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Wall Street Cleverly Carves Up Bad Assets
So cleverly, in fact, that regulators are getting worried
By Kevin Spak
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Posted Oct 1, 09 7:31 AM CDT
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(Newser)
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Wall Street’s financial magicians have come up with a way to transform toxic assets into shiny new ones. In popular new deals called “re-remics,” a sour mortgage-backed security is split in two, one containing all the good mortgages, the other all the bad, the Wall Street Journal explains. The result: a saleable asset, and a cleaner balance sheet. The firm now needs to hold less capital to back the assets, even though the assets essentially haven’t changed.
That trick doesn’t sit very well with regulators. They’re concerned about the big fees being paid to banks and ratings agencies in the process—re-remic-ing is “not cheap,” lamented one insurance executive—and distrust any scheme that relies on the agencies that failed so spectacularly in the financial crisis. “The credit-rating agencies could be setting us up for problems all over again,” Rep. Dennis Kucinich said yesterday in hearings on the matter. Re-remic stands for resecuritization of real-estate mortgage investment conduits.