Subprime Factor

I’m reading the novel “Subprime Factor” by CPA Jeffrey D. Schlaman, who’s from Auburn, CA, where I lived (most of the time) from 1980-1993. I graduated from Placer High School in Auburn in 1984.

A CPA targeted for assassination explains to his friends: “Look, that hedge fund invested in tiered mortgage backed securities, meaning that they would buy a bundle of mortgages with different risk ratings. Most would be at the AAA level, or what the ratings companies would call the lowest risk, but then company would have tiers at the AA, A, BBB. After that, anything else is classified as junk or non-investment grade, and many mutual funds and hedge funds have rules about owning junk. But what the market is now seeing is that even liabilities rated AA or A are having the same default rates that were expected for securities that were considered CCC, not just junk, but really bad junk.” (Pg. 82)

Securities markets around the world are having this problem. Even AA securities are probably only worth 70% of the book value, which means that if your hedge funds are leveraged at more than five to one, they are worthless.

What about insurance? Well, there are only two major companies insuring such debt. If they have a trillion dollars in defaults claimed? Such companies only have a few billion in reserves. They’re wiped out.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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