Gue udah stim ni...
Remember how the mechanism that lead to the crisis......securitisations
Do not be afraid of it, done properly can be very very profitable.....
In 1998, after the ringgit was fixed I left the FX market into the shadowy world of reinsurance investment banking.....the goal was how to help insurance company in the region to cover the losses arising from equity investments in their books......
We undertook an embedded value analysis on the value of the future receivables of life insurance contracts.....you see when u buy a policy with a long term commitment to pay premium in return for protection..the cashflow becomes more certain...and given the right number of observation you could accurately predict the Claims, the Lapses (those who stop paying), the Withdrawal (those who ask for cash value) , the Premiums, Reserves and Costs.....so all of these goes into computing this Embedded Value that represent the Discounted Potential Profit from a Block of Life Insurance Policy.......
So what we did was we bought this value with some discount of course and took the risk out of their books as well.....hence it classifies as a Reinsurance Contract........they receive an upfront commission.....it kinda work like an asset swap.......
We get a portion of the premium they collect and we share the risk of the policy with them....the interest rate used to discount the cash flow is our expected return......where to get the money to do this?
Securitisation........we package this whole thing...with exposure from the region into an Asset Backed Security........at the end of the deal we were earning around 1500 basis point...
Why did it worked?.........To me risk diversification of the portfolio being securitized.......all kind of people from different background, different race, different religion, different income groups etc etc etc........all these helped us in predicting and pricing the structure properly......
You might be tempted to say that securitisation is bad........no my fren have no fear.....this whole bloody loan securitisation failure stems from the lack of data on Credit Risk......Not enough experience......and poor transparency by the originators and the gatekeepers (rating agency)
Did you know that all the fancy mumbo jumbo BIS II Internal Model for Credit Risk depends on the probability of default which is measured as an Annual Observation........How many years back did the BLOODY Banks start collecting this data?????
Credit Risk Models requires proper validation and backtesting of results....if you need to validate the model you will need say 250 Observation (if you follow the logic in Market Risk Models) so to do that you will need data for 250 Years looking back and that would be data from 1759.
Now what to do? who got data that far back.......so they all kencing us with statistical jargon like monte carlo simulation.......and the rest as you know it...is this bloody crisis (i'll write more about what i think on the causes of the crisis).....
Insurance industry on the other hand got data running for at least a hundred years.....we have tables for mortality and lapses based on the consolidated claims and experience data of the Industry...
but not all country have their own table......some use an adjusted table....like kali 1 setengah on the original table......
Anyway....enough foreplay.....lets screw.....with love of course....you do not hate fuck big momma...... you fuck her with love......
FUCK PROJECT 1
Crunchy Loans For the Rakyats....
Initiate a retail personal loans programs to all Malaysian who have GOOD records in the BNM CCRIS Database.........all individual affected (i still dont know how to define this yet) can apply an amount equivalent to 6 months salary BUT there must be a cap on the maximum value........
All Banks will participate in the programs to offer Crunchy Loans to their customers...
The Government will provide Credit Protection and Initial Funds to kick start the Programs....
Loan Terms and Agreement to be dictated by the borrower NOT the lender...as per AL Baqarah 282 provisions.....
So you tell the bank how much you are willing to pay and for how long...they can then work out how much can be lent......if you need more than you apply for credit protection from the Government.........if you need even more then you rope in your kids into this...make it an inter-generational loan........if needed....
For those who are not inside BNM CCRIS database, they can apply for full credit protection from the government- as to what the minimum conditions i also don't know, maybe we need to go down to the society level i.e. Masjid, Churches, Temples etc to add an additional monitoring tool as well as for these institutions to 'vouch' for the applicant.
You then MUST PROMISE to PAY BACK the MONEY........sumpah with your own respective HOLY SCRIPTURES........so now you will default against your GOD if you cabut lari and don't pay...... berdosa tu........Remember folks....
Given the fact that the whole country may be applying then the Risk can be very diversified...attach the Unemployment Policy to these loans and perhaps some health cover as well
What the Government do next is to securitise the receivables(This can be done via a SPV which uses Cagamas as its administrator) into the Retail Crunchy Loan Backed Government Guaranteed Bonds which can qualify as Reserve Assets for Banks.........with rates this low..please pass it to the rakyat.....we can spend the money you idiot....
This can also solve the issue of bank takut to lend to retail...hopefully...
FUCK PROJECT 2
A Home for Every Malaysian......refer my old post here.....
Until the next screw........regards satD
FOLKS: If you want to comment click the topic hyperlink then only the comment form will load (i'm still figuring out this bug with Intense debate)