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U.s. Investor Loses $12 Million On Cmo's Margin Calls

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“Dozens of South Florida senior citizens have lost millions of dollars of their savings because their brokers bet wrong on risky mortgage-backed securities after promising them a stable investment.”

“Coral Springs lawyer Darren Blum said Tuesday that his firm is representing about 25 investors who had invested $20 million with Brookstreet Securities, a California firm that has brokers in at least a half-dozen South Florida offices. Many investors are planning legal action to recover their losses, and for damages and attorney’s fees.”

“‘We’ve had people in their 80s in here in tears,’ Blum said. ‘These people are devastated.’”

“The seniors invested in securities called collateralized mortgage obligations, or CMOs. Some independent brokers working in Brookstreet offices pitched the CMOs to wealthy seniors at dinner seminars and condominium meetings.”

“‘They presented these as very safe, like a bond, paying 7 to 8 percent,’ Blum said. The CMOs the brokers invested in, however, were complex and highly speculative, he said.”

“Brookstreet has said the money was lost in part because of too much securities trading on margin, or borrowed money. The value of the CMOs declined, Brookstreet said, as the so-called subprime mortgage market worsened.”

“The margin losses mean that investors not only lost their funds, but could owe money that was borrowed to trade in their accounts. Blum said he talked with one client Tuesday who has about $12 million in margin losses.”

Link: http://www.sun-sentinel.com/news/local/sou...-home-headlines

My source is: http://www.thehousingbubbleblog.com/

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“‘They presented these as very safe, like a bond, paying 7 to 8 percent,’ Blum said. The CMOs the brokers invested in, however, were complex and highly speculative, he said.”

'Like a bond', eh? I've tried but failed to understand the 'financial wizardry' which conceals sub-prime mortgage loans taken out at the peak of the housing market within investment grade bonds.

They dress it up as 'arbitrage', but those who put together CDOs etc are nothing more than a bunch of con artists:

http://en.wikipedia.org/wiki/Con_artist

A confidence trick, confidence game, or con for short (also known as a scam) is an attempt to intentionally mislead a person or persons (known as the mark) usually with the goal of financial or other gain.

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