Instead of buying corporate bonds, for example, Salient sells credit-default swaps, which are contracts under which his investors agree to pay the buyers if the underlying bonds default.
But the biggest obstacle to a RIM comeback is simply that the iPhone and Android have become the default for phone buyers, and few will see a reason to try something else.
The first salvo was last month's proposal by the European Union to ban so-called naked credit-default swaps those in which buyers don't own the underlying bonds.
Although the investments resembled bonds, paying buyers a fixed interest rate for taking on the default risk of corporate debt, the products invested in synthetic collateralized debt obligations held by Lehman.
There are a growing number of strategic home defaults, deemed such when home buyers who can afford the mortgage payments choose to default because their homes are worth less than their mortgages Morgan Stanley estimates that 12% of defaults in February is from this category.
In stepped the investment bank industry with another solution: We'll take your mortgages, securitize them, slice them into categories based on default risk, use computer models to match default risk with yield and sell them to buyers around the world.
While the deal has been mired in controversy, one thing that potential bond buyers may not have to worry about is the bonds going into default.
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Credit default swaps are generally traded by phone-based brokers who match buyers and sellers at large investment banks and other institutions.
Not unlike the U.S. housing market over the past five years, home prices have been sliding in many southern European nations thanks to high unemployment rates, high mortgage default rates, a glut of available inventory and a lack of buyers.
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At first, these were taken out by the buyers of bonds like Soundview 2005-1 - to protect themselves in case of default.
Like subprime, many of these people are not real buyers because they have no skin in the game and endless government relief when a default occurs.
Lenders say they need to charge higher rates partly because buyers of manufactured homes often have low incomes, imperfect credit and carry a higher risk of default.
When the economics behind a bond issue comes into question, it is important that we not let limiting the definition of default influence the buying and pricing decision, especially when such a definition favors current holders over buyers in due course.
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Despite the high jinks and copious drinking (or perhaps because of it), their large brains came up with a way of reducing risks for bond buyers: a bilateral contract that, for a fee, enabled investors to pass on the risk of default to another party.
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