Asset-backed securities field guide: Difference between revisions

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{{a|repack|}}=== Transformation ===
{{a|repack|{{image|Over the counter|jpg|''The OTC Market About To Be Transformed By Word-Processing'', {{vsr|1985}} }} }}=== Transformation ===
Financial services are not immune to the civilisational sweep of the information revolution. As the consumer world glommed onto digital watches, space invaders calculators, Donkey Kong and the graphic user interface so was the banking world being rocked by  a Cambrian explosion of sophisticated financial engineering. [[Swap]]<nowiki/>s, [[securitisation]]<nowiki/>s and investment management mushroomed in the nineteen-eighties.  
Financial services are not immune to the civilisational sweep of the information revolution. As the consumer world glommed onto digital watches, space invaders calculators, Donkey Kong and the graphic user interface so was the banking world being rocked by  a Cambrian explosion of sophisticated financial engineering. [[Swap]]<nowiki/>s, [[securitisation]]<nowiki/>s and investment management mushroomed in the nineteen-eighties.  


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But once that relationship is intermediated by a traded note, that channel goes away. The borrower need not even know who its lenders are. Its lenders may change, at any time, and there may be a ''host'' of them. What if they disagree? What if some care, and some do not? What if you can’t get some of them to pick up the phone?
But once that relationship is intermediated by a traded note, that channel goes away. The borrower need not even know who its lenders are. Its lenders may change, at any time, and there may be a ''host'' of them. What if they disagree? What if some care, and some do not? What if you can’t get some of them to pick up the phone?
The traditional solution has been to appoint a [[trustee]] or [[fiscal agent]] of some sort to represent noteholders interests. This isn’t really much use as trustees won’t lift a finger except to take action that is categorically in the interests of all noteholders — they don’t get paid enough, they say — and the sorts of arguments parties to bilateral contracts get into are shaded, nuanced, and not the sorts of things [[trustee]]s can get [[comfortable]] with taking a position on. The other parties to the structure who might have a view, and the capability to make complicated calculations, tend to have interests that are not aligned with Noteholders’. A swap counterparty, for example, is generally the other side of the trade to the Noteholders.
===Repackagings===
This is a fairly insurmountable problem for widely-held, really publicly traded ABS transactions like [[securitisation]]s and [[CLO]]s. Noteholders just have to take a view, that the people originating and sponsoring the deal are good people, and will not take the proverbial.
But in smaller scale repackaging deals, things are slightly different. These tend to be tailored deals made to order for a specific investor. They are not listed, they are not publicly quoted, the original investor takes down the whole deal and, for the most part, sits on it, perhaps [[securities financing|financing]] it in the market, but staying long the economic risk of the transaction. These trades are ''in concept'' tradable, but no-one in her right might will actually buy one in the secondary market without all the due dilly, negotiation and documentation


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