123 and subprime

i had quit e4e, with hopes of not returning to call center any more. These past few days i have been breaking my head thinking of wat next......

In the mean time i got to spend a lot of time on newspapers, specially Hindu and ET. I like Hindu for its educative approach and ET for its liberal and progressive thinking.

These past few days have seen the words 123 agreement and the sub-prime crisis prominently in the media.. I was jus wondering y this agrmnt was called 123 agrmnt, then i found out that the agreement was designed to waive certain conditions in Section 123(a)(4) of the U.S. Atomic Energy Act, (aka Hyde Act) which declares that except in the case of agreements with nuclear-weapon states, all 123 agreements must allow America the right to require the return of "any nuclear materials and equipment transferred" if the recipient country "detonates a nuclear explosive device." ( Thanx to Hindu). It should aslo be noted that US has a 123 agrmnt with China and Euratom.

The other thing in news these days is the US sub-prime crisis... a bit about my studies on that..: Subprime borrowers are generally defined as individuals with limited income or having credit score below 620 on a scale that ranges from 300 to 850. now, how did Lenders dare to take this risk of lending to a sub-prime borrower? it is bcos they could charge heavy interests on these borrowers and further they( Subprime Lenders) had this practice of packaging such sub-prime mortgages into CDOs and , which are collateralised debt obligations, which are nothing but securities and trade them in the securities market. The trick is that the package( of subprime mortgages) is divided into different tranches according to the risk. ranging from AAA, which will be of the least risk but will receive minimal interst, to BBB-, which will carry max risk and receive max interest( from the lender, ofcourse). U m8 wonder wat sort of a investor will go for BBB- paper ( but dont forget they carry a big interest.) The answer is Hedge funds , these r funds which r least regulated and they invest in high risk entities.. They r like big time gamblers...

That much for behind the scene info. Wat has happened now is that due to high rate of foreclosures ( A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract. ) and delinquencies , which inturn has been due to high interest rates, ( interest rates are raised to keep the dollar from falling, the reasoning can go on like tht, but lets do that in a different entry) many subprime lenders have closed and this inturn triggered a few hedge fun closures and now this will degarding the tranches, now for some beningn investor like say pension fund or a collg fund who had invested in a cdo AAA tranch , that could mean disaster,... thats the panic u see is happening....