Can you report me if i hold hidden this paragraph on bank and credit and mortgages right ?
PLEASE READ THE PARA FIRST
SIVs used short-term commercial paper, sold at low interest rates, to buy longer-term mortgage-backed securities and other instruments with sophisticated rates of return. With the seizure of the credit markets, oodles SIVs had trouble selling new commercial rag to replace upcoming obligations on older composition. The collapse in sub-prime mortgages and in the commercial serious newspaper that supported them has simply adjusted the appeal of the principal to make up for the outsized returns that these investors got over olden times five years.
The money that banks owe on their commercial paper didn’t switch. These banks are going to offer more commercial tabloid to buy mortgage assets; in other words, they are going to borrow more short-term money in proclaim to buy long-term assets from themselves! That is, if they can borrow the money in the first place. One of the casualties in the rout be the commercial paper market; investors are realize that it backs a lot of lousy mortgage debt, so they are support away from investing in the commercial paper that back the mortgages.
NOW - IS MY UNDERSTANDING RIGHT ?
Borrowed money - The SIVs sold short-term commercial paper at low rates of interest – so they borrowed money for a ST at a low IR. They did this regularly to keep getting funds.
Lent money - The bank told the people that we will give you money – mortgage your house at 12 % IR. ( Or the bank bought mortgage investments from investors.) The banks took the cheaper loans from CP and invested it in longer permanent status mortgage-backed securities and other instruments with higher rates of return.
But when the open market collapsed, the value of the house collapsed, borrowers could not pay loans and illustrious IR, and the bank was not here with a house which was not worth 25% of the loan they have given. Oversized interest rates often mean that the investment is contained by fact sucking money out of principal. Sometimes investors can get away next to the gambit for awhile, but eventually somebody pays the bill.
Secondly, with the seizure of the credit market, many SIVs had trouble selling exotic commercial paper to replace upcoming obligations on elder paper.
Thirdly, The money that banks owe on their commercial treatise didn’t change. Sounds like trouble.
Now the bank have paid Rs 100 to the borrower, contained by return they have a house which is worth Rs 20. How do the banks cover the match Rs 70 ? These banks are going to offer more commercial serious newspaper ( and take ST loans at low IR ) to buy mortgage assets; in other words, they are going to borrow more short-term money at low IR within order to buy long-term assets from themselves!
That is, if they can borrow the money in the first place. One of the casualties within the rout was the commercial paper marketplace; investors are realizing that it backs deeply of lousy mortgage debt, so they are backing away from investing in the commercial dissertation that backs the mortgages.
Answers:
An important aspect is the total shortage of faith in SIVs, CDOs, and the agencies that purport to rate them.
[Quote]
Most of these are mortgage-based securitizations, such as CDOs. The aim for the general gun-shyness is because no-one knows what's surrounded by them. This point was made last Thursday evening on CNBC, where on earth Thomas Patrick presented a plan to take the performing mortgages out of CDOs and SIVs at par. It was shot down by CNBC reporter Charlie Gasparino on the grounds that performing mortgages may not carry out at all in the adjectives. Because no-one knows what's in those securitizations, they're not really buyable. This dent explains why mortgage-rooted CDOs and SIVs are selling way below what their present cash flow indicates, a disparity that Mr. Patrick's plan depends on.
[/Quote] Source(s): http://www.enterstageright.com/archive/a…
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SIVs used short-term commercial paper, sold at low interest rates, to buy longer-term mortgage-backed securities and other instruments with sophisticated rates of return. With the seizure of the credit markets, oodles SIVs had trouble selling new commercial rag to replace upcoming obligations on older composition. The collapse in sub-prime mortgages and in the commercial serious newspaper that supported them has simply adjusted the appeal of the principal to make up for the outsized returns that these investors got over olden times five years.
The money that banks owe on their commercial paper didn’t switch. These banks are going to offer more commercial tabloid to buy mortgage assets; in other words, they are going to borrow more short-term money in proclaim to buy long-term assets from themselves! That is, if they can borrow the money in the first place. One of the casualties in the rout be the commercial paper market; investors are realize that it backs a lot of lousy mortgage debt, so they are support away from investing in the commercial paper that back the mortgages.
NOW - IS MY UNDERSTANDING RIGHT ?
Borrowed money - The SIVs sold short-term commercial paper at low rates of interest – so they borrowed money for a ST at a low IR. They did this regularly to keep getting funds.
Lent money - The bank told the people that we will give you money – mortgage your house at 12 % IR. ( Or the bank bought mortgage investments from investors.) The banks took the cheaper loans from CP and invested it in longer permanent status mortgage-backed securities and other instruments with higher rates of return.
But when the open market collapsed, the value of the house collapsed, borrowers could not pay loans and illustrious IR, and the bank was not here with a house which was not worth 25% of the loan they have given. Oversized interest rates often mean that the investment is contained by fact sucking money out of principal. Sometimes investors can get away next to the gambit for awhile, but eventually somebody pays the bill.
Secondly, with the seizure of the credit market, many SIVs had trouble selling exotic commercial paper to replace upcoming obligations on elder paper.
Thirdly, The money that banks owe on their commercial treatise didn’t change. Sounds like trouble.
Now the bank have paid Rs 100 to the borrower, contained by return they have a house which is worth Rs 20. How do the banks cover the match Rs 70 ? These banks are going to offer more commercial serious newspaper ( and take ST loans at low IR ) to buy mortgage assets; in other words, they are going to borrow more short-term money at low IR within order to buy long-term assets from themselves!
That is, if they can borrow the money in the first place. One of the casualties within the rout was the commercial paper marketplace; investors are realizing that it backs deeply of lousy mortgage debt, so they are backing away from investing in the commercial dissertation that backs the mortgages.
Answers:
An important aspect is the total shortage of faith in SIVs, CDOs, and the agencies that purport to rate them.
[Quote]
Most of these are mortgage-based securitizations, such as CDOs. The aim for the general gun-shyness is because no-one knows what's surrounded by them. This point was made last Thursday evening on CNBC, where on earth Thomas Patrick presented a plan to take the performing mortgages out of CDOs and SIVs at par. It was shot down by CNBC reporter Charlie Gasparino on the grounds that performing mortgages may not carry out at all in the adjectives. Because no-one knows what's in those securitizations, they're not really buyable. This dent explains why mortgage-rooted CDOs and SIVs are selling way below what their present cash flow indicates, a disparity that Mr. Patrick's plan depends on.
[/Quote] Source(s): http://www.enterstageright.com/archive/a…
Related Questions: