it aint that funny, this guy is not trading trying to set him and his family up for life, he is really trying to do what they told him at Harvard was the right thing to do. Cracks me up. Every trader on ET has a better idea. I doubt seriously that it is going to make much difference one way or the other. When you start spending more than you are making, there are all kinds of creative ways to fix the problem. My personal favorite is put it on the credit card and sort it out later.
.... attachment and detachment points in the collateral pool as well as the quality of the pool itself. It's amusing that ET is both cynical, ignorant, and entirely nihilistic.
That's incorrect, you obviously have no knowledge of the fed collateral process. Don't give a textbook answer when you have never worked in this space. What happens in reality is very different than a book
I don't think their balance sheet is loaded up with toxic paper but that still leaves two serious problems: Even if there is not a boatload of truly toxic crap there is no doubt that the credit quality of their assets is a solid bite (maybe two bites) lower than it was five years ago and even 80 years ago during The Great Depression. At the same time the quality of their asset base is lower they have expanded their leverage by a stunning amount. If you really intend to be the lender of last resort you need a whole bunch of spare capacity in the crunch. I believe the crunch is yet to come and the world is a much more precarious place with a weaker Fed as the final backstop.
As it turns out, I have indeed worked in this space; I traded credit and mortgage some time back. "Fed collateral process"? Isn't that the terminology for fed's discount window rather than the asset purchasing programs? Wait, perhaps you meant the assets that can be pledged are crap rather than the assets bought by the Fed through the QE programs? (in that case, I take back calling you ignorant; we might be talking about different things).
I should also point out that all MBS bought by the fed were 'agency' (http://www.newyorkfed.org/markets/ambs/). There's none of that no-doc junk crap in those collateral pools. Attachment point is the percent loss that a collateral pool must take before the tranche is hit; detachment point is when the tranche is completely gone.