Reply #52: you are correct. it's impossible to discuss reasonably without making SOME simplifications. [View All]

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mortgages are swiftly pooled and carved into cmo's and other derivatives products. the mortgages are owned by special purpose entities that pass the cash flow through to the various tranches of the cmo. there's no need to rescue the mortages themselves because the entities holding them are fine. they were created to just pass through whatever they took in.

it's the institutions holding the various tranches that are paralyzed by the evaporation of the secondary market in cmo's and other derivatives.

that doesn't really change the argument, though. the mortgages are not worthless, and the tranches downstream are not, for the most part, worthless. yes, some of them are literally worthless, but most of them have some notable value.