Wednesday, Oct 22, 2008
CDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic
bloomberg: CDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic
Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system.
The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves against losses after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.
Posted by mark @ 11:53 AM (265 views) Add Comment
2 Comments
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1. Dr Ray said...
Ho hum
I'll get my wallet out.....sigh
2. mark wadsworth said...
Big deal. This site is called 'house price crash', it must be blindingly obvious that a house price bubble goes in tandem with a credit bubble, and inevitably, the house price crash goes in tandem with the credit bubble bursting. So the losses are shares between reckless borrowers and reckless lenders.
Initial estimates of sub-prime losses were in order of $1 trillion, maybe 10% of o/s mortgages, which seems about right. Worst case UK losses £40 billion, about 3% of o/s mortgages. And smaller amounts for the other bubble countries, Ireland, ANZ, Spain etc.
And don't forget that
1. Those are the upper limit on total losses - a lot of people make the mistake of adding together the loss that the bank makes by lending to households, plus the loss that bondholders suffer when their bonds fall in value, plus the losses that leveraged hedge funds made by investing in bond funds etc etc.
2. That $1 trillion will get spread out among all the end-users (pension funds, hedge funds, SIVs, wealthy investors, SWFs etc etc) and is not a huge amount of money in the grander scheme of things, as against world GDP of $54 trillion in 2007.
3. For every loser there is a winner - after Lehmans tanked, total net transfers (from losers to winners) were only $6 billion out of face value $400 billion. And the net losses from teh CDO tomfoolery are a big fat zero anyway; it's just transfers from stupid/unlucky people to clever/lucky people.
S*d the banks, frankly, they got themselves into this mess, they can, quite easily, get themselves out of it.