Thursday, Jul 19, 2007
A CDO is like a hand grenade with an unknown amount of explosive
Bloomberg: Banks Sell 'Toxic Waste' CDOs to Calpers, Texas Teachers Fund
Because CDO contents are secretive, fund managers can't easily track the value of the components that go into these bundles. ``You need to monitor the collateral in your investment and make sure you're comfortable there will be no defaults,'' says Satyajit Das, a former Citigroup banker who has written 10 books on debt analysis.
Most investors can't do that because it's extremely difficult to track the contents of any CDO or its current value, he says. About half of all CDOs sold in the U.S. in 2006 were loaded with subprime mortgage debt, according to Moody's and Morgan Stanley.
Since CDO managers can change the contents of a CDO after it's sold, investors may not know how much subprime risk they face, Das says.
Posted by lvmreader @ 09:48 PM (1278 views) Add Comment
4 Comments
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1. lvmreader said...
Un-flipping-believable! You would like to think that people couldn't do this.
I would like to say "You couldn't make this up" - but that is what these people have just done.
So you buy an investment, but you don't know what exactly.
2. japanese uncle said...
A hand grenade can be handled with care. But what about a nuclear missile?
3. lvmreader said...
Great point (as ever). Japanese Uncle.
4. dohousescrashinthewoods said...
And quietly selling them off so they will hit ordinary people.
A bit like rerouting a truckload of explosives into a crowded market - sickening greed and a complete lack of responsibility for their own mistakes.
Did these people not have mothers to bring them up properly?