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User Info	What am I missing about ABX ?; entered at 2007-12-02 04:55:30
Yal Posts: 3544 Registered: 2007-06-27	Analyzer, Thanks for your reply. Indeed there are many facts which I am missing (and still do) I still do not understand why KD think that the credit enhancement (lower rated trenches protect the AAA trenches by absorbing the 1st defaults) is causing the proposed rate-freeze to cause ABX going down - in my mind it is the other way and I will explain: As you point out the plan will be for those who are still current on their mortgage but have difficulty to pay further - I am sure many people in this category are those people who are going to have their rates RESET UP during 2007/2008 (we all have been watching the reset schedules graphs for a year now) The ABX are down because there is FEAR of INCREASED default rates. No one can know - who among that now are current is going to default next - clearly a rate- increase increases the odds of default GREATLY. So now come this rate freeze (and you are again correct saying that banks have quietly been doing this already - but that is the rub - to do this they had to use qualified loan officers to qualify those people and also get agreement from the MBS/Mortgage holder) Now this will be done - not universal - but in a more wider way and would involve more banks, more homes - and thus would require less thorough checks on a person by person basis (i.e. more such adjustments can be done in a short time - since until now loan officers have been some kind of a bottle neck) The end result is that for the next 3 years the PROSPECTS for ADDITIONAL defaults should be greatly reduced. Once this FEAR is removed ABX will go up, mortgages will be traded and SIV will be protected (plus the housing market may not fully recover but will be out of downward spiral it is now) -------------------- Now maybe my view is wrong and your view is correct (always possible) but I have two questions: 1. If this is so bad - why Paulson wants it ? and why banks/mortgage holders will agree to it ? 2. In the short term - what will be stock market perception to such a deal ? I think the market will love it. Last modified: 2007-12-02 04:56:51 by yal 2007-12-02 04:55:30