The banks’ cunning MBS plan

By Felix Salmon
July 2, 2009

Heidi Moore has 1,200 words on bank bonuses in The Big Money. But it being a holiday weekend and all, I know you can’t be bothered to read the whole thing. So here’s the shorter version:

All those bonuses can’t be coming from banking. But it turns out that the banks have been buying up billions of dollars of subprime mortgages, driving up their price. If they carry on doing that a bit longer, the market price will go higher than the price the banks have on their books, and they can then mark their mortgage book to market and report lots of lovely profits. What could possibly go wrong?

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