Investing to Wealth

Filed under: Housing

It would be nice if we could just wave a magic wand and evaporate the $13 trillion worth of toxic waste that's dragging down the global financial system. But we'll have to dispose of it somehow in order to reboot the financial system. A colleague of mine came up with a brilliant idea: the government could guarantee the failed mortgages buried inside that toxic waste -- meaning that the owner of a bundle would not incur any loss from a failed mortgage for the next 3 years.

After all, those mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) are just bundles of mortgages. If 15% of those mortgages fail and the government agrees to guarantee those over the next three years, then the MBSs and CDOs -- e.g., the toxic waste -- would suddenly increase in value because the losses to the entire bundle of the 15% of the failed mortgages would be limited.

Continue reading A great plan to dispose of financial toxic waste

A great plan to dispose of financial toxic waste originally appeared on BloggingStocks on Fri, 30 Jan 2009 18:00:00 EST. Please see our terms for use of feeds.