Securitized Loans Seems More Prudent than Unsecuritized Loans

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2.7182818284590... 17 years ago

This is from the Economist.com at

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"The sums involved are depressingly large. In the worst case, losses on the $600 billion of securitised Alt-A debt outstanding—roughly the same as the stock of subprime securities—could reach $150 billion, reckons David Watts of CreditSights, a research firm. Analysts at Goldman Sachs put possible write-downs on the $1.3 trillion of total Alt-A debt—including both securitised and unsecuritised loans—at $600 billion, almost as much as expected subprime losses. Add in option ARMs, a particularly virulent type of adjustable-rate loan, many of which are essentially the same as Alt-A, and the potential hit climbs towards $1 trillion."

If securitized loans have a 25% ($150B/$600B) default rate and *ALL* alt-A debt has a 46% ($600B/$1300B) default rate, than this implies that securitized loans are more prudent/safer/less likely to default tha nunsecuritized loans. Moreover, the following deductions can be made:

Securitized loans are 0B, and unsecuritized loans are 0B, for a total of 00B.

Unsecuritized loans have a 64.3% default rate. [(25%)(0B) + (x%) (0B)]/00B = 46%, and solve for x. X=64.3%.

Here are my few questions:

Why are unsecuritized loans safer?

I thought that one of the big deals in this whole Financial Crisis was securitization. The media has made it look so evil and wily. Please clarify.

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Z

zzbunker 17 years ago

The keyword to the answer is "Safe". Since bankers have always lived by thier own self-dictated sceince that SAFE=SECURE.

So Bigger SAFE = MORE Secure obviously is universally true in their fantasy world. So, in the sequel you would also derive such idiocies as: If the World Trade Center being the Tallest Safe in The World, it must also necessarily be the Most Secure Safe in The World.

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D

Doobie Keebler 17 years ago

I think this may be what you're looking for:

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R

Rod Speed 17 years ago

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061713&sourceþatures_box_main:>

Yes, that that is why the ratings agencys were stupid enough to give them AAA+ ratings.

The problem is that radically overstates their advantage over non securitized loans.

They arent. The problem is that while securitized loans are safer, it isnt feasible to decide just what the risk is with a PARTICULAR securitized loan, and with the market spooked about them, the mark to market system essentially produces a zero value for them because no one wants them. Its easier to rate an unsecuritized loan.

securitization.

Nope, the problem was the AAA+ rating that they didnt come even close to warranting.

The media never does manage to get the basics right.

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A

Andy F. 17 years ago

This is from the Economist.com at

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061713&sourceþatures_box_main: "The sums involved are depressingly large. In the worst case, losses on the $600 billion of securitised Alt-A debt outstanding?roughly the same as the stock of subprime securities?could reach $150 billion, reckons David Watts of CreditSights, a research firm. Analysts at Goldman Sachs put possible write-downs on the $1.3 trillion of total Alt-A debt?including both securitised and unsecuritised loans?at $600 billion, almost as much as expected subprime losses. Add in option ARMs, a particularly virulent type of adjustable-rate loan, many of which are essentially the same as Alt-A, and the potential hit climbs towards $1 trillion."

If securitized loans have a 25% ($150B/$600B) default rate and *ALL* alt-A debt has a 46% ($600B/$1300B) default rate, than this implies that securitized loans are more prudent/safer/less likely to default tha nunsecuritized loans. Moreover, the following deductions can be made:

Securitized loans are 0B, and unsecuritized loans are 0B, for a total of 00B.

Unsecuritized loans have a 64.3% default rate. [(25%)(0B) + (x%) (0B)]/00B = 46%, and solve for x. Xd.3%.

Here are my few questions:

Why are unsecuritized loans safer?

I thought that one of the big deals in this whole Financial Crisis was securitization. The media has made it look so evil and wily. Please clarify.

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I think you're drawing too many conclusions from the data.The figures you quoted are only guesses - from two different sources - about what "could" happen in the "worst case".And it's nothing like an exact science. Nobody really knows what's going to happen. It could just mean that the people at Goldman Sachs are being more pessimistic about the "worst case" than the other guy.

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Securitized Loans Seems More Prudent than Unsecuritized Loans

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