All mortgage assets written before last month do not have true risk premium accounted for so every loan now selling for less then par.
It is truly funny how investment banks are demanding 5% discount for prime loans like Thornburg was offered; 20% or more for sub prime and alt A loans and getting it from overleveraged mortgage loan holders.
Then, the way I see it, investment banks are taking these varying degree of credit quality loans over to the FED discount windows and getting 98% of face value at 5.75% and going to town with the money.
How can market be effectively shorted if every potentially stinky loan can be potentially converted into cash at a tidly profit at the discount window and never be marked to market while in the hands of fed vs if same loan was held by mortgage firm.
FED not going ask about condition of loans since they assume they will get repaid from banks.
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