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{{g}}Of potential claims against a given pool of assets, the first one up against the wall when the revolution comes. This is to do with priority, preference and capital structure. | {{a|g|}}Of potential claims against a given pool of assets, the first one up against the wall when the revolution comes. This is to do with priority, preference and capital structure. | ||
The first one for the [[down-trou]] will be one whose claim is most [[subordinated]]. That will be the common shareholder, if there is one, and if not (in, say, a CDO or a structured note of some sort) it will be the one bringing up the rear in the [[security waterfall]]. That will usually be the Noteholder or, if there are several [[tranche]]s of Notes, the most [[junior]], most deeply subordinated, ones. | The first one for the [[down-trou]] will be one whose claim is most [[subordinated]]. That will be the common shareholder, if there is one, and if not (in, say, a CDO or a structured note of some sort) it will be the one bringing up the rear in the [[security waterfall]]. That will usually be the Noteholder or, if there are several [[tranche]]s of Notes, the most [[junior]], most deeply subordinated, ones. | ||
It is only once the first-loss | It is only once the “[[first-loss]] piece” has been wiped out that the fellow holding the “[[second-loss]] piece” has anything to be worried about. This was a great source of comfort, in the lead-up to the [[global financial crisis]], for those holding the most senior [[tranche]] of the [[CDO squared]] products that, well, precipitated it. | ||
And so he was: safe as the hundreds of crappy, leaking, triple-mortgaged prefabs situated on recently reclaimed Nevada desert that | “The estimated loss on your average mortgage portfolio is about 5%,” these people would think, “and I have ''four'' [[tranche]]s below me, absorbing up to 40% of the losses of this one. So I’m, | ||
like, ''literally'' as safe as houses!” | |||
And so he was: as safe as the hundreds of crappy, leaking, triple-mortgaged prefabs situated on recently reclaimed Nevada desert that made up all most all of his portfolio. | |||
Don’t shed a tear for him: it was all for the best. | |||