Lambert Strether: “Why not convert “probably” “very probably” or even “certainly” by allowing the loan tapes to be examined?
What loan tapes? My understanding is the banks’ holdings are largely “super-senior tranches”. These are synthetic securities, constructed out of CDSs on “real” securities, real in the sense that they are derivatives of derivatives of pools of actual mortgages. It’s conceivable that the original documents for the actual mortgages could be made available to potential buyers of real tranches: there’s a contractual chain linking the mortgage originator to the current holder of a tranche which somehow depends on it. It is very unclear, however, which actual mortgages a synthetic security depends on. More to the point, there’s no contractual chain lining the holder of the synthetic security back to the holder of an actual mortgage. The CDSs that were used to construct the synthetic security are side bets on the (change in) value of some real security, made by people who have no actual relationship to the real security, and have no entitlement to go rooting through sets of confidential docume
