Tuesday, March 3, 2009
Now We All Own Mezzanine CDO
What's that recent deal that the UK Treasury has just done with RBS? It looks scarily familiar...something to do with $325 billion of toxic assets (no doubt including a few CDOs and CDO^2s) and divvying up different levels of risk? The balance sheet of RBS is £2.3 trillion. In return for £6.5 billion in some dodgy non-voting shares the UK Treasury is going to be insuring some of that £2.3 trillion. The first £19.5 billion is RBS's responsibility, after that the taxpayer takes care of 90% of the rest of the $325 billion. Sound familiar? Yes, the UK Treasury has just got itself the mezzanine tranche of a CDO!