Thursday, February 21, 2008

When to stop reading an article

John McDonnell, who attempted to run for the Labour leadership, and thus the Prime Ministership, writing about the SIV structures in Northern Rock really fills you with confidence from line one.
I think that I was the first MP to call for the nationalisation of Northern Rock, although that is hardly surprising because I have been calling for the nationalisation of the financial sector for 30 years or more.
Terrific. During that 30 years or more, McDonnell has obviously not been keeping up with his reading - as he believes that Granite, a Structured Investment Vehicle (SIV), is both under Northern Rock's control, and has taken on the most solid mortgages as a tax dodge. I'm no banker, though I have worked on financial products, but it's pretty obvious to the meanest intellect that Granite bought the mortgages from Northern Rock in return for cash, which it raised by issuing bonds. The income stream from the mortgages then goes to paying the bondholders. It's a method of transferring constant income into a capital sum - realising the asset value of the mortgages.
I'm sure I've fudged the details - but then I'm not an MP calling for the legalised theft of an entire industry, so I don't really have to check my facts too carefully before publishing.

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Anonymous Anonymous said...

I'm not up to speed with the details of Granite SIV either, but I would expect this SIV, just like all the other diced and sliced sub-prime products dumped by the banks onto dumb investors, not to contain the higher quality mortgages. It's more likely that Granite were given as much toxic slime as the Northern Rock could offload. That's how the system works, or at least how it worked up until August last year when the dumb investors cottoned on to the scams.

11:55 am  
Blogger Tim J said...

No doubt helpfuly categorised as AAA or AA by one of the three rating agencies that cover every single issue of every single bond in the world - it's scarcely a wonder that they don't really bother to study each one closely...

12:44 pm  

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