From: M Holmes 
Newsgroups: uk.finance
Subject: Re: Why lend to ninjas?
Date: Wed, 15 Aug 2007 11:38:37 +0000 (UTC)
Bytes: 2332

Virgils Ghost  wrote:
> "Len"  wrote in message 
> news:8fadnZbvgaxnN13bnZ2dnUVZ8vmdnZ2d@bt.com...
>>   Could someone explain to me as a layman why the lending institutions 
>> would lend money to people who are likely to default? I'm sure it wasn't 
>> out of misplaced philanthropy?

> Because they didn't hold on to the risk on their own books, it was passed 
> on, the loans were pooled into mortgage backed securities then further 
> sliced and diced into CDO's, the tranches of which were then sold on to the 
> hedgies, pension funds or any other poor sap stupid enough to buy these 
> newly minted 'investment grade' bonds.

> http://goldnews.bullionvault.com/bear_stearns_hedge_fund_toxic_062220073

Wow. That's a fine article. I wish I could write well enough to explain
it like that.

> A further moral hazard was the backdrop of Greenspan era, the Federal 
> Reserve is now buying these junk securities in their open market operations, 

I heard they were buying Fannie and Freddie bonds.

FoFP

-- 
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four          [Kipling]
And the Gods of the Copybook Headings limped up to explain it once more.