Tuesday, October 13, 2009
"A new wave of financial alchemy is emerging on Wall Street as banks and insurers seek to make soured securities look better. Regulators are pushing back, saying the transactions don't have enough substance and stand to benefit bankers and ratings firms. ... The popular deals are known as 're-remic,' which stands for resecuritization of real-estate mortgage investment conduits. The way it works is that insurers and banks that hold battered securities on their books have Wall Strete firms separate the good from the bad. The good mortgages and bundled together and create a security designed to get a higher rating. The weaker securities get low ratings. ... Some state insurance regulators worry that current ratings are flawed--perhaps even too harsh--for determining the capital that should back up residential-mortgage securities. But they are chafing at the re-remic strategy. That's partly because of the fees and partyluy because re-remics rely on ratings firms--faulted for failing early on to identify problems with mortgage-backed bonds--to rate the new securities", Leslie Scism and Randall Smith at the WSJ, 1 October 2009, link: http://online.wsj.com/article/SB125434502953253695.html.
They're kidding. That any regulator would let one dollar of re-remics be peddled under current circumstances shows how complete regulatory capture is.