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Banks track down ABS subprime exposure


Investor in Tibet effectively holds 90% of all issued subprime ABS


Investment banks after a long and exhaustive search have discovered the beneficial owner of the majority of the US subprime exposure. This exposure has been distributed through a large number of vehicles mainly relating to the securitisation process. Many of them have been used to create CDOs (Collaterialised Debt Obligation). These are pieces of mathematical genius whereby banks and rating agencies can turn up to 85% of a portfolio of BBB subprime mortgages into AAA securities. These can be held by risk adverse investors. The exposure to subprime is further spread by the use of conduits and SIVs (special investment vehicles). The former have often been set up by banks as off balance sheet vehicles that investment in subpirme mortgages. The investments are often financed by the issuance of short term bonds (called commercial paper). The terms of these vary and are complex, but generally lead to some exposure for the owner of the commercial paper issued by the conduit to subprime. These are often purchased by money market funds as they are deemed high quality. All these financial instruments had led the market to believe that exposure to subprime was widely dissipated and led to much speculation as to where the eventual exposures lay.    

Now after extensive investigations analysts at top investment banks have arrived at a stunning conclusion. Through a series of money market fund investments, bizarre cross holding, Canadian conduits, German banks and inadvertent and unwitting use of leverage the vast majority of the subprime mortgages are owned by one investor in Tibet. The investor was said to be surprised by the revelation when it was revealed to him. If the default rates continue to rise on subprime mortgages the investor could end up owning substantial chunks of the United States. This is rather surprising when one considers that the investor’s net worth is currently $1.25.  

Some are pointing to this as a wonder of modern capitalism, that one poor man could own so much. Others are pointing to it as the death toll of the current credit market. The investor is said to be consulting his religious advisers to help him get through this stressful period.


Shock Revelation: Subprime mortgages given to Zoo Animals


            Investigators today revealed that some mortgages companies in Florida and California had given lent mortgages to a variety of Zoo animals. These mortgages were subsequently packed for securitisation and many have found their way into CDOs of ABS. After the announcement rating agencies said that they had been aware of these loans and produced statistics showing that a remarkable preponderance of the loans went to monkeys. They said it was too early to tell what effect these loans might have on defaults.

            Investigators say it is unclear what exactly the animals did with the money, though they do point to the recent upsurge in banana buying as a possible clue. Interestingly all the loans are currently not in delinquency and investigators are also unclear how the animals are servicing the loans.

Federal regulators said that they had no plans to investigate the activity as Zoo animals were not within their jurisdiction. 

German Bank fined for not having Subprime Exposure


            The German regulator today fined a regional bank because the bank did not have any market exposure to American subprime debt. The regulatoir said that during one of its periodic reviews it discovered that there was no exposure in any form to subprime debt in the US. Apparently this situation had been in existence for a number of months. Regulators expressed further concerns that the risk controls in the bank had not picked up this fault. In a carefully worded statement the regulator said “We consider that exposure to US subprime debt is fundamental to the business of commercial and retail banks operating in Germany today. Failure to have this exposure can lead to a fundamental break down in world markets. This regulator will take all steps necessary to ensure that this does not happen.”

Subprime does not mean sub prime

Regulators, they're better than nothing...well almost