The manager of the world's biggest bond fund, PIMCO, says the mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) that helped fuel the housing boom dazzled ratings agencies with their "6-inch hooker heels." In a strongly worded commentary on the impact of the subprime lending crisis, PIMCO's Bill Gross says that the practice of slicing up such securities into various tranches of varying risk -- and the use of financial derivatives to help manage that risk -- only served to magnify the potential for disaster, not lessen it. Gross says that while problems with two Bear Stearns hedge funds that were heavily invested in mortgage-backed securities have been "papered over," the crisis in subprime lending threatens the entire economy, because "the willingness to extend cre...
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