Saturday, April 01, 2006

A quick and dirty thought...

There are plenty of ABS's (Asset Backed Securities) out there of credit card debt, car loans, etc etc that are sold to institutional investors. I suspect the edge here is that institutions aren't willing to accept packages of HR/E debt (much as historically, junk bonds weren't new issues -- they were always fallen angels that were originally credit grade, but then tanked).Ironically, if we allow plentiful data on new issue high risk loans to be generated, I wonder if we're squeezing ourselves out and allowing the big boys to come in. I mean, there might still be disintermediation edge, but not so much loan supply edge anymore. I hope Chris Larsen's rhetoric is real, and that a big part of the business plan doesn't consist of retail investors taking the risk w/new issue E/HR debt, manipulation of the market to minimize adverse selection(or even cause positive selection), so as to provide better asset class return series for the institutional investment rounds...

Edit: For clarification, my strong belief is that no institutions are willing to take prepacks of HR borrowers w/unsecured, non-short term loans -- anyone have evidence to the contrary?


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