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Another Subprime View

I started to compile a list of links to articles regarding the Subprime Meltdown, and recently added an article by Davis Einhorn titled “Einhorn on Credit” (note this is a PDF that will open in a reader or offer to be saved). While I agree with much of his view, I feel it important to offer the one comment I disagreed with. “Securitization is a mediocre idea” he offers. Now, he then goes on to say he feels that re-securitization of already securitized assets into a CDO is a bad idea, which I tend to agree with.

Securitization, while it can evolve into something so convoluted as to be incomprehensible, can be, at its simplest, an important process in our economy. Going way back to “It’s a Wonderful Life“, Frank Capra’s 1946 Christmas Film, it’s clear that George Bailey’s issues are a result of the bank he runs not being able to sell off any of their mortgage holdings. In those days, a bank lent out money for mortgages, and should too many people suddenly decide to make a withdrawal, chaos (and a run on the bank) would ensue.

Read the Einhorn story, and let’s continue to follow the subprime story. This, too, shall pass.


  • eric November 8, 2007, 6:03 pm

    “its clear that George Baileys issues are a result of the bank he runs not being able to self off any of their mortgage holdings”

    And here I thought the problem was fractional reserve banking! All the while it was lack of financial creativity — thank goodness we have investment bankers today.

    But seriously, you gave me a good laugh there, hope you were just joking 🙂

    And thanks for sharing the links. I have one to offer:


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