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Any stream of cashflow that has a reasonable amount of predictability will try to be and can be securitized given demand from end buyers. Things that have been

by nrao123 11y ago

Any stream of cashflow that has a reasonable amount of predictability will try to be and can be securitized given demand from end buyers. Things that have been securitized include your credit card payments, mortgage payments, auto payments etc... The risks outlined by the article is not specific to rent checks alone- it applies to all forms of securitization. Unless- Mother Jones is claiming that all forms of securitization bad.

hkmurakami 11y ago
>Any stream of cashflow that has a reasonable amount of predictability will try to be and can be securitized given demand from end buyers. Regarding end-buyers, how much of this demand for yield is one that has been artificially created by the ongoing depressed interest rate environment?
- nrao123 11y ago
  Securitization & Need for yield are two diffetent concepts. I can reach for yield by taking on more risk (e.g. get into financing late state internet companies) and not just buy high risk securitization products. Securitization has existed in high interest environments as well. However- securitization offers a framework to slice up risk in such a way to meet the demand for more yield. E.g.the Z tranches & CDOs of the 2004-2008 era. It could be that rental checks could be a higher risk product & they are being securitzed in such a way to meet the need for yield. But- I am not sure how much exactly.
bkjelden 11y ago
The issue arises when the buyers don't understand the risks involved with these securities. In the last real estate crash, investors didn't understand they were buying mortgages made to people who had no business owning a house as expensive as they did. We don't know what assumptions have been made about these rent checks (aside from a couple off-hand figures such as the 95% occupancy quote), so we don't know whether or not the buyers understand the risks. As the article states - "You kind of just hope they know what they're doing"
Sven7 11y ago
Congratulations. You are smart enough to be working on Wall Street. EDIT: Apologies I really meant he has just about enough imagination, not more not less, to be working on Wall Street. https://www.youtube.com/watch?v=6R00VBj5ehk https://www.youtube.com/watch?v=6R00VBj5ehk
- tradermcnasty 11y ago
  If he really worked on wall st, he would ensure to create tranches of these securitized rental bonds, mixing in plenty of bad ones, getting them top ratings from the agencies, then selling them to the pension funds, cash in his bonus and wait for the whole charade to implode, and demand tax payer serfs bail out as appropriate.
rorykoehler 11y ago
What benefit does securitization bring apart from the ability for a small group of people to turn a quick buck? They add little value to society and offer the potential for gross fraud at, as we have discovered, the expense of the tax payer. Making profit for the sake of profit!
- nrao123 11y ago
  The theoritical benefit of securitization is to sell the exact type of risk to whoever wants that risk. For example - say you take part in a peer to peer lending market and give a loan to 100 people. You go through a life changing event (e.g. have a kid) and suddenly want to reduce the risk of lending to 100 people over the internet and prefer to put it in government bonds. What do you do now? You can resell your loans to another party who will take on the risk and the resulting coupon payments from those 100 borrowers. That is in simplistic terms the process of securitization. However- this process became badly mauled in the 2004 to 2008 period when rating agencies (S&P, Moody's etc) didn't do a good enough job of rating the credit worthiness of these borrowers and then buyers who took on the risk of buying the loans of the borrowers based on the judgement of these rating agencies got hammered. I am simplifying what was the issue of 2004-2008 crisis. But this is just to give you a very quick idea.
  - Scoundreller 11y ago
    > rating agencies (S&P, Moody's etc) didn't do a good enough job of rating the credit worthiness of these borrowers and then buyers who took on the risk of buying the loans of the borrowers based on the judgement of these rating agencies got hammered. I'd argue the real issue was ratings agencies giving the securitized debts AAA ratings when in fact the holdings were toxic. When things went sour, the risk premia just weren't there to cover the impact.
    - nrao123 11y ago
      Yes - I think we are roughly saying the same thing. Misjudged ratings on 1) Underlying borrowers 2) Securitized tranches (e.g. Credit rating of Z tranches and lower tranches) 3) Re-securitized tranches (e.g.CDOs)
crdoconnor 11y ago
Securitization is not intrinsically bad, but the fact that we are seeing more than this is indicative of the fact that the country's wealth is being hijacked by owners and monopolists rather than workers and builders. Imagine how big this market would be if homes were affordable nationwide and Americans could buy them with cash. Not very big, right? Houses didn't get any more expensive to build over the last 30 years, but they shot up in value thanks to policies basically designed to fuck the poor and transfer wealth directly to the rich (ZIRP, de-taxing land/wealth, etc.). Hence the fact that securitization of rental streams is a thriving market rather than just an idea.
- kasey_junk 11y ago
  The reason we are seeing more securitization is that the marketplace demands it. There are lots and lots of market participants that are looking for low risk, small fixed return style investments. This financial product, at least for the latter half of the last century, was almost entirely provided by US governmental debt. The monetary policy of the last decade+ has caused that debt to no longer be an acceptable investment for this. Coupled with the increase in number of investors looking for this style of vehicle (from China and other developing nations) and there is a huge market need. Of course, in the face of a huge market need financial product offerers are going to try new and possibly dodgy means to fill the gap.
  - pas 11y ago
    > The monetary policy of the last decade+ has caused that debt to no longer be an acceptable investment for this. Could you elaborate on why that's the case? What happened to treasury bonds? Which part of monetary policy affected the returns and how?
  - crdoconnor 11y ago
    >There are lots and lots of market participants that are looking for low risk, small fixed return style investments. And you think hopping on the next CDO bandwagon is a low risk investment?
    - 11y ago

by nrao123 11y ago

hkmurakami 11y ago

>Any stream of cashflow that has a reasonable amount of predictability will try to be and can be securitized given demand from end buyers. Regarding end-buyers, how much of this demand for yield is one that has been artificially created by the ongoing depressed interest rate environment?

nrao123 11y ago
Securitization & Need for yield are two diffetent concepts. I can reach for yield by taking on more risk (e.g. get into financing late state internet companies) and not just buy high risk securitization products. Securitization has existed in high interest environments as well. However- securitization offers a framework to slice up risk in such a way to meet the demand for more yield. E.g.the Z tranches & CDOs of the 2004-2008 era. It could be that rental checks could be a higher risk product & they are being securitzed in such a way to meet the need for yield. But- I am not sure how much exactly.

bkjelden 11y ago

The issue arises when the buyers don't understand the risks involved with these securities. In the last real estate crash, investors didn't understand they were buying mortgages made to people who had no business owning a house as expensive as they did. We don't know what assumptions have been made about these rent checks (aside from a couple off-hand figures such as the 95% occupancy quote), so we don't know whether or not the buyers understand the risks. As the article states - "You kind of just hope they know what they're doing"

Sven7 11y ago

Congratulations. You are smart enough to be working on Wall Street. EDIT: Apologies I really meant he has just about enough imagination, not more not less, to be working on Wall Street. https://www.youtube.com/watch?v=6R00VBj5ehk https://www.youtube.com/watch?v=6R00VBj5ehk

tradermcnasty 11y ago
If he really worked on wall st, he would ensure to create tranches of these securitized rental bonds, mixing in plenty of bad ones, getting them top ratings from the agencies, then selling them to the pension funds, cash in his bonus and wait for the whole charade to implode, and demand tax payer serfs bail out as appropriate.

rorykoehler 11y ago

What benefit does securitization bring apart from the ability for a small group of people to turn a quick buck? They add little value to society and offer the potential for gross fraud at, as we have discovered, the expense of the tax payer. Making profit for the sake of profit!

nrao123 11y ago
The theoritical benefit of securitization is to sell the exact type of risk to whoever wants that risk. For example - say you take part in a peer to peer lending market and give a loan to 100 people. You go through a life changing event (e.g. have a kid) and suddenly want to reduce the risk of lending to 100 people over the internet and prefer to put it in government bonds. What do you do now? You can resell your loans to another party who will take on the risk and the resulting coupon payments from those 100 borrowers. That is in simplistic terms the process of securitization. However- this process became badly mauled in the 2004 to 2008 period when rating agencies (S&P, Moody's etc) didn't do a good enough job of rating the credit worthiness of these borrowers and then buyers who took on the risk of buying the loans of the borrowers based on the judgement of these rating agencies got hammered. I am simplifying what was the issue of 2004-2008 crisis. But this is just to give you a very quick idea.
- Scoundreller 11y ago
  > rating agencies (S&P, Moody's etc) didn't do a good enough job of rating the credit worthiness of these borrowers and then buyers who took on the risk of buying the loans of the borrowers based on the judgement of these rating agencies got hammered. I'd argue the real issue was ratings agencies giving the securitized debts AAA ratings when in fact the holdings were toxic. When things went sour, the risk premia just weren't there to cover the impact.
  - nrao123 11y ago
    Yes - I think we are roughly saying the same thing. Misjudged ratings on 1) Underlying borrowers 2) Securitized tranches (e.g. Credit rating of Z tranches and lower tranches) 3) Re-securitized tranches (e.g.CDOs)

crdoconnor 11y ago

Securitization is not intrinsically bad, but the fact that we are seeing more than this is indicative of the fact that the country's wealth is being hijacked by owners and monopolists rather than workers and builders. Imagine how big this market would be if homes were affordable nationwide and Americans could buy them with cash. Not very big, right? Houses didn't get any more expensive to build over the last 30 years, but they shot up in value thanks to policies basically designed to fuck the poor and transfer wealth directly to the rich (ZIRP, de-taxing land/wealth, etc.). Hence the fact that securitization of rental streams is a thriving market rather than just an idea.

kasey_junk 11y ago
The reason we are seeing more securitization is that the marketplace demands it. There are lots and lots of market participants that are looking for low risk, small fixed return style investments. This financial product, at least for the latter half of the last century, was almost entirely provided by US governmental debt. The monetary policy of the last decade+ has caused that debt to no longer be an acceptable investment for this. Coupled with the increase in number of investors looking for this style of vehicle (from China and other developing nations) and there is a huge market need. Of course, in the face of a huge market need financial product offerers are going to try new and possibly dodgy means to fill the gap.
- pas 11y ago
  > The monetary policy of the last decade+ has caused that debt to no longer be an acceptable investment for this. Could you elaborate on why that's the case? What happened to treasury bonds? Which part of monetary policy affected the returns and how?
- crdoconnor 11y ago
  >There are lots and lots of market participants that are looking for low risk, small fixed return style investments. And you think hopping on the next CDO bandwagon is a low risk investment?
  - 11y ago