Comments on: Regulatory arbitrage of the day, re-remic edition http://blogs.reuters.com/felix-salmon/2009/10/01/regulatory-arbitrage-of-the-day-re-remic-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Sandrew http://blogs.reuters.com/felix-salmon/2009/10/01/regulatory-arbitrage-of-the-day-re-remic-edition/comment-page-1/#comment-7482 Fri, 02 Oct 2009 22:02:11 +0000 http://blogs.reuters.com/felix-salmon/2009/10/01/regulatory-arbitrage-of-the-day-re-remic-edition/#comment-7482 “If these things were really attracting new demand, that would be one thing — and indeed Treasury might try to revamp PPIP so as to create liquid triple-A-rated tranches of groups of formerly-distressed assets.”

Care to elaborate on what that “one thing” is? You seem to be suggesting that if AAA-rated tranches of securitized assets were to “attract new demand”, then somehow the taint of regulatory arbitrage is wiped clean.

I’ll proffer again my solution to this flavor of regulatory arbitrage: that in any securitization, the regulatory capital requirements for the securitized pool be held constant both ex-post and ex-ante securitization. Capital requirements should travel with the risk, no matter how it is sliced and diced. If you want to use securitization to reorganize the risk profile of a pool of assets (be they loans, bonds, mortgages, other securitized products, or whatever), the aggregate capital requirement for the securities backed by that pool should equal the aggregate capital requirement of the pool prior to it’s having been sprinkled with securitization-flavor pixie dust. And for fun, let’s call it the law of conservation of regulatory capital.

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By: Kiffmeister http://blogs.reuters.com/felix-salmon/2009/10/01/regulatory-arbitrage-of-the-day-re-remic-edition/comment-page-1/#comment-7448 Fri, 02 Oct 2009 01:20:14 +0000 http://blogs.reuters.com/felix-salmon/2009/10/01/regulatory-arbitrage-of-the-day-re-remic-edition/#comment-7448 In Box 2.3 of the October 2009 IMF Global Financial Stability Report we conclude that “although Re-Remics and similar repackaging transactions are playing useful roles in dealing with the legacy asset overhang, they also serve to illustrate the vulnerability of ratings-based regulations to gaming and shopping.” I’ve been looking for the smoking gun of ratings arbitrage and shopping for some years ago, and this is about close as I’ve seen to a smoking gun.

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By: ryan http://blogs.reuters.com/felix-salmon/2009/10/01/regulatory-arbitrage-of-the-day-re-remic-edition/comment-page-1/#comment-7428 Thu, 01 Oct 2009 19:56:06 +0000 http://blogs.reuters.com/felix-salmon/2009/10/01/regulatory-arbitrage-of-the-day-re-remic-edition/#comment-7428 i picked up the wsj this morning, looked at the infographic with that story, and thought they’d accidentally delivered a paper from two and a half years ago, from some alternate future where the journal put stories on dodgy risk-hiding schemes above the fold.

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