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.