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Post by jeffolie on Feb 15, 2007 19:06:12 GMT -6
One more thing on the neg-am. Through one of the great quirks of 21st century accounting, neg am securitizations result in the following progression:
-the borrowers “owe” imaginary interest at a 7.5% yield -the MBS hedge funds “accrue” imaginary interest income at a 7.5% yield -the MBS hedge fund investors PAY real 20% incentive fees on a levered 7.5% yield.
What a scam! That the hedge funds receive cash bonuses for what they will never collect upon is the key to the whole business. 7.5% levered 5x in Yen at a Zirp-tastic .5% yields a 35% annual return. A $1b portfolio pays out $90m in fees (inc. the 2%), and you only need 3-4 people to run the thing.
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Post by unlawflcombatnt on Feb 16, 2007 18:17:26 GMT -6
One more thing on the neg-am. Through one of the great quirks of 21st century accounting, neg am securitizations result in the following progression: -the borrowers “owe” imaginary interest at a 7.5% yield -the MBS hedge funds “accrue” imaginary interest income at a 7.5% yield -the MBS hedge fund investors PAY real 20% incentive fees on a levered 7.5% yield. What a scam! That the hedge funds receive cash bonuses for what they will never collect upon is the key to the whole business. 7.5% levered 5x in Yen at a Zirp-tastic .5% yields a 35% annual return. A $1b portfolio pays out $90m in fees (inc. the 2%), and you only need 3-4 people to run the thing. Let me see if I'm following this. The $90m in fees paid out is for investments with a 7.5% yield doesn't really ever occur. Is that correct?
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Post by jeffolie on Feb 16, 2007 20:07:42 GMT -6
Yes. Using borrowed money (the yen carry trade) to levage the nonexistent yield from nonexistent mortgage payments (from the negative amortization option ARMs) an accounting entry is created showing revenue for the hedge fund.
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