the buyer or what? Sound familiar maybe? Well that's the type of deals banks and funds now do between themselves to get out of this mess.
It's all accounting shaninigans for the bank to try to disguise the losses - here a sale has been recorded for the 22% price when in fact the buyer just put up 5%.
Did I mention that the seller here also has a 20-50% stake in the buyer? I don't think it can get more crooked than this.
What is remarquable about the transaction is it's just about has shady as those subprime loans the banks were giving.
How about if I sold you an asset:
- For 22% of what I paid
- But I will finance 75% of the transaction as the seller
- So you only need 5% money down
- As a seller I guarantee you can't lose more than your downpayment and will buy back the depreciated asset if it depreciates more than the downpayment
- If you the buyer default on the loan, my only collateral is the toxic mortage paper I was trying to get rid of in the first place
- You as the buyer get all the upside and only your 5% downpayment as downside.
Now isn't that a great deal for the buyer or what? Sound familiar maybe? Well that's the type of deals banks and funds now do between themselves to get out of this mess.
It's all accounting shaninigans for the bank to try to disguise the losses - here a sale has been recorded for the 22% price when in fact the buyer just put up 5%.
Did I mention that the seller here also has a 20-50% stake in the buyer? I don't think it can get more crooked than this.