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FOR more than a decade, the American real estate market resembled an overstuffed novel, which is to say, it was an engrossing piece of fiction. Mortgage brokers hip deep in profits handed out no-doc mortgages to people with fictional incomes. Wall Street shopped bundles of those loans to investors, no matter how unappetizing the details. And federal regulators gave sleepy nods. That world largely collapsed under the weight of its improbabilities in 2008. But a piece of that world survives on Library Street in Reston, Va., where an obscure business, the MERS Corporation, claims to hold title to roughly half...

February 28, 2011, 3:37 pm Commercial Real Estate Breathes Life Into a Moribund Market By SUSANNE CRAIG A crucial part of the securitization market — the Wall Street credit machine that helped set off the financial crisis — is kicking back into gear. In the last few weeks, a number of big banks have successfully bundled and sold new securities backed by commercial real estate loans. Morgan Stanley and Bank of America completed a $1.55 billion deal last month that included office and retail properties. So far this year, financial firms have sold about $5 billion of commercial mortgage-backed securities,...

In a statement to the Congressional Hearing, Alan Greenspan, the former chairman of the Federal Reserve, defended his policy on interest rates and placed the blame for the recent crash on the fact that most new mortgages in the final years of the property boom were securitized. According to Mr. Greenspan: “By the first quarter of 2007, virtually all sub-prime originations were being securitized, and sub-prime mortgage securities outstanding totalled more than $900bn.” An economist of equal weighting and stature, Mark Zandi, chief economist of Moody's Analytics, countered Mr. Greenspan’s comments by suggesting to the hearing that “aggressive monetary policy...

Its not enough to rig leverage limits as Henry Paulson asked for and was granted when he ran Goldman Sachs. Its not enough to watch both Bear and Lehman blow up as a consequence of that excessive leverage. No, now we have to find new and innovative ways to cheat capital requirements! Investment banks, including Goldman Sachs and Barclays Capital, are inventing schemes to reduce the capital cost of risky assets on banks’ balance sheets, in the latest sign that financial market innovation is far from dead. The schemes, which Goldman insiders refer to as “insurance” and BarCap calls “smart...

When Debt Securitization Blew Up So Did the Economy 2009 Mar 04, 2009 Mike_Whitney /snip One thing is certain, this isn't a normal recession. In a normal recession aggregate demand declines, economic activity slows, and GDP shrinks. While those things are taking place now, the reasons are quite different. The present slump wasn't brought on by a downturn in the business cycle or a mismatch in supply and demand. It was caused by a meltdown in the credit system's central core. That's the main difference. Wall Street's credit-generating mechanism, securitization, has broken down cutting off roughly 40 percent of the...

SMART investors love crises. People panic, everything gets out of whack, securities get cheaper, and the world gets more interesting. Academic types also love crises because they produce data, which prompts questions and every once in a while produces some answers. August, the month in which everything went awry on Wall Street, offered up fascinating data. The financial world trembled, which it does every so often, and even though everyone seemed to know it was coming, everyone seemed surprised. Two recent papers, one academic and one written for investors, examine the August unwind. They reach similar conclusions about risk (there...

“THE medium-term outlook for the company is very positive,” declared Northern Rock's chief executive, Adam Applegarth, unveiling its first-half results in July. He spoke of a credit book that was “robust”. Who would have guessed that less than two months later Britain's fifth-largest mortgage lender would be fighting for its life, its branches besieged by customers demanding their savings back? The run on Northern Rock is the most dramatic symptom of the contagion gripping the financial markets. Here was a bank that had grown rich from the innovations of recent years, using abundantly stocked wholesale markets to fund its lively...