For a good flashback of what the massively overpaid analytical experts at Citigroup (which we all now own, thank you Mr. President) thought of CMBS in August 2007, please see below.
Outlook for 2007: Will Protection Buyers Finally Emerge?
The main unknown for the synthetic CMBS market in 2007 is the timing and extent of the emergence of protection buyers. Fundamentally, the synthetic CMBS market was expected to experience difficulties finding natural protection buyers. Since the synthetic CMBS instruments isolate the default risk from the other spread components present in the cash bond spreads, the synthetic market was forced to evaluate closely the actual credit risk of the various tranches. The market may have, therefore, come to realize several truths that seasoned CMBS veterans have pointed out for some time: there is little or nothing that could actually cause a principal loss on a super-senior triple-A CMBS, and even the subordinate investment-grade tranches are unlikely to experience severe performance issues in the first few years of the deal. Combined with the robust outlook for the commercial real estate market, investors were not keen to take on the negative carry that buying protection entails without having a clear view as to when spread widening and the materialization of credit events would justify the carry and turn the position profitable.
and also this
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We’re still dancing." Chuck Prince, FT. July 10, 2007
Citi never sleeps... because it is always coming up with garbage such as this. hat tip Andres and Steve