alt.politics.usa.republican

me wrote:

>On Aug 8, 11:22 am, alexy wrote:
>> Vide...@ wrote:
>> >On Aug 8, 8:56 am, alexy wrote:
>> >> Davinchi wrote:
>> >> >alexy wrote:
>> >> >> Lisa Lisa wrote:
>>
>> >> >>> On Aug 6, 3:04 am, Lisa Lisa wrote:
>> >> >>>> /imagepages/2007/08/05/weekinreview/20070805_LO...
>> >> >>> See how they snuck those crappy bonds into the CDOs? Is that kewl or
>> >> >>> what?
>>
>> >> >> In concept yes. In practice, aggregating securities that have many of
>> >> >> the SAME risks (in this case, broad- based economic risk [housing
>> >> >> prices] and poor design or evaluation of the underlying instruments
>> >> >> [poorer than understood credit risk, overselling of low initial rate,
>> >> >> etc.]) does not effectively diversify to lessen the risk.
>[snip]
>> > poor alex. you just do not get it. its the schemes that sink a
>> >economy. it does not matter how they do it, it is that they are
>> >allowed to do it.
>>
>> Good example of the "if I don't understand it, it can't be good"
>> attitude referred to above.
>
> I think that's a bit unfair.
I don't. But as long as those who believe that the constitution gives
the feds the right to regulate everything are kept out of power, we
can freely express our different opinions.

> The poster may not be expressing
>themselves
>in a detailed way, but the basic assertion has some validity. It's
>a variation of the "if it walks like a duck" version of Occum's Razor.
>Basically it is the conflict between the theoretical application of
>the economic theory, and the reality that in the application, the
>details always seem to get lost and the outcome is bad.
Do you have any data to back that up? What is the dollar value of CDOs
that have been written in the last ten years, and what is the dollar
value of those that have had a "bad outcome" (assuming that by "bad
outcome", you mean that someone took a risk that did not pay off)?

> These kinds of instruments practically beg to be misrepresented
>and abused, and that is roughly the point. It's not that they
>can't work, it's that they are an open invitation to abuse.
Why? They are not selling to consumers. Where is the invitation to
abuse? And now that some folks have been caught not doing due
diligence on these transactions, any "open invitation" will be pretty
quickly withdrawn. Bear Stearns and the holders of its failed funds
are meeting in court to find out if there has been abuse, and the
finding there will inform future practice.

> And
>even with supposed "safe guards" in place, it merely serves
>to tell the crooks where to hide the bodies.
Generally, I agree with that sentiment. But here, the safeguards are
the sophisticated investor rules that prevent such offerings from
being made to consumers.

> I understand that everything is open to abuse, and so it is easy
>to make a case that if a theoretical product can be a valid
>product, it should be allowed.
Well, that's too broad, IMHO. Davinchi has mentioned here several
times unequal access to information. And an otherwise sound product
sold in a situation of widely disparate information becomes unsound.

> I guess there is just more of a
>point of view here that some products are so prone to abuse,
>there's little point if allowing their existence.
Well, no denying that is a point of view. But I don't see why they
would be prone to abuse. And while you see little point of allowing
their existence, apparently there are lots of folks who see their
value and buy them.

--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.