In Ask the Expert: How the Securities Foreclosure Mess Happened, variable rate mortgages expert witness Maher E. Soliman writes:
It maybe the FDIC and lax oversight causing the unbelievable reemergence of banking and institutional investment activity in partnership. Their triparty collective efforts emerge in direct opposition to the spirit and intent of FIERREA legislation.
FIERREA was provided by the US legislature to expressly deny banks the capacity to used insured deposits to invest in junk classes of bonds disguised as securities. Devaluation of Bank equity and value once again becomes a reality.
Just like only a decade prior, the over valued bonds held as equity provided astronomical liquidity while their presense weighed down institutional balances sheets. These CDO’s were now being devalued as worthless equity shares held in a trust. The trust and SPE structured finance merited derecognition or off balance sheet capitalization to avoid FIERREA legislative prohibition.
The old junk bond debt was exchanged for carrying a new kind of debt but off balance sheet as an asset.
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