It is estimated that there are over 200 to 1 leveraged derivatives on insurance books.
Let me explain here, I sell you some mortgage back securities, you want to be sure they are good since this is your retirement we are talking about here. So for a few less points I offer insurance on the deal. I buy this insurance and you take this at face value that the insurance is good.
Every thing works fine as long as the leverage works in the favor of the insurance. If it does not, then a simple .05% drop wipes out the entire investment.
Now as everyone knows, Real Estate can only go up so the chances of a .05% drop in mortgages is never going to happen. Unless it does happen as we are watching now.
For everyone that feels the worst is over, they can take the other side of my trades on this one. As the adjustable re-set, we will see more defaults and more depressed Real Estate.
Just one traders opinions.
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