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|User Info||Heh Look What We Have Here! (Foreclosure Defense); entered at 2012-01-08 01:52:50|
Registered: 2009-03-21 SoCal
Aliveh brings up an interesting hypothetical involving subsidiary corporations, etc. If I understand correctly, it is perfectly legal to purchase a CDS for which the purchaser does not own the underlying.|
Suppose bank holding company A owns two subsidiary corporations, B, a bank, and C, an investment company. B writes mortgages and holds them, i.e., does not securitize and sell them off, while C plays the CDS game with various financial instruments, including, but NOT limited to mortgages that B writes.
If a "homeowner" defaults on his mortgage to B, it seems that it could be argued that B's economic loss was NOT offset by A's collecting on the CDS, since they are separate and independent companies. If this hypothetical could actually occur, B gets the house and C gets the payoff for the CDS.
Obviously, in the final analysis, A would make out like a bandit, and, IMO, this is highly unethical, but the question is would something like this be legal?