The Best of Real Clear Markets: Fed Bailout and Bankrupt Cities
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In December 2006, a small, relatively unknown financial firm called First Marblehead completed a $1 billion student loan securitization. At the close of the deal the company expected to receive up-front “structural advisory” fees of about $89.6 million, or 12.4% of the total balance. In addition, First Marblehead modeled and discounted additional advisory fees of $8.8 million and “residual revenue” of $48.7 million. The “blended” yield on the transaction was more than 20% of the total balance of expected student loans (the loans had yet to be acquired).
There are some ideas that, no matter how often they rise and how spectacularly they fail, just won’t go away. Perpetual motion machines, for example. Passive exercise machines. Diets that work. These technologies sound great in theory, but don’t seem to pan out in practice. Add to the list, electric (or largely electric) cars.
Earlier this month the Harrisburg, Pa., city council threw itself on the mercy of federal bankruptcy court, hoping to find a less onerous solution to its debt woes than the workout plans proposed by the state of Pennsylvania and by the city’s own mayor. Last week, a bankruptcy judge mercifully threw the case right back out of court after finding that the filing by a majority of council members was illegal. “For Chapter 9 bankruptcy to work, all of the branches of a municipality must be on the same page,” the judge explained.
In business school in the late ‘90s, like just about everyone else in my class I attended a speech given by Morgan Stanley’s then CEO. Thanks to a strong dollar and relatively low taxes at the time, Wall Street was booming and Morgan Stanley was seen by most as one of the premiere jobs for an MBA student to secure.