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Sub-prime Housing Problems Limited To Just 7 States

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7 states and the entire financial world ?


When oh when will a regulator have the balls to force lenders to use "mark to market" pricing instead of "mark to (their own) model"?

Imagine you start a hedge fund, buy some CDOs (debt packages), then lend 10 times that amount on the basis of the supposed "value" of the CDO. So if the underlying debtor goes bankrupt what security is there for the 10 times lending you've done? Answer = NIL. How do you cover the loss? Raise more cash by stock or asset sales.

In the mean time you get a friendly ratings agency (e.g. Moody) and say "well we've assessed our own model and think the CDO is worth X, so we're going to lend 10x to other people. Please can you give us an A rating based on our own model?" Moody of course say "Here's our fee for agreeing with you, next please !". Now the hedge fund is legitimmised and no further questions about value are asked.

Thank goodness UK pension funds aren't buying these hedge funds... Oops !

Edited by Warwick-Watcher

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