Thursday, March 22, 2007

A Subprime and Derivative Market Meltdown?

Charles Hugh Smith over at has written a thought-provoking post about the potential effects of high-risk investments in subprime mortgages and the sale of derivatives getting wrapped in with AAA-rated trusts. Charles says that according to his memory of the book Fiasco: The Inside Story of a Wall Street Trader such trusts only require 80% of the financial instruments to be AAA rated to get the AAA rating for the entire trust. I haven't read the book yet, but I plan to eventually.

He admits he is an amateur. But then again, so am I. Still, it is worth considering -- especially given how many retirement accounts are invested in them.