Thursday, October 01, 2009

Wall Street can ADD; it just can't subtract

Attention Deficit Disorder: ADD

Wall Street is brilliant in it's ability to add 2+2 to get 5, or 6, or whatever. It just can't subtract fees from brokers.

Wall Street Wizardry Reworks Mortgages (Gotta ticket to read?)
Wall Street firms, buoyed by surging markets, are seeking to profit from the unwinding of the complicated securities that helped fuel the credit crisis.

The popular deals are known as "re-remic," which stands for resecuritization of real-estate mortgage investment conduits. The way it works is that insurers and banks that hold battered securities on their books have Wall Street firms separate the good from the bad. The good mortgages are bundled together and create a security designed to get a higher rating. The weaker securities get low ratings.

The net result is financial firms' books look better and they need to hold less capital against those assets, even though they are the same assets they held before the transaction.

Wall Street analysts said activity in re-remics has ramped up this year, from a trickle in January to several billion dollars from March to June, with a big increase in volume in July, partly thanks to reviving credit markets.

Estimates of volume this year range from $30 billion to more than $90 billion. The transactions are typically done as private placements and aren't disclosed publicly.



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