[petercooper]

I’ll admit I don’t fully understand the derivatives aspect to this story, but the basic story is loans were give to people who couldn’t afford them. Now the loan cannot be repaid, but the banks still own the underlying asset- the home- yes probably overvalued by 20% or so, while these loans are marked down as worthless. Eventually there must be big write-ups coming down the pike, and firms buying this stuff on the cheap will profit.

Is this the story?

[Thane_Banquo]

Eventually there must be big write-ups coming down the pike, and firms buying this stuff on the cheap will profit.

Eventually there will be write-ups on a number of the mortgage securities. Problem really was in the derivatives built off of the underlying mortgage securities, that banks owned in huge size under the asinine assumption that homeowner defaults would not be correlated and that interest rates would remain at all time lows.

Question is whether you can afford to sit with them or not. There are pressures on people who manage money to make moderate profits right now, not colossal profits 3 years from now.

[PeterPrinciple]

Is this the story?

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During the savings and loan crises the company I was consulting with bought packages of loans for $.25-.30 on the dollar. Some loans were worth zero, some were fully collectible. I think the average collection was $.60-.70. Double what paid. Was good profit but there was a lot of work and risk on collecting those loans.

This was a good way to convert illegal $ into legal $ and there were shady characters buying the most worthless loans.