Page 605 - WhyAsInY

“resolvinG tHe Crisis; restorinG tHe ConfiDenCe”
foregoing (except that I met secretly as a deep background source, of no particular utility, with Ken Bacon, an Amherst classmate and then D.C. editor of The Wall Street Journal and that I was asked by the RTC to clear the sale of the Madison Guaranty nonperforming and performing loans, of which one covered Whitewater), but I couldn’t resist talking about the lunacy of this RTC-generated Whitewater scandal.
Effecting My Disposition
So, putting aside all of this talk about the S&L crisis, the political scene at the RTC, the Tate revolt, and the young lady with the blue dress, I suppose that I should describe what I actually did when I worked in Washington.
As I noted, the liquidation (sale) of S&L assets was important to help to repay insured depositors. When S&Ls failed, their assets con- sisted primarily of relatively easy-to-dispose-of assets, such as cash, stocks, and other marketable securities, and home mortgages (most of which look alike and were disposed of through the RTC-championed process of securitization, which, as you might know, grew quite large as a Wall Street tool and ultimately was a primary catalyst for the “Sub- prime Mortgage Crisis” of 2006–2008).18 I had nothing to do with that
18. Simply described, securitization refers to the pooling of home or commercial mortgages (or, later, of other assets, such as automobile loans) and the sale of bonds called “mortgage-backed securities,” which would be secured by and, hopefully, paid off through the collection of princi- pal and interest payments anticipated to be made by the borrowers. The primary wrinkle devel- oped by the securitizers was to divide the cash that was to be paid into the pool into “tranches” (slices), which would bear varying degrees of perceived risk of non-payment. The purchasers of bonds with the least risk—the ones who would be entitled to receive the first moneys to be paid with respect to the mortgages securing the bonds—would receive the lowest rate of interest on their securities; the purchasers of bonds secured by the last moneys anticipated to be received would bear the highest risk, and would therefore receive the highest rate of interest; and there would be bonds of ascending interest rates issued with respect to the many possible levels of risk in between. When the “housing bubble” burst, the securities that were to have been paid off through the collection of debt service on the pooled home mortgages failed, as did the securities that were in turn secured (directly or indirectly) by pools of the mortgage-backed securities. So,
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