Yeah, they bought the bad stuff.
This reminds me of something that happened in some county in California about 15 years ago. The County Treasurer fancied himself a big-time investor, and he was well thought of, because the funds under his control were earning several percentage points more than his peers. It turned out he was buying securities from Merrill Lynch that had ungodly amounts of interest rate and prepayment risk, which accounted for the high initial payment rate. The market changed and the portfolio went a couple billion dollars of *poof*.
Merrill claimed he was sophisticated and the risks had been explained; he claimed otherwise, and they settled.
That was different than the current situation, though, because no one ever said the underlying assets from which his securities were derived were bad.
I think the guy was a pompous doofus AND the Merrill salesmen knew it.
Yep. And that was in Orange County.
But I have read that these “securities” were being sold as “risk free” as I remember. Only problem is that none of this “stuff” has been marked to market. Isn’t that what has happened here? This bank was made the call to just come totally clean and be done with the stinking mess. One major mess, and they are done. I don’t believe that ANY American bank has done the same.