Don CFAI

I thought I’d share a funny and unexpected metaphor from CFAI. 2008 LII CFAI Curriculum, Volume 5, p.197: “The support tranches can be thought of as bodyguards for the PAC bondholders. When the bullets fly - i.e. prepayments occur - it is the bodyguards that get killed off first. The bodyguards are there to absorb the bullets. Once all the bodyguards are killed off (i.e. the support tranches paid off with faster-than-expected prepayments), the PAC tranches must fend for themselves: they are exposed to all the bullets.” For a moment there I forgot I was reading about structured finance and thought I was waist-deep in The Godfather. CFA candidacy: never a dull moment. “Mr. Corleone never asks a second favor once he’s refused the first, understood?”

Is the example of the Genco Olive Oil Company in the Schweser again this year? That was really motivating for me!