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> The Wall Street Journal reported last month that Jefferies was working with the company on a sale of bonds backed by LendingClub loans to less creditworthy bo

> The Wall Street Journal reported last month that Jefferies was working with the company on a sale of bonds backed by LendingClub loans to less creditworthy borrowers. Ah! So we're back in the derivatives market. Buy up crap, package and obfuscate it, then sell it off as "high quality" crap to investors desperate for yield.

hammock 10y ago
"Buy up crap, package and obfuscate it, then sell" is properly called securitization. http://www.investopedia.com/ask/answers/07/securitization.asp http://www.investopedia.com/ask/answers/07/securitization.as...
minimax 10y ago
There are no derivatives here. Jefferies was going to sell bonds backed by the loans. The payments on the loans would effectively flow directly to the bondholders. A derivative (e.g. a CDS) would be more like a side bet between two (possibly unrelated) parties based on the performance of those bonds.
- vostok 10y ago
  This is actually a pretty typical example of a derivative. You can buy these bonds to get exposure to the loans without having to worry about managing them directly. A CDS would be a derivative on a derivative. It would allow you to get exposure to these bonds without worrying about being long or short a particular issue.
  - aianus 10y ago
    By that logic, S&P 500 ETFs would be 'derivatives' too. (They're not.)
    - joncooper 10y ago
      https://en.wikipedia.org/wiki/Asset-backed_security https://en.wikipedia.org/wiki/Asset-backed_security
    - vostok 10y ago
      I guess it depends on your definition. It would seem that, from a layman's perspective, ETFs and ABSs are both derivatives. If we look at GGP's comment > Buy up crap, package and obfuscate it, then sell it off as "high quality" crap to investors desperate for yield.
  - partytran 10y ago
    Derivatives generally introduce leverage on a tracked asset. Leverage isn't a feature of securitized loans.
shostack 10y ago
As long as there is transparency around the risk, what is the problem with selling bonds against it?

hammock 10y ago

"Buy up crap, package and obfuscate it, then sell" is properly called securitization. http://www.investopedia.com/ask/answers/07/securitization.asp http://www.investopedia.com/ask/answers/07/securitization.as...

minimax 10y ago

There are no derivatives here. Jefferies was going to sell bonds backed by the loans. The payments on the loans would effectively flow directly to the bondholders. A derivative (e.g. a CDS) would be more like a side bet between two (possibly unrelated) parties based on the performance of those bonds.

vostok 10y ago
This is actually a pretty typical example of a derivative. You can buy these bonds to get exposure to the loans without having to worry about managing them directly. A CDS would be a derivative on a derivative. It would allow you to get exposure to these bonds without worrying about being long or short a particular issue.
- aianus 10y ago
  By that logic, S&P 500 ETFs would be 'derivatives' too. (They're not.)
  - joncooper 10y ago
    https://en.wikipedia.org/wiki/Asset-backed_security https://en.wikipedia.org/wiki/Asset-backed_security
  - vostok 10y ago
    I guess it depends on your definition. It would seem that, from a layman's perspective, ETFs and ABSs are both derivatives. If we look at GGP's comment > Buy up crap, package and obfuscate it, then sell it off as "high quality" crap to investors desperate for yield.
- partytran 10y ago
  Derivatives generally introduce leverage on a tracked asset. Leverage isn't a feature of securitized loans.

shostack 10y ago

As long as there is transparency around the risk, what is the problem with selling bonds against it?