Comments on: Banks Refusing to Lend Against Subprime Collateral http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime.html Sun, 22 Nov 2009 04:39:16 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Anonymous http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime.html#comment-389 Anonymous Wed, 15 Aug 2007 12:41:00 +0000 http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime-collateral/#comment-389 So what you mean is why did they lend the money in the first place?<br/><br/>You made me credit worthy!!!! So what you mean is why did they lend the money in the first place?

You made me credit worthy!!!!

]]> By: Anonymous http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime.html#comment-386 Anonymous Wed, 15 Aug 2007 04:35:00 +0000 http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime-collateral/#comment-386 The thing is, collateral is what the bank looks to when the loan goes bad. It wants to get paid out. Now, before bad turns to worse, as years of experience tell a banker it inevitably will. It is not so much a question of whether it has value or not, it is a question of liquidity.<br/><br/>And subprime collateral, whether or not valuable, is not very liquid right now. The thing is, collateral is what the bank looks to when the loan goes bad. It wants to get paid out. Now, before bad turns to worse, as years of experience tell a banker it inevitably will. It is not so much a question of whether it has value or not, it is a question of liquidity.

And subprime collateral, whether or not valuable, is not very liquid right now.

]]> By: Yves Smith http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime.html#comment-385 Yves Smith Wed, 15 Aug 2007 04:26:00 +0000 http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime-collateral/#comment-385 I probably should have elaborated a bit. Remember that subprime is backed by houses, and that houses, even in a distressed market, do have value.<br/><br/>Unless you are talking about the toxic waste tranche of a CDO that is composed entirely of subprime, there is value in this paper. You could look at the ABX for a proxy and haircut it severely. But banks are full of bureaucrats who are not very well paid, and they go with surprising speed from being too lax to too stringent. <br/><br/>But yes, lending to a distressed market does look awfully speculative to them.... I probably should have elaborated a bit. Remember that subprime is backed by houses, and that houses, even in a distressed market, do have value.

Unless you are talking about the toxic waste tranche of a CDO that is composed entirely of subprime, there is value in this paper. You could look at the ABX for a proxy and haircut it severely. But banks are full of bureaucrats who are not very well paid, and they go with surprising speed from being too lax to too stringent.

But yes, lending to a distressed market does look awfully speculative to them….

]]> By: Anonymous http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime.html#comment-384 Anonymous Wed, 15 Aug 2007 04:16:00 +0000 http://www.nakedcapitalism.com/2007/08/banks-refusing-to-lend-against-subprime-collateral/#comment-384 Sure, there's a price it which it would make sense to lend against subprime collateral if you were a speculator.<br/><br/>But banks are not in the speculation business. Yes, of course they accept credit risk. But they don't have the gambler mentality. They always expect to be paid, and are vaguely surprised when they are not. Sure, there’s a price it which it would make sense to lend against subprime collateral if you were a speculator.

But banks are not in the speculation business. Yes, of course they accept credit risk. But they don’t have the gambler mentality. They always expect to be paid, and are vaguely surprised when they are not.

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