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Originally Posted by sebastian_dangerfield
I disagree with the argument that the assets at issue actually had value near that at which they’d been booked (Adder’s argument)
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Yeah. That's not what I said. Turns out they did have value near what the Fed was willing to pay for them, though, and that was intentionally greater than their market value at the time of purchase.
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This would seem to be proven by the fact that only a 3% uptick in delinquencies, when honestly booked, set off the chain that brought it all down.
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It's not necessarily a crucial detail, but the thing you're leaving out, and the assumption that drove all of this, is that the people structuring these products believed that geographically distinct real estate markets were independent. You might get a downturn in Dallas, but we've diversified and put in a sufficient buffer that we're fine as long as the rest of the country isn't going through the same downturn. The products were not built for a correlated downturn around the country. They didn't even think they were. They thought it doesn't happen, because it hadn't happened in modern times.
