but the link lacks detail for the statistical percentages for years etc. I need to find the subprime pecentages for the state of Utah where I want to list my home.
This is off-topic, but take heart, a major IB (not Bear) had an extremely high level , very early this morning meeting regarding the credit markets. I have no idea what was discussed in detail etc. But the fact that these guys were in the City at that hour? Not good.
1:37[NFI] NovaStar continues to honor all existing loan commitments
1:36[NFI] NovaStar temporarily suspended new commitments until Tues.
1:35[NFI] Novastar to return to committing new wholesale loans Tues.
Can anyone help explain how a BBB rated security can end up being rerated as AAA when it is sold as part of a CDO. What is the tortured logic that allows this to happen.
Yes for real and I won't violate a confidence by narrowing the possibilities down. Any conclusions you draw are completely your own and have only a 1 in 7 chance of being correct.
This by far was one of the better illustrations of the process but it would've been great to see an insert of the CDS process as I think this is where the great risk lies.
Can anyone help explain how a BBB rated security can end up being rerated as AAA when it is sold as part of a CDO. What is the tortured logic that allows this to happen.
mark | 08.06.07 - 1:49 pm | #
From what I understand they provide credit enhancement, provide letters or credit or reserves i.e. over collateralize the pool... This is only a layman's explanation...
Tanta may have written something about it in her Ubernerd posts as I remember check the top right of the page... Click on those links...
Assume you take 5 risky loans and pool them, then you sell securities whose values are based on the cash flows from that pool. Say there are two classes of these securities, "first" and "last". As the payments come in on these loans, the 'first' securities get principal and interest. Only after 'first gets paid everything due him or her does 'last' get anything. Although they are all BBB loans, the ratings of 'first' are going to be higher than BBB.
(Disclosure: I have no idea what I'm talking about. Tanta, please tell me I got it right.)
"Can anyone help explain how a BBB rated security can end up being rerated as AAA when it is sold as part of a CDO. What is the tortured logic that allows this to happen."
No AAA security is rerated to BBB.What happens is that for a large pool of junk (or subprime mortgage),defaults will not be will not have correlation=1, this means some fraction of the pool is certain to be paid off and worth a AAA rating.The trouble is that asserting the attachment point is more art than science and points may have been stretched to where AAA tranche may be impaired, although we are a very long way from that.
Aegis unable to fund mortgage loans already in pipeline
2:12 PM ET, Aug 06, 2007 - 4 minutes ago
04. Aegis Mortgage suspends all loan originations
2:12 PM ET, Aug 06, 2007 - 4 minutes ago
It certainly would be ironic if it were Merrill Lynch, they're up today on a favorable recommendation.
I think this is the gist of CDO "magic". If you take a bunch of BBB subprime crap that's paying 10% and can shake-and-bake it into CDO bonds rated AAA-BBB paying an average 8%, you could cover 125% original face value, or you could generously over-collateralize by 10% and still clear 15% of the original face value.
Of course, that's providing you can find someone foolish enough to buy those AAA CDO bonds, and a rating agency compliant enough to go along...
We all know the market would never allow that to happen.
It doesn't matter what the "grade" of the underlying loans are. You can have tranched "prime" securities and tranched "subprime" securities.
The "AAA" rating is on the first position in the cash flow. The investors who hold the AAA-rated tranches get paid first out of the whole pot of money thrown off by all the loans. The BBB tranches only get paid after the AAA is paid off or after a certain number of years, depending. So your AAA rating is a matter of you being in the front of the chow line.
Now, if you buy up a whole bunch of BBB tranches and make a pool out of them, and then tranche up that pool, you'll have an AAA (investors first in line) down to BBB- (investors last in line) for the cash being thrown off of all those BBB tranches. That's the CDO in action.
So it's not turning a BBB into an AAA. It's taking the people who are last in the chow line, mixing them up with people who are last in a bunch of other chow lines, and then giving an AAA rating to the head of the new chow line.
The stock market is looking as volatile as a 70's Ford Pinto being tailgated by an overloaded dump truck with bad brakes. Up/down/up ... when's she finally gonna explode in a ball of flames?
Anyone else notice CFC miraculously spring back over $25 after falling below $24? Short covering or did the traders mistake that lipstick covered swine for a beauty queen?
All these LO and AEs that worked for mortgage companies that are part of big well capitalized firms are just starting to realize that they can still be closed down. "DUH"
You frequent posters be nice to Banker.
Banker's got the right experience, and the right pipeline; he/she's one smart cookie, and writes well.
We can all take lessons from him/her.
Keep the posts flowin', Banker.
Thanks
There are a lot of people betting CFC will gain big market share and kick butt when things recover.
I think the logic of CDOs would work if the likelihood of default of any one of the underlying mortgages was a constant and that there wasn't any correlation between those events.
But they seemed to have ignored the possibility that most subprime pools could suffer unusually high losses at the same time. What if there were a recession and unemployment jumped?
To be fair, CDOs usually had other types of debt wrapped in with the subprime debt.
So it seems that calling something AAA is not correct because there are different types of AAA. Shouldn't there be some type of qualifier for a CDO AAA rated piece of junk. By calling it AAA those that are stupid (me?) will think that they have the same type of safety as a corporate rated AAA bond. When one buys a AAA rated CDO is there any disclosure that comes along with it?
mark:
you make a good point, the ratings agency were misguided in using the same scale to rate credit and what is essentially a market quantitative strategy.
Thanks for this post, Tanta! It's amazing that after 6 months of reading this blog, I feel I finally have a pretty good understanding of the secondary mortgage market. That diagram helped tremendously.
Regarding Aegis, like all of the other lenders in its space, it has made a lot of changes to its loan programs/guidelines recently, according to some of the announcements at this link:
When one buys a AAA rated CDO is there any disclosure that comes along with it?
There is. There's usually a 100-page prospectus that everyone, myself included, will find rough going. Too many people didn't stop themselves and say, "Hey, I don't understand this."
Few CDOs are purchased by retail investors, at least.
Tanta, re yr comments, only an abject fool would describe your posts as ever being less than pretty good, usually droll, informative & grammatically precise. Occasionally they are frighteningly technical for the incognoscenti though. When this happens (eg yesterday's accounting discussion), perhaps a mini-glossary at the start? Ta! We dummies like pictures, so thanks for the link.
And don't take the rate poll results to heart please! BTW I'm not a US cit so didn't vote - had I been though, or had there been a poll for UK serfs to have a say on bank of England rates, I'd have voted (at least) against a cut. Mostly out of spite.
...Now, if you buy up a whole bunch of BBB tranches and make a pool out of them, and then tranche up that pool, you'll have an AAA (investors first in line) down to BBB- (investors last in line) for the cash being thrown off of all those BBB tranches. That's the CDO in action.
Okay, I think I sorta understand this-- but then isn't the original pool still first in line? What if there are more defaults than expected in the original AAA? Doesn't the old BBB have to make it up? What if there's not enough of the new BBB to cover it all? Doesn't that have to come out of the new AAA? So how can it be rated on the same level as the original?
Actually, it sounds like it wouldn't be such a bad idea if there weren't so much incentive for the loan originators to say, "Yeah, yeah, everything's fine. We checked it out. Trust us..." and offload the warmed over crap.
What scares me more is the hedgefunds buying all this stuff on margin. My macro class just got done with the chapters on the money supply, banking and monetary policy. I can't believe that the Fed would really not be worried about the multiplier effect of all this.
This is the point where I really wish some kindly professor would come in and say, "That's the sort of thing we take up in... You're not ready for that yet."
Unfortunately the reaction of the few economists I've been able to run my questions by has been more like a stunned, "They're doing what???" followed by a pause and then a hurried, "Well, that's not really my field, I haven't kept up in that..." which makes me suspect they're fervently hoping that someone knows what they're doing...
Thanks. Don't worry, the folks here are very gentle with me, show a great deal of forebearance and they teach me a great deal. Tt's an awfully good site.
Amusing rally today - bounced the DOW back up to where it was before Friday's drop-off. Short-covering? PPT? Just random noise and/or stupidity? Who knows...
Pondering, I wonder if it was a dead cat bounce because people think things have been oversold or, more likely, a relief rally due to perceived silver linings in the financial sector and the expectation that the Fed will try to sooth the markets tomorrow? However, with the continued litany of woes, in particular from the subprime/mortgage industry, I personally can't see this optimism lasting for long.
I have no idea what was discussed in detail etc. But the fact that these guys were in the City at that hour? Not good.
I think you guys are way too paranoid... could be a perfectly good reason they came in this morning, early... maybe they went to a Rotary Club pancake breakfast together? Bankers always hang out at those in my small town...
dryfly, they weren't in the city early for a Rotary pancake breakfast -- those are on Tuesday mornings. No, they merely car-pooled early in the morning to save on gas and beat the traffic.
The NYT picture was helpful. What doesn't make sense to me about the CDOs is that they should not lower cost of capital, certainly not under a Miller-Modigliani framework.
So either there is a market imperfection where there are investors willing to pay too much for high rated debt or the wall street alchemists are taking advantage of a massive information asymmetry. I'm guessing the latter. Because of the crappy job the rating agencies have done, every tranche is probably overrated because nobody except the originators know just how crappy some of those underlying loans are.
Not only tare he rating agencies probably wrong about the rating, it's also bothered me they apply the same scheme to very different types of securities. If I buy a bunch of BBB corporate bonds from different issuers, I will probably get some diversification benefit as long as the issuers are in different industries. With mortgage CDOs, the diversification has already been applied so a bunch BBB CDOs from different offerings likely gives me no benefit. Looks like the rating mean entirely inconsistent things across different asset classes.
Could anyone explain the role of bond insurers, such as MBIA, FSA, etc., in these transactions? I believe that some insurers were involved in some of the transactions and allowed the bonds to "borrow" their AAA rating. Where do they fit into the mix?
We ain't seen nothing yet. All everyone is thinking about is Residential. Anyone wonder what is going on with Commercial real estate? Likely dead in the water.
Monkey in Chief -- I wonder if the real originators are just a couple of NYC lawfirms working for the big banks. We might see a lot of finger pointing soon.
MIC, BB spoke recently about information asymmetry undermining M-M neutrality. Since he was talking from a basic economywide model he didn't go into layers of intermediaries or financial markets, but the idea that unconveyable information about the borrower results in higher external financing costs to that borrower is there. So we don't even start out in an M-M world where the loan originates.
But then I kind of like your k-tiary story of what happens next, seeing as how in principle the prospects of a cdo contents (investor's problem) should be easier to estimate, if they could see the contents, than the individual prospects of thousands of homeborrowers (originator's problem), even if they know more about you than an application could ever ask.
I think I get the AAA from BBB thing because it depends on the assumption that each pool of loans is uncorrelated. So even if the BBB tranche is wiped out in one loan pool, then this may not happen in another. This should be like daily volatility in a stock is often higher than monthly volatility because of reversion to the mean. So, if one pool has 20% defaults and the BBB tranche is wiped out, another could have just 3% defaulting and the BBB tranche would be fine. The overall default rate then could be lowerthan one particular loan pool. Now add the idea of over-collaterization and and CE (are they the same) so we could assume that the top 50% of BBB rated payments are triple A. The logic falls down in two ways. First it assumes no geographic correlation across pools (the famous idea of there being no nationwide RE market) and second it assumes that the banks/rating agencies did their job and really looked at the quality/properties of each pool in the CDO.
Last point, imagine you are S&P or Moody's and you downgrade the BBB tranches in the MBS pool and then do enough of that across the country. If you do that enough then you admit that you got the sums wrong on the CDO pool so you could wipe out a huge bunch of CDO's including the AAA tranches and be wide open to law suits. If you don't, then investors in the AAA tranches in the MBS pool can sue because they have to share income until Moody's S&P downdrades and washed out the tranches below.
If I'm even half right on this, its all due to you Tanta. I've been reading and enjoying your work for months. Keep it up, excellent.
Can someone help me with a question? I'm looking at the following link
Risky home loans - MSN Money
but the link lacks detail for the statistical percentages for years etc. I need to find the subprime pecentages for the state of Utah where I want to list my home.
Thx,
DR
We now have a firm basis on which to build insights.
That's waaaay too high a bar for this crowd.
Hey, they forgot CDOs squared! Actually, they was one of the better pieces explaining things generally, but they also forgot Alt-A...
Could someone please tell the PPT to knock it off. I really don't care if they are apocryphal, they're ruining my day!
Bob in Ma,
This is off-topic, but take heart, a major IB (not Bear) had an extremely high level , very early this morning meeting regarding the credit markets. I have no idea what was discussed in detail etc. But the fact that these guys were in the City at that hour? Not good.
1:37[NFI] NovaStar continues to honor all existing loan commitments
1:36[NFI] NovaStar temporarily suspended new commitments until Tues.
1:35[NFI] Novastar to return to committing new wholesale loans Tues.
After the Fed talks tomorrow, not more fighting from the Bulls. Today is fed by unjustified optimism about tomorrow
For real Banker?
Lehman's next?
Can anyone help explain how a BBB rated security can end up being rerated as AAA when it is sold as part of a CDO. What is the tortured logic that allows this to happen.
Dis,
Yes for real and I won't violate a confidence by narrowing the possibilities down. Any conclusions you draw are completely your own and have only a 1 in 7 chance of being correct.
Fair enough Banker.
Well... 1 in 6 chances.
Back to your dome!
Pay attention to what Banker says.
Dis,
Yessir!
This by far was one of the better illustrations of the process but it would've been great to see an insert of the CDS process as I think this is where the great risk lies.
Slooow,
Pay attention to what Banker says.
Did you fall down and bang your head?
I'm outta here for a while guys, good luck.
I do pay attention to Banker slo mo.
It looks not good whatsoever.
Yikes!
Can anyone help explain how a BBB rated security can end up being rerated as AAA when it is sold as part of a CDO. What is the tortured logic that allows this to happen.
mark | 08.06.07 - 1:49 pm | #
These are "packaged" with all ratings.
AAA allows a certain percentage of default.
Banker,
See you at Head Bangers Ball LOL
Mark-
From what I understand they provide credit enhancement, provide letters or credit or reserves i.e. over collateralize the pool... This is only a layman's explanation...
Tanta may have written something about it in her Ubernerd posts as I remember check the top right of the page... Click on those links...
Mark,
Assume you take 5 risky loans and pool them, then you sell securities whose values are based on the cash flows from that pool. Say there are two classes of these securities, "first" and "last". As the payments come in on these loans, the 'first' securities get principal and interest. Only after 'first gets paid everything due him or her does 'last' get anything. Although they are all BBB loans, the ratings of 'first' are going to be higher than BBB.
(Disclosure: I have no idea what I'm talking about. Tanta, please tell me I got it right.)
"Can anyone help explain how a BBB rated security can end up being rerated as AAA when it is sold as part of a CDO. What is the tortured logic that allows this to happen."
No AAA security is rerated to BBB.What happens is that for a large pool of junk (or subprime mortgage),defaults will not be will not have correlation=1, this means some fraction of the pool is certain to be paid off and worth a AAA rating.The trouble is that asserting the attachment point is more art than science and points may have been stretched to where AAA tranche may be impaired, although we are a very long way from that.
Aegis unable to fund mortgage loans already in pipeline
2:12 PM ET, Aug 06, 2007 - 4 minutes ago
04. Aegis Mortgage suspends all loan originations
2:12 PM ET, Aug 06, 2007 - 4 minutes ago
Banker,
It certainly would be ironic if it were Merrill Lynch, they're up today on a favorable recommendation.
I think this is the gist of CDO "magic". If you take a bunch of BBB subprime crap that's paying 10% and can shake-and-bake it into CDO bonds rated AAA-BBB paying an average 8%, you could cover 125% original face value, or you could generously over-collateralize by 10% and still clear 15% of the original face value.
Of course, that's providing you can find someone foolish enough to buy those AAA CDO bonds, and a rating agency compliant enough to go along...
We all know the market would never allow that to happen.
HKP, you're close.
It doesn't matter what the "grade" of the underlying loans are. You can have tranched "prime" securities and tranched "subprime" securities.
The "AAA" rating is on the first position in the cash flow. The investors who hold the AAA-rated tranches get paid first out of the whole pot of money thrown off by all the loans. The BBB tranches only get paid after the AAA is paid off or after a certain number of years, depending. So your AAA rating is a matter of you being in the front of the chow line.
Now, if you buy up a whole bunch of BBB tranches and make a pool out of them, and then tranche up that pool, you'll have an AAA (investors first in line) down to BBB- (investors last in line) for the cash being thrown off of all those BBB tranches. That's the CDO in action.
So it's not turning a BBB into an AAA. It's taking the people who are last in the chow line, mixing them up with people who are last in a bunch of other chow lines, and then giving an AAA rating to the head of the new chow line.
The stock market is looking as volatile as a 70's Ford Pinto being tailgated by an overloaded dump truck with bad brakes. Up/down/up ... when's she finally gonna explode in a ball of flames?
Anyone else notice CFC miraculously spring back over $25 after falling below $24? Short covering or did the traders mistake that lipstick covered swine for a beauty queen?
Or you can do the Brookstreet XXX rated pools.
10 to 1 leverage on IOs.
All these LO and AEs that worked for mortgage companies that are part of big well capitalized firms are just starting to realize that they can still be closed down. "DUH"
You frequent posters be nice to Banker.
Banker's got the right experience, and the right pipeline; he/she's one smart cookie, and writes well.
We can all take lessons from him/her.
Keep the posts flowin', Banker.
Thanks
I'm in the bunker posting from the iPhone now. Have we broken through the 10,000 mark yet?
central_scrutinizer,
There are a lot of people betting CFC will gain big market share and kick butt when things recover.
I think the logic of CDOs would work if the likelihood of default of any one of the underlying mortgages was a constant and that there wasn't any correlation between those events.
But they seemed to have ignored the possibility that most subprime pools could suffer unusually high losses at the same time. What if there were a recession and unemployment jumped?
To be fair, CDOs usually had other types of debt wrapped in with the subprime debt.
So it seems that calling something AAA is not correct because there are different types of AAA. Shouldn't there be some type of qualifier for a CDO AAA rated piece of junk. By calling it AAA those that are stupid (me?) will think that they have the same type of safety as a corporate rated AAA bond. When one buys a AAA rated CDO is there any disclosure that comes along with it?
Bob_in_MA,
It would indeed be ironic if it's Morgan, but I stick by my guess.
I bet it's Lehman.
mark:
you make a good point, the ratings agency were misguided in using the same scale to rate credit and what is essentially a market quantitative strategy.
Thanks for this post, Tanta! It's amazing that after 6 months of reading this blog, I feel I finally have a pretty good understanding of the secondary mortgage market. That diagram helped tremendously.
Regarding Aegis, like all of the other lenders in its space, it has made a lot of changes to its loan programs/guidelines recently, according to some of the announcements at this link:
aegiswholesale.com | Fort Myers Mortgage | House Mortgage | Mortgage Loan Officer Resume
When one buys a AAA rated CDO is there any disclosure that comes along with it?
There is. There's usually a 100-page prospectus that everyone, myself included, will find rough going. Too many people didn't stop themselves and say, "Hey, I don't understand this."
Few CDOs are purchased by retail investors, at least.
Tanta, re yr comments, only an abject fool would describe your posts as ever being less than pretty good, usually droll, informative & grammatically precise. Occasionally they are frighteningly technical for the incognoscenti though. When this happens (eg yesterday's accounting discussion), perhaps a mini-glossary at the start? Ta! We dummies like pictures, so thanks for the link.
And don't take the rate poll results to heart please! BTW I'm not a US cit so didn't vote - had I been though, or had there been a poll for UK serfs to have a say on bank of England rates, I'd have voted (at least) against a cut. Mostly out of spite.
...Now, if you buy up a whole bunch of BBB tranches and make a pool out of them, and then tranche up that pool, you'll have an AAA (investors first in line) down to BBB- (investors last in line) for the cash being thrown off of all those BBB tranches. That's the CDO in action.
Okay, I think I sorta understand this-- but then isn't the original pool still first in line? What if there are more defaults than expected in the original AAA? Doesn't the old BBB have to make it up? What if there's not enough of the new BBB to cover it all? Doesn't that have to come out of the new AAA? So how can it be rated on the same level as the original?
Actually, it sounds like it wouldn't be such a bad idea if there weren't so much incentive for the loan originators to say, "Yeah, yeah, everything's fine. We checked it out. Trust us..." and offload the warmed over crap.
What scares me more is the hedgefunds buying all this stuff on margin. My macro class just got done with the chapters on the money supply, banking and monetary policy. I can't believe that the Fed would really not be worried about the multiplier effect of all this.
This is the point where I really wish some kindly professor would come in and say, "That's the sort of thing we take up in... You're not ready for that yet."
Unfortunately the reaction of the few economists I've been able to run my questions by has been more like a stunned, "They're doing what???" followed by a pause and then a hurried, "Well, that's not really my field, I haven't kept up in that..." which makes me suspect they're fervently hoping that someone knows what they're doing...
Ethan,
Thanks. Don't worry, the folks here are very gentle with me, show a great deal of forebearance and they teach me a great deal. Tt's an awfully good site.
Tanta,
Nice flowchart, but where are the Bankrupters and Fraudsters?
Amusing rally today - bounced the DOW back up to where it was before Friday's drop-off. Short-covering? PPT? Just random noise and/or stupidity? Who knows...
Pondering, I wonder if it was a dead cat bounce because people think things have been oversold or, more likely, a relief rally due to perceived silver linings in the financial sector and the expectation that the Fed will try to sooth the markets tomorrow? However, with the continued litany of woes, in particular from the subprime/mortgage industry, I personally can't see this optimism lasting for long.
I have no idea what was discussed in detail etc. But the fact that these guys were in the City at that hour? Not good.
I think you guys are way too paranoid... could be a perfectly good reason they came in this morning, early... maybe they went to a Rotary Club pancake breakfast together? Bankers always hang out at those in my small town...
Dow to INFINITY and BEYOND!!!
I would be curious to hear the Tanta-Take on the Luminescent Mortgage news announcement...thanks in advance!!
dryfly, they weren't in the city early for a Rotary pancake breakfast -- those are on Tuesday mornings. No, they merely car-pooled early in the morning to save on gas and beat the traffic.
The NYT picture was helpful. What doesn't make sense to me about the CDOs is that they should not lower cost of capital, certainly not under a Miller-Modigliani framework.
So either there is a market imperfection where there are investors willing to pay too much for high rated debt or the wall street alchemists are taking advantage of a massive information asymmetry. I'm guessing the latter. Because of the crappy job the rating agencies have done, every tranche is probably overrated because nobody except the originators know just how crappy some of those underlying loans are.
Not only tare he rating agencies probably wrong about the rating, it's also bothered me they apply the same scheme to very different types of securities. If I buy a bunch of BBB corporate bonds from different issuers, I will probably get some diversification benefit as long as the issuers are in different industries. With mortgage CDOs, the diversification has already been applied so a bunch BBB CDOs from different offerings likely gives me no benefit. Looks like the rating mean entirely inconsistent things across different asset classes.
Could anyone explain the role of bond insurers, such as MBIA, FSA, etc., in these transactions? I believe that some insurers were involved in some of the transactions and allowed the bonds to "borrow" their AAA rating. Where do they fit into the mix?
We ain't seen nothing yet. All everyone is thinking about is Residential. Anyone wonder what is going on with Commercial real estate? Likely dead in the water.
Monkey in Chief -- I wonder if the real originators are just a couple of NYC lawfirms working for the big banks. We might see a lot of finger pointing soon.
MIC, BB spoke recently about information asymmetry undermining M-M neutrality. Since he was talking from a basic economywide model he didn't go into layers of intermediaries or financial markets, but the idea that unconveyable information about the borrower results in higher external financing costs to that borrower is there. So we don't even start out in an M-M world where the loan originates.
But then I kind of like your k-tiary story of what happens next, seeing as how in principle the prospects of a cdo contents (investor's problem) should be easier to estimate, if they could see the contents, than the individual prospects of thousands of homeborrowers (originator's problem), even if they know more about you than an application could ever ask.
I think I get the AAA from BBB thing because it depends on the assumption that each pool of loans is uncorrelated. So even if the BBB tranche is wiped out in one loan pool, then this may not happen in another. This should be like daily volatility in a stock is often higher than monthly volatility because of reversion to the mean. So, if one pool has 20% defaults and the BBB tranche is wiped out, another could have just 3% defaulting and the BBB tranche would be fine. The overall default rate then could be lowerthan one particular loan pool. Now add the idea of over-collaterization and and CE (are they the same) so we could assume that the top 50% of BBB rated payments are triple A. The logic falls down in two ways. First it assumes no geographic correlation across pools (the famous idea of there being no nationwide RE market) and second it assumes that the banks/rating agencies did their job and really looked at the quality/properties of each pool in the CDO.
Last point, imagine you are S&P or Moody's and you downgrade the BBB tranches in the MBS pool and then do enough of that across the country. If you do that enough then you admit that you got the sums wrong on the CDO pool so you could wipe out a huge bunch of CDO's including the AAA tranches and be wide open to law suits. If you don't, then investors in the AAA tranches in the MBS pool can sue because they have to share income until Moody's S&P downdrades and washed out the tranches below.
If I'm even half right on this, its all due to you Tanta. I've been reading and enjoying your work for months. Keep it up, excellent.