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The seller works out great until the buyers decide they no longer want the product. In the housing crisis this was because the sellers of the security had them
by compiler-guy 5y ago
The seller works out great until the buyers decide they no longer want the product. In the housing crisis this was because the sellers of the security had them rated far higher than they should have been. Will these be rated properly? Very hard to m know.
But the seller ends up I trouble if they can’t sell the security because they are relying on the cash flow to finance the rest of the business.
It all works fine as long as the pipeline flows.
- beerandt 5y agoRegardless of the rating, the risk is entirety different, since vehicles almost always depreciate, and do so faster than the debt is paid off, whereas people expect real estate to appreciate long term. Even a highly rated vehicle note is still based on the fact that the asset will fully depreciate somewhat in line with the outstanding debt.
- imtringued 5y agoFaster than usual depreciation would still ruin some loans.
- beerandt 5y agoWe're talking packaging the loans into a bundle, so it'd need to be faster than usual depreciation across the market, for some unforseen (aka not priced-in) reason. Otherwise it'd average out.