Springtime for Amherst

“Lenders didn’t hold on to their loans, but instead sold them off to be repackaged into securities, which in turn were sold to investors who didn’t understand what they were buying.”

When I saw this quote from President Obama, I thought it was a wretched analysis of the state of affairs regarding credit-default swaps and subprime mortgage-backed securities. Does BHO really believe the people buying CDS are that stupid? Then I remembered Max Bialystock.

Bialystock was the fictional Broadway producer who oversold shares in his new play, betting it would flop and he would not have to return his investors’ money. Max would have made money for himself and his partner, but it was illegal. Plus, it was small potatoes. Bialystock needed to think on a larger scale, like the financial firms America has bailed out.

Amherst Holdings, the Texas brokerage house, built on the Bialystock method by buying subprime mortgages and overselling CDS on those mortgages. It then arranged to pay down those toxic loans and profited on the difference: they purchased $29 million of subprime mortgages and sold $130 million of CDS. Now the buyers of the CDS are crying foul. Boohoo.

All this was splendidly reported in The Wall Street Journal.

Those people are that stupid. Even I wasn’t wretch enough to think that.