On Dec 13, 2007 10:49 AM, Doug Henwood <[EMAIL PROTECTED]> wrote: > > By accepting junk collateral at the new auction, for one thing: > > http://www.frbdiscountwindow.org/discountmargins.pdf > > > > Specifically non-AAA CLO/CDOs at 85% par. > > WS is screaming about that haircut. But in any case, say the Fed > takes a loss on this (which is unlikely, because the bank is still on > the hook and would be *very* reluctant to default on the Fed). Who > would pay for that exactly?
I suspect the screaming is all a charade. I agree that it is highly unlikely any institution will default on the Fed. If necessary the Treasury will arrange a "private sector transaction" to prevent that. But speculatively who would pay for that? In the ultimate analysis the Chinese and Arab central banks. No need to weep for those guys of course, but there is still the glaring injustice of allowing poor people to get foreclosed on while protecting rich institutions. Is there a cost associated with that? -raghu.
