YouSaid · the spoken record

Brett Jefferson

lines on the record: 108
first: 2024-09-12
most recent: 2024-09-12
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“The financial system, let's have it, let's have a loophole where basically they can issue a debt that will treat it as equity. And so that's a problem. And then you say the Wells Fargo, the Bank of America, they issue that, okay, but then smaller banks began to issue it, but there wasn't a sufficient market. Who's going to be buying this stuff? So they package it into a CDO. And then that's how they sold it. And interestingly, according to a paper from the Philadelphia Federal Reserve that was in 2011, so after the great financial crisis, a lot of banks owned the paper too. So in the CDO was bank debt that was kind of phantom equity or masquerading as equity, even though it was allowed by the regulations. And then a lot of those liabilities were themselves owned by the banks. So you can see what it kind of leads to the great financial crisis. But as someone who's studied the great financial crisis, I had no idea these things even existed. So I'm glad that we're doing this because I.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“CDO, a cloudized debt obligation is just a wrapper. You could put anything in a collateralized debt obligation. So people who've seen the big short think of CDOs, the asset, the underlying asset is subprime mortgage-backed securities, which are made up of at the time low quality mortgages. And so that is the assets in the CDO, the liabilities that are issued are what other people own. And those investors got totally hosed in 2008. And that's part of what caused and led to the great financial crisis and the subsequent recession. And so a trust preferred security is a type of equity that a bank can issue. You said in the 1980s, so 1990s, I think during that, you know, that deregulatory time where a lot of risk began to become allowed that accumulated that ultimately led to the great financial crisis, in my opinion. They said this part of equity that protects depositors, it protects.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Most of those deferrals came back. So it wasn't actually looking at it and saying there's going to be this many more that are going to fail. It was there's going to be so many of these are going to actually recover, which was unlike any other type of distress situation, really in structured products. But that's really trust preferred in a nutshell”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“With the trust preferred, if you were deferring, you were counted as a defaulted security and you were written down to zero or maybe 5% in some deals. But what we found out was that these banks weren't deferring because they were having problems. They were deferring because the regulators were telling them to because the regulators were overwhelmed. So as people look at securitizations that have had problems, if you look at a CLO and you say this many names have defaulted, hence how many more will default if the CLO is going through some form of a crisis like in 2008. With the trust refers, you were looking at the pool and saying this many of the trust preferred were deferring or defaulted. Okay, but”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“We'll touch on that in a little bit later, but that's really the bread and butter to looking at any securitization. But in 2008, I decided to start Aldeen. I didn't have a lot of money to invest. And everyone else was looking at subprime mortgages, all-e mortgages, CLOs, very, very large pools of assets, which also didn't hang around that long. And I went out and found all the information I could on the Trust Preferred CDO market, which was basically finding out the information on the banks. What I also started to realize that the way that these deals were put together is if we trust before it started to defer, it was written down to zero. If you think about it, if you're an asset and a CLO, you're a leverage loan, and you defaulted. So now you are written down usually to the lower of the market value or 45 cents of the dollar. So if you're trading at 55, they say you're at 45 cents of the dollar.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Possibly could. But then the small regional investment banks such as First Tennessee, KBW, San Laurent O'Neill, went out and started to underwrite all these smaller banks and issue trust preferred. But instead of issuing $25 million of a trust preferred to the market, they pooled them and securitized them. And there were 8,000 banks in the country in 2008 as the crisis started. So what happened was there were 91 of these securitizations, these trust preferreds were issued into these securitizations. There wasn't that much overlap amongst deals, meaning different trusts preferred. But the one thing that jumped out to me, so you said, you know, trust preferred my bread and butter. I'm a securitization, let's just say, I'll call myself an expert in securitizations. What I do is we understand what are the assets, what is the structure, and what is the”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Were two caveats about this debt one was it had to be deferable for up to five years, meaning you didn't have to defer and most people would never want to defer. But if you did miss payments, you could do so for up to five years before you went default, which is much not like other debt securities. And the other is it had to be issued as a 30-year security, but you could call them really at any time after you had issued them, but they had to be issued as long data. And the reason that was the regulators didn't want the banks to be under pressure. They wanted them, if they had problems, that they could work themselves out of it. But if you think about it, if you were a billion dollar bank, which is a small bank, and you had a hundred million dollars of tier one capital, which would be 10%, you could issue 25% of your tier one capital in a trust preferred. When this product first came out, the cities, the B of As, the Wells Fargo's issued as much as they could.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Sure, sure. So let's start with the market of securitization. Securitizations take assets that were created and they form a vehicle to finance them in a better way. They basically create standalone finance companies, whether that's with mortgages, whether that's with loans, whether that's with asset-backed securities, consumer receivables, or whether that's with trust preferred. And a trust preferred is something that they can't create anymore. They were basically regulated out after the financial crisis, but they're issued by banks and insurance companies. And basically in the mid-80s, they came up with a security which they said 25% of a bank's tier one capital. So tier one capital is equity. And let's just say that banks for the most part had to have 10% in tier one capital. And 25% of a bank's tier one capital could be in this form of debt.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT