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User Info	Evolution Wall St. Mortgage Strategy; entered at 2007-12-02 10:55:13
Mtgspy Posts: 6202 Registered: 2007-10-27	Before 2006 is simply buy at $102 sell at $104 through hedge fund conduits, ABCPs, and CDO shops. Early 2007 a) Buy at $100 b) Structure into Bonds and Buy Back the BBB and A risk c) Effectively selling at $98 d) Accounting records -2$ net earning and -$2 cashflow. This is the panic Aug-Nov when people are looking at net losses in Merril, Citi, etc. Late 2007 a) Buy at $100 b) Structure into Bonds, but... c) Not buying back the BBB, A, and AA risk d) Instead Sell at $100. e) GIVE TO THE BUYER FOR FREE protection on the BBB, A, and AA risk (8% of the loan balance) f) The CDS value at initiation is $0. Because the protection rate is 20%+. g) Accounting record $100 proceed and $0 on the derivative as it is REAL price. h) One year later there is a $0 profit with -$8 cashflow from the transaction. I can't wait for 2008.