Is the bailout for securities which were deliberately designed to be high-risk?

Greg Palast wrote that the Mortgage Backed Securities (MBS) which Bush wants
to bail out were called "tranches". He uses the word like it means
"package". But in fact a "tranche", (French for "slice"), specifically
means a level of risk in a venture, like "preferred" and "common" stock. If
the MBS are really "tranches" there must be high-risk, high-yield, shares
and low-risk, lower-yield shares. The mortgage payments would go into a
special account, the low-risk MBS would be paid from that account, and the
rest of the money, reduced by any defaults on mortgages, would go to the
high-risk tranches. Only those high-risk tranches, sold at high prices
because of their risk, would now be in any danger.

Does anybody know if these MBS are really high-risk tranches?

It would not surprise me for the government to want to bail out the very
people who deliberately assumed a high risk in exchange for higher interest.
The voters certainly do not know this, but they should.

Does any reader know? Does anybody know how to find out?

It know it would make a lot of difference to the voters. They might help
"innocent" bankers who gave loans to too many citizens; the voters would
not want to bail out speculators who were looking for a fast buck when they
knowingly bought into the higher-risk tranche.

Does any reader know if the government is really planning to bail out
speculators who bought the higher-risk tranches?

Harland Harrison
LP of San Mateo County CA

I don't understand "Only those high-risk tranches, sold at high prices
because of their risk". Higher risk tranches would have been sold at
lower prices, so that for any given interest rate, the effective yield
would be higher.


Byron King at Agora asks an interesting question.
On S700 Billion equals a hundred thousand loss on 7 million foreclosed homes. Nobody says that this many foreclosures are involved, so what they are really trying to bail are the derivitives, the credit insurance, the repackaged sliced and credit insurances and 1000 trillion of all kinds of other bets. Thats over 1000 trillion, and I have read larger. If only 1 percent of these has to be bailed out, thats 10 trillion, doubling the national debt overnight or launching us into immediate triple digit inflation. It's just too big to save. the Feds should just save themselves and save the money to put a floor under all the suffering humanity when this blows. Better to blow without hyperinflation. At least a jar of peanut butter won't cost a hundred dollers.ep 27, 2008, at 12:56 PM, Harland Harrison wrote: