Saturday, December 22, 2007

MBS, SIV, CDO explained

The following article from defines how the Mortgage Backed Securities, Structured Investment Vehicle and Collateralized Debt Obligations are positioned in the grand schema and how they work.

With the Fed jumping in with additional liquidity, it is of some help to ease the hardlanding, however, as one of the author in either Time/BBC puts it, there is not much use in applying grease for a broken chain of the bicycle.

My analogy from a different view:

Assume you bought a big ship to catch huge amounts of fish from an ocean and a sudden oil spill has disrupted in the fish returns. Though the Fed here tries to nurture fishes through local ponds, rivers, and releases the reserved frozen fishes, the long term demand is unlikely to be quenched. A real fix of cleansing the spilled oil seems to be beyond Fed's cusp (at least based on actions till date) and left to voluntary action from banks/institutions. In addition, the increasing fund injection through reduced rates could potentially cause other side effects.

One medicine that I see of big helping hand is the Sovereign Wealth Funds (SWF), but the side effect of that in terms of political aspirations cannot be discounted, at least not yet.

1 comment:

Anonymous said...

It is a pity, that now I can not express - there is no free time. I will be released - I will necessarily express the opinion.