From: Raghu John
Date: Monday, March 23, 2009, 9:10 PM
Hi Shoky,
Great to hear from you. Loved the summary by Chris.
He made the point for me so I'll retrace his steps to show how these securities are being paid twice. It’s interesting because Chris demonstrates why Wall Street over looked this simple and obvious fact.
He says: "The insurer /CDS seller insures the mortgage. When it defaults, he then has to pay the guy who owns the mortgage debt 100 cents on the dollar."
My question of course is who is 'THE GUY?'
The 'guy' he refers to is the bank and other financial institutions that have carried these securities. These are the same 'guy' that AIG is trying to pay using the gov't TARP $.
However, AIG like other insurers are actually not able to pay 100 cents on the dollar right now for these securities. This has forced the gov't to try and provide the capital to help them meet these obligations with the 'bail out.'
However, the 'market to market' accounting rules don't allow banks to wait for these insurance funds. This has forced the banks to take a write-off on these securities now. Yes, these securities were insured, but the banks could not collect on them in a timely fashion.
Insurance companies have not been able to pay off '100%' their obligations though they have covered a sizable amount.
The banks have not been able to write-off all their securities either though they too have covered a great deal.
This has left both industries paying-off or writing-off the same securities.
We are simply suggesting that we need to account for both write-offs on the same set of securities by these two parties.
Once we have accounted for both sets of write-offs, we will see that they have paid off significantly more than is required to match the value of the real estate’s market pricing from which these securities were issued.
Thanks for passing the word around. I’ll keep you up dated with any new developments. Thank you as always for your passion and interest.
Your buddy
RAghu
--- On Mon, 3/23/09, Shoky P wrote:
From: Shoky P Subject: Fwd: what do you think of this? Fwd: Banks & Insurance Writing off Same Loan
To: ssriraghu@yahoo.com
Date: Monday, March 23, 2009, 2:30 PM
---------- Forwarded message ----------
From: chris cook <>
Date: Mon, Mar 23, 2coj009 at 2:28 PM
Subject: RE: what do you think of this? Fwd: Banks & Insurance Writing
off Same Loan
To: AS P
Hi Shoky
The insurer /CDS seller insures the mortgage.
When it defaults, he then has to pay the guy who owns the mortgage
debt 100 cents on the dollar. How is that loan "written off"? If it
was, then there's a nice fat profit when the CDS pays out.
The insurer now gets the loan, gets what he can from it, and writes
off the balance.
ie the loan is only written off once.
As for the RADHA, its quite ingenious, but it's still debt and the
property market is going nowhere in the next 20 years if we keep a
debt-based system, which we won't, because it's had it.
My model is asset-based and wipes the floor with anything based on
debt because there's no loan to repay. :-)
