PM Pick

Manufacturing demand for mortgages

Several people in the particular corner of the blogosphere that I frequent have linked to this transcript of a conversation n+1 had with a hedge fund manager. The very existence of this piece is encouraging, because it suggests that the sort of people who are likely to complain vociferously about capitalism are now actually taking a specific interest in the workings of capitalism. (I regard myself as one of those people, and for a long time I was content to complain about corporations without troubling to familiarize myself with a newspaper business page.) But what I found most interesting was this passage:

if you had a pool of half a billion dollars of mortgages, maybe there would be 300 million dollars of triple A paper you would sell to fund that, and then there would be smaller tranches of more junior paper. And the buyers of that paper, particularly the very senior paper, the triple-A paper, were not experts, they’re not mortgage experts, they say, “It’s triple-A? I’ll buy it.” This is money market funds, accounts that are not set up to do hardcore analysis, they tend to just rely on the rating agencies. And again the spread that they’re getting paid is very small, so they don’t really have a lot of spread to play with to hire a lot of analysts to go and dig in the mortgage pools and really understand them, they kind of rely on the rating agencies, and that’s their downfall. It’s kind of an interesting interaction in the sense that a lot of this mortgage project was almost created by the bid for the CDO paper rather than the reverse. I mean, the traditional way to think about financing is “OK, I find an investment opportunity, that on its face, I think, is a good opportunity. I want to deploy capital on that opportunity. Now I go look for funding. So I think that making mortgage loans is a good investment, so I will make mortgage loans. Then I will seek to fund those, to fund that activity, by perhaps issuing CDO paper, issuing the triple-A, double-A, A, and down the chain.” But what happened is, you had the creation of so many vehicles designed to buy that paper, the triple-A, the double-A, all the CDO paper… that the dynamic flipped around. It was almost as if the demand for that paper created the mortgages.

The argument you heard while subprime mortgages were booming was that it represented this great democratization of credit, tapping pent-up demand among the lower classes who had been unfairly denied credit for so long. Never mind all the advertising the mortgage industry took out; that demand was there and latent, it was argued. But as the hedge-fund manager explains here, there were huge incentives for highly leveraged financial players to create demand -- they needed something upon which to extend their derivatives business. Knowing how profitable the derivatives would be, they managed to devise a way to let them come into being before the instruments they would be derived from. And this was accomplished mainly by separating competent understand of risk from the investors who were pouring in the money by way of ratings agencies inappropriately certifying the structured vehicles (and collecting their fees). Another thing to remember when you hear that the credit crisis was the fault of the borrowers getting in over their heads.

In the wake of Malcolm Young's passing, Jesse Fink, author of The Youngs: The Brothers Who Built AC/DC, offers up his top 10 AC/DC songs, each seasoned with a dash of backstory.

In the wake of Malcolm Young's passing, Jesse Fink, author of The Youngs: The Brothers Who Built AC/DC, offers up his top 10 AC/DC songs, each seasoned with a dash of backstory.

Keep reading... Show less

Pauline Black may be called the Queen of Ska by some, but she insists she's not the only one, as Two-Tone legends the Selecter celebrate another stellar album in a career full of them.

Being commonly hailed as the "Queen" of a genre of music is no mean feat, but for Pauline Black, singer/songwriter of Two-Tone legends the Selecter and universally recognised "Queen of Ska", it is something she seems to take in her stride. "People can call you whatever they like," she tells PopMatters, "so I suppose it's better that they call you something really good!"

Keep reading... Show less

Morrison's prose is so engaging and welcoming that it's easy to miss the irreconcilable ambiguities that are set forth in her prose as ineluctable convictions.

It's a common enough gambit in science fiction. Humans come across a race of aliens that appear to be entirely alike and yet one group of said aliens subordinates the other, visiting violence upon their persons, denigrating them openly and without social or legal consequence, humiliating them at every turn. The humans inquire why certain of the aliens are subjected to such degradation when there are no discernible differences among the entire race of aliens, at least from the human point of view. The aliens then explain that the subordinated group all share some minor trait (say the left nostril is oh-so-slightly larger than the right while the "superior" group all have slightly enlarged right nostrils)—something thatm from the human vantage pointm is utterly ridiculous. This minor difference not only explains but, for the alien understanding, justifies the inequitable treatment, even the enslavement of the subordinate group. And there you have the quandary of Otherness in a nutshell.

Keep reading... Show less
3

A 1996 classic, Shawn Colvin's album of mature pop is also one of best break-up albums, comparable lyrically and musically to Joni Mitchell's Hejira and Bob Dylan's Blood on the Tracks.

When pop-folksinger Shawn Colvin released A Few Small Repairs in 1996, the music world was ripe for an album of sharp, catchy songs by a female singer-songwriter. Lilith Fair, the tour for women in the music, would gross $16 million in 1997. Colvin would be a main stage artist in all three years of the tour, playing alongside Liz Phair, Suzanne Vega, Sheryl Crow, Sarah McLachlan, Meshell Ndegeocello, Joan Osborne, Lisa Loeb, Erykah Badu, and many others. Strong female artists were not only making great music (when were they not?) but also having bold success. Alanis Morissette's Jagged Little Pill preceded Colvin's fourth recording by just 16 months.

Keep reading... Show less
9

Frank Miller locates our tragedy and warps it into his own brutal beauty.

In terms of continuity, the so-called promotion of this entry as Miller's “third" in the series is deceptively cryptic. Miller's mid-'80s limited series The Dark Knight Returns (or DKR) is a “Top 5 All-Time" graphic novel, if not easily “Top 3". His intertextual and metatextual themes resonated then as they do now, a reason this source material was “go to" for Christopher Nolan when he resurrected the franchise for Warner Bros. in the mid-00s. The sheer iconicity of DKR posits a seminal work in the artist's canon, which shares company with the likes of Sin City, 300, and an influential run on Daredevil, to name a few.

Keep reading... Show less
8
Pop Ten
Mixed Media
PM Picks

© 1999-2017 Popmatters.com. All rights reserved.
Popmatters is wholly independently owned and operated.

rating-image