November 27, 2007
Delegated Decision Disaster
Prem Watsa has never been more bearish, by Derek DeCloet
“The Fairfax chairman said [that structured] products were always flawed because they shifted the risk away from the person making the lending decision - which encouraged auto finance or mortgage companies to give loans to almost anyone, since they would not have to bear the losses on defaults.
‘If I’m an investor, why would I ever buy something where the credit decision has been delegated?’ he asked.”
I remember when I took out a student loan (long ago), I asked the banker if they held the loan and she said, no, we sell it immediately to Sallie Mae. I said, so you have no risk and collect an origination fee, that’s a pretty sweet deal, and she said, ain’t life grand!
-via Controlled Greed -
November 27th, 2007 at 2:56 pm
In Re student loans v. mortgages: Try walking away from your student loan!
November 27th, 2007 at 3:20 pm
CapGain: That’s the trouble with unsecured debt. ;-) It was a small loan and was pre-paid (without penalty!)with dot com bubble trading gains — still I resented the riskless gains made by my local bank… I think of DoE has gotten into the business of loan origination since then.