Facts are meaningless

SUPPLEMENT - THE 2007 GLOBAL REPORT - October 01, 2007

Santamarina y Steta

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"Facts are meaningless. You could use facts to prove anything that's even remotely true!" (Homer Simpson)

Would it be too harsh to ask if we, as investors, have gotten too greedy? An unavoidable fact is that the US residential mortgage-backed securities (RMBS) subprime boom required willing lenders. (The term subprime refers to the credit status of a determined borrower – being less than ideal – not the interest rate on a specific loan.) The US stock-market collapse and low interest rates that started in 2001 nurtured a class of investors and pushed structured finance lawyers to come up with new products to feed it. Once we finished our job, Wall Street did its and unveiled the perfect vehicle: securitization, or turning loans that once sat quietly on banks' books into securities that became well accepted and now sell in global markets.

Using a generally accepted definition of securitization, we understand it as:...



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