Re: Lower ratings for mortgage-backed bonds could cause a domino effect that might ultimately strangle what, until this year, was a major propellent of home prices: consumers' easy access to money.



On Fri, 20 Jul 2007, alexy wrote:

Straydog <asd@xxxxxxxxx> wrote:

On Fri, 20 Jul 2007, alexy wrote:

Video61@xxxxxxx wrote:

the investment banks used those bonds which are debt, not money,
You keep bringing that up. Have you seen anyone other than yourself
suggest that bonds are money?

The context around the phrase "bonds are money" says that your opinion is
that bonds are not money
That's correct. Vid and I agree on that; I just don't get his
fascination with repeating that statement ad nauseum.

and yet I have read many many accounts, in books,
of cases where literally anything of value can be put up a collateral for
loans as long as the loaning entity is willing to take that "anything of
value" as collateral.
Is that supposed to be an argument that debt is money?

Where in what I wrote did I say or imply or suggest that debt is money?


In the section of the WSJ where lots of little numbers are, you can find
all kinds of data on bond prices, buying or selling. Sure seems like if
bonds are not money, then at least you can get real money pretty easily.

The same can be said of stocks and commodities. Maybe vid needs to go
off on an "equities are not money" or "commodities are not money"
binge if the basis for his "debt is not money" fascination is as you
suggest here.

Oh, on the contrary. As in Alice in Wonderland, one can use words any way he/she wants to use them. And, I've read (WSJ) where some/certain accountants can take liabilities and put them, depending on circumstances and arguments, wherever they want on a balance ***.

as collateral to finance buyouts, mergers, and acquisitions.
How do you imagine that works? Private equity investor A has $50
million to invest.

In cool cash?

He goes to Bear Stearns and buys $50 million worth
of mortgage backed bonds.

I guess you never read the book "Barbarians at the gate." Or, many others.
Are you suggesting that any of these books supports the idea that
private equity players are using mortgage backed bonds to fund
buyouts?

Not specifically, but I'd like you to back up any idea that they can't use mortgage-backed bonds to fund a buyout.

If so, I suggest you reread your sources a little more
carefully, trying to avoid the video61 mistake of thinking that any
discussion of debt or of collateralized debt obligations is about
mortgage-backed obligations.

Well, I would guess that if we're talking about "collateralized debt obligations" that it would mean the debt obligations have collateral behind them (ie secured) and that "mortgage-backed obligations" are backed with mortgages. Different words, different terms, therefore, different animals, right? Just like if I use the word "Enron," then there is absolutely no implication from the use of that word about _when_.


Then he goes to the market and uses those
bonds as collateral for a $50 bond issue

Did you mean $50 or $50 mil? I'll be glad to take your $50 mil ob MBB for
$50.

that he uses to make an
company buyout? No, that would be stupid. And maybe once you see that,
you will catch on to the idea that not all debt is mortgage-backed.

Could you estimate how much of it is?
"Could I?" Yes, if I cared to take the time to look at some data on
which to base such an estimate. "Do I care to?" No.

That's funny, I expected that you would ether come up with an estimate or delete this whole section because you don't "care to."

debt is not money,
You keep saying that as if you think it is a valuable insight. Ever
hear anyone say otherwise?

Debt is a term that you use when you have a pile of money appear on your
desk but it comes from somewhere else and you have to pay it back.
That's one scenario. Debt is also a term you use when you buy things
with your credit card, when you make

When you receive a mortgage loan. The *bank* _makes_ the loan.

a mortgage loan to buy a house,
when you buy a car on time, when you buy a property on an installment
contract, when you buy a company for some cash and notes to be paid
off in the future. In none of these cases, or the case you mentioned,
is debt money.

This all started out (you should page up and re read the beginning) with the issue that ".... bonds which are debt, not money" and not with the issue of whether debt was money, but you ended, above, with the phrase "In none of these cases...is debt money" suggesting that you are, after all, all screwed up.


.

Loading