tag:blogger.com,1999:blog-30643134.post4245535705050965310..comments2023-12-26T01:10:26.319-05:00Comments on Accrued Interest: Do not underestimate the power of structureAccrued Interesthttp://www.blogger.com/profile/05096191765979971184noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-30643134.post-68679177602869347742008-09-27T13:03:00.000-05:002008-09-27T13:03:00.000-05:00Well-explained. You're suggesting that a smaller ...Well-explained. You're suggesting that a smaller level of losses in underlying collateral are leveraged into larger losses for investors in even AAA tranches of mezz. CDO's. My question is, did the rating agencies not understand this when they assigned AAA-ratings to those CDO classes? Don't they have their own models which simulate the cash flows from the underlying deals and then distribute them through the CDO payment waterfall? For investors, isn't it also easily observable through standard industry analytical systems like Intex? Or doesn't Intex (and rating agency models) have the ability to model the underlying deals and aggregate the cash flows upward? I guess I just don't understand either (a) how AAA bonds in mezz CDO's got high credit ratings, or (b) why it's a surprise that they should this pattern of accelerated losses. Thanks for any insights.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-81328450281901960592008-01-03T19:41:00.000-05:002008-01-03T19:41:00.000-05:00Fantastic analysis... very thoughtful and well exp...Fantastic analysis... very thoughtful and well explained.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-87007403981272249972007-11-08T20:29:00.000-05:002007-11-08T20:29:00.000-05:00It's great reading yr articles. wish you could do ...It's great reading yr articles. wish you could do more.<BR/><BR/>BTW, an economist suggested that a way out for CDO problem is to pu them on Ebay! what do you think?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-9161266281664722422007-11-08T10:17:00.000-05:002007-11-08T10:17:00.000-05:00Thanks for the kind words.Thanks for the kind words.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-33264142187958236272007-11-06T18:28:00.000-05:002007-11-06T18:28:00.000-05:00I second the preceding comment.Your explanations a...I second the preceding comment.<BR/><BR/>Your explanations are invaluable.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-69294601096397983582007-11-06T14:50:00.000-05:002007-11-06T14:50:00.000-05:00Thanks for writing articles like these. Not only a...Thanks for writing articles like these. Not only are these well written and explains the situation, they are quite timely given all the chaos in the credit markets. As someone who is thinking of investing in debt insurers, I appreciate such work...Sivaram Vhttps://www.blogger.com/profile/06361276466660862882noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-49711407005884073262007-11-06T12:05:00.000-05:002007-11-06T12:05:00.000-05:00You should read the CDO primer I wrote. Look at th...You should read the CDO primer I wrote. Look at the nav bar on the right.<BR/><BR/>Anyway, guys like Citi and MER would hold bonds on their balance sheets waiting for a CDO to be put together. When the CDO was funded, they'd sell it to the public. I think the take down is in the 1 point area.<BR/><BR/>Equity tranches are bought by hedge funds and the CDO arranger most commonly. If I'm the manager of a CDO deal, its likely that I'll own a chunk of the equity.<BR/><BR/>Equity is HUGELY leveraged, sometimes as much as 100x. BUT its non-recourse, meaning there are never any margin calls.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-70538720626627349522007-11-06T02:18:00.000-05:002007-11-06T02:18:00.000-05:00Actually, it would be really good if you little bi...Actually, it would be really good if you little bit talk about the equity tranche. As far as I know the equity portion is leveraged or the asset manager may want expand its leverage to make it more attractive. <BR/>Firstly, you said: "The losses were primarily in CDOs or ABS securities being warehoused for future CDO issuance." <BR/>So Merrill and Citi were making money only on the commissions from CDO issuance or they act like a portfolio manager right? If yes, what is the average commission on a typical CDO deal(if any)?<BR/>And who is buying all these equity tranches? I mean is there any possibility that Citi or Merrill kept some equity for themselves instead of selling them to the investors? Thanks again!Anonymousnoreply@blogger.com