But in the UK, no residential mortgage-backed securities deal or structure has blown up and no AAA-rated bond investor has lost out during the 20 years or so of the market’s history.
So in a sense, bond structures are holding up well and doing what they are supposed to.
In the US this has not always been the case, and the image of failed, complicated and badly structured deals over there has unfairly affected attitudes towards UK RMBS.
It is ironic that the government is offering to guarantee AAA-rated bonds – in our experience, investors don’t need that guarantee.
So what’s the problem and why aren’t investors investing? Of course, this is due in part to lack of liquidity in the investment market.
Also, there is no secondary market where investors can trade securities if they do buy them, although the Bank of England discount window facility provides some assistance to bank investors in this regard.
But it’s also down to headline risk whereby investors dare not invest because everybody knows that RMBS are bad things.
That’s why we need a Bank guarantee to transform this into government risk and show investors that the authorities have faith in these bonds.