Brian Wesbury writing on the Wall St Journal's op-ed page said "Beneath every dollar of counterpary risk, and every swap, or leveraged loan is a real economic asset." Oh really? Let's parse that out. "Real economic asset" should be something like a house, a car, a factory, an airliner, something physical that can be repossessed and sold. Then there are "near real economic assets" like paper money, stocks and bonds. Issued by powerful governments or corporations, the near real stuff depends upon the strength of the issuer rather than intrinsic value. Both real and near real assets are reasonable things to buy and sell.
Then we come to "securitized mortgage bonds". Are these real? A mortgage is real, the mortgage holder can seize the property if the borrower defaults. The owners of securitized mortgage bonds don't get that right. Are they backed by powerful corporations? No way, they are "off the books" and offered by "special investment vehicles". In short, the "sub prime mortgage crisis" roiling Wall St is the trading of unreal securities. Investors wised up last summer and stopped buying them.
Brian Westbury is the chief economist for First Trust Portfolios, L.P. His faulty understanding of the economy seems to be wide spread on Wall St. Investors with First Trust are in for a bad time in the very near future.
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