Prettifying Toxic Waste
The promise of something for nothing is always an enticing proposition. Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance? So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?
The yield-chasing hamster wheel… [PT]
Thus, smart fellows go after it; pursuing financial innovation with unyielding devotion. The underlying philosophy, as we understand it, is that if risk is spread thin enough it magically disappears. In other words, the solution to pollution is dilution.
With this objective, new financial products are fabricated into existence. The risk free rewards of several extra basis points are then packaged up