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CDO Is Not An Operating System: The Next Financial Diasaster
AS it slowly dawns on the world that the financial markets were simply a global version of the village that made a luxurious living taking in each other’s laundry, I thought you might like a hint as to the next disaster to unfold.
We know about sub-prime mortgages, and we know about credit default swaps. Admittedly we don’t know very much about them, but that’s because the people who created these little gems really don’t want us to know much about them. And, in fairness, many of the people who got enmeshed in them knew bugger all about it anyway, so let’s not beat up on ourselves about it.
So, coming up on the auction block next are the collateralized debt obligations tied to corporate credit; think of them as the equivalent of lousy loans made to homebuyers, but made to businesses instead.
Not any one business, of course, that would be far too rational; these are horrible collections of odds and ends stuck together with a lot of glue and, nowadays, prayer.
Unfortunately it appears that the same complete absence of interest in the underlying asset which enabled the banks to loan vast sums of money on dodgy houses to dodgy customers also applied to these deals, which means we can expect to see massive losses hitting the fan in the near future.
There have been around $660 billion in markdowns on subprime mortgages so far; you would have to be insanely optimistic to believe the $1.2 trillion market in CDOs is going to do any better, and it may well do worse. Some of the stuff is being written down by almost 90%, and whilst there may be coverage of it by credit default swaps, someone, somewhere is going to take a hit.
And if bankers like Eric Daniels, CEO of LloydsTSB, in receipt of £17 billion of the taxpayers’ money, keep making helpful statements about how they are going to carry on paying those wonderful bonuses, they may yet discover that the taxpayer doesn’t feel like bailing them out again…
- Chenier
Posted: 23rd, October 2008 | In: Money Comments (26) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink
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October 23rd, 2008 at 11:41 pm
Well, I suspect that the economic problems which are unfolding as a result of the crisis in the financial markets are going to reduce our capacity for drunken holidays abroad, if nothing else…
October 23rd, 2008 at 11:37 pm
chenier
Morally we would be better off as well , the highest rate of single parents, the worst
reputation abroad for drunkeness, what is it goling to take to repair our Society.
October 23rd, 2008 at 11:31 pm
Well, if we’d steered clear of debt instruments, as the Koran and the Bible suggest, we would be rather better off…
October 23rd, 2008 at 11:22 pm
Spongebob
Since GB is borrowing from the Sovereign Fund which is Investment Money owned
by the Arab States, what price will we pay.!!!!
They are having a good laugh and saying it is Allah”s retribution for our Heathen
ways, not far wrong though are they.!!!!!
October 23rd, 2008 at 11:08 pm
Shk Mohammed of the UAE
said all is fine and dandy
http://www.arabianbusiness.com/533763-economy-and-markets-sound—sheikh-mohammed?ln=en
No recession in the UAE then. Growth has been exponential, as have house prices since I left 4 years ago. 5x the price we paid. Ah I miss that house
October 23rd, 2008 at 10:13 pm
I meant to add in my post a caveat that I did not think that anything as simplistic as crime statistics could impart an accurate picture of a country, but I was called away by a higher authority before I had time to do so.
I am sure Brazil is a lovely place on the whole and did not mean to dis the place - yo - It’s just you were laying on a bit thick there
October 23rd, 2008 at 8:56 pm
Hi MI6 Pigeon/The Real Stig,
Thanks for your comments about Brazil. Much of what you said was covering old ground regarding Brazil. I have written numerous letters to the site about this South American country, and, have pointed out very clearly the negatives and the positives about life in Brazil.
Yes, just like many other countries around the world it has problems but I have NEVER seen a BBC or CNN program that ever came close to really educating the world about the REAL Brazil. TV channels nearly always focus on the negatives(crime, drugs, favela’s , poverty etc) but don’t show a modern Brazil where standards of apartments/homes can out-class many in the UK. Here you will find friendly people with smiles on their faces no matter what their economic conditions. Brazilians also dress very well and they have a great interest in progressing their lives through education.
Many Brazilians are learning to speak English(they love the language and know of its international importance) Ask the average person walking along Balham high road or waiting for a bus at Clapham Junction if they know what is a personal pronoun or phrasal verb and you’ll get many blank expressions. Many Brazilians could give you the correct answers!
Brazil also has unlike the UK ,a written constitution that states that its military cannot attack another country. They can only be used to defend Brazil if it was attacked. Land here is also cheap and it is a country with immense natural resouces. The world is forever importing expensive oil but Brazil is a world leader in alternative fuels and Alcool (made from sugar cane) is only 35 pence a litre.
Where I am located is about 250 miles from Sao Paulo but life here is very pleasant and people are non-aggresive and very polite when walking along the streets or when serving in shops. Beautiful women are everywhere!
I think that England and the UK has many postives.You can find culture, history and character, but there is plenty of anti-social behaviour and violent crime there too.Body language is so detached in Britain, and here super nice people hug each other continually.
I enjoyed reading your mail and your opinions . That’s what Anorak is all about. Everyone has an opinion around our world and this site gives us all a chance to say exactly what we think and know from experience.
This mail written very quickly as I have an appointment now…..and cold beers at the bar later!
Cheers,
October 23rd, 2008 at 7:35 pm
MI6 Pigeon has left on a mission, but just asked me to say that as he has lived in a hot climate most of his life, he isn’t jealous.
October 23rd, 2008 at 6:57 pm
M16 Pigeon
Your”e just jealous……admit it!!!!! I”ve finally learned how to post jokes on the Forum, I get loads from America and U.K. and built up quite a Group list to pass on.
Have a look, you will enjoy the humour.
John, I”m signing off now, enjoy your evening, if your”e buying, min e”s a Bailey”s
with Ice.
Nice talking to you, maybe meet on another thread some time.
October 23rd, 2008 at 6:24 pm
“CRIME: Crime throughout Brazil has reached very high levels. The Brazilian police and the Brazilian press report that the rate of crime continues to rise, especially in the major urban centers – though it is also spreading in rural areas. Brazil’s murder rate is more than four times higher than that of the U.S. Rates for other crimes are similarly high. The majority of crimes are not solved. There were several reported rapes against American citizens in 2006.
Street crime remains a problem for visitors and local residents alike, especially in the evenings and late at night. Foreign tourists are often targets of crime and Americans are not exempt. This targeting occurs in all tourist areas but is especially problematic in Rio de Janeiro, Salvador and Recife.
Caution is advised with regard to nighttime travel through more rural areas and satellite cities due to reported incidents of roadside robberies that randomly target passing vehicles. Robbery and “quicknapping” outside of banks and ATM machines are common. In a “quicknapping,” criminals abduct victims for a short time in order to receive a quick payoff from the family, business or the victim’s ATM card. Some victims have been beaten and/or raped. ”
http://travel.state.gov/travel/cis_pa_tw/cis/cis_1072.html
October 23rd, 2008 at 4:58 pm
JB,
I can see you are determined to rub our noses in it, and the Real is heading back up; enjoy that drink!
October 23rd, 2008 at 4:46 pm
Hi Val,
Wales, eh? I’m a big fan of Tom Jones and frequently listen to his music. My lunch went down a treat…mmmmmmmmmm.Another thing that’s speacial about Brazil is the fantastic variety of tropical fruits. They are everywhere, and unlike UK supermarket prices are usually very cheap.
Just one more thing Val. Later tonight, I will be at a nice bar sitting near palm trees and drinking cold beers or maybe a good bottle of wine. JB in Brazil, he’s recession proof! (hahaha)
October 23rd, 2008 at 3:06 pm
John, don”t make me jealous…. all that sunshine!!!!!!!
Iv”e come back to my roots in Wales, spent a few years in London, several in would you believe, Off Shore Finance in Jersey CI. I was always too moral for the job , looking after a portfolio of Clients. I used to think, pay your b****y taxes!!!!!!!
Enjoy your lunch, I”ll check in later to see if there is a reply.
October 23rd, 2008 at 2:48 pm
Hi Val,
Cicero, 55 BC ,eh? …….but still making bloody good sense today. There is not much new under the sun Val. Any house needs organisation and order because for every action there will always be a reaction eventually.
Certainly we live in a world where those with power need to be controlled and face serious accountability.Leaders and officialdom are the servants of the people but as we all know, power often corrupts.
Val in what country are you located? It is hot and sunny again today here in Brazil, with a cloudless blue sky. I’m going for lunch very soon….very delicious and not expensive!
October 23rd, 2008 at 2:11 pm
The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.
– Cicero , 55 BC
John, this is rather apt, from an American Friend, don”t know if you have seen it.
October 23rd, 2008 at 2:02 pm
Hi John,
Brazil is emerging as a Force to be reckoned with in the future, let”s hope it doesn”t go
the way of most other Countries. Seriously, I was an active campaigner many moons
ago when I lived in London for the CND. A lot of good it did us!!!!!! I fear any protest
will fall on deaf ears again, one reason being that people n ow live in a throw-away Society, can obtain Credit easily and more or less live for today. Would they care more
about themselves than try to create a better World?
October 23rd, 2008 at 1:54 pm
Hi Val,
Good morning from Brazil. How do we stop them? Good question. Well, the citizens have to wake-up and realize they are being taken for a ride and being manipulated by the banking system and many working within it, who are either incompetent/morally bankrupt or both.
The people so very often don’t know what’s going on behind closed doors, and there needs to be FAR greater accountability at all levels of banking and government. At the moment the “few” are screwing the “many” and getting away with it. I think its the group Dire Straits who sing the words “money for nothing” in their song……there are certainly many billions/trillions of dollars and pounds of taxpayers money being used to prop-up banks, and amazingly, give bonuses to staff when the system has broken down like a badly kepted motor.
October 23rd, 2008 at 1:40 pm
Trouble is John, how do we stop them?
October 23rd, 2008 at 1:35 pm
There are more sharks on the land than there are in the sea…..and certainly loads in the world of banking.
October 23rd, 2008 at 12:45 pm
I like the underwear drawer and blinkers.
I’ll just screw my eyes up tight and wait for it all to go away. La la la la I’m not listening. I CAN’T DO MONEY. Though of course I can spend it……….
October 23rd, 2008 at 12:40 pm
I am sorry to say, C&C, that I was not joking when I said that many of the people who had got involved with these delightful artefacts didn’t understand them either.
However, it looks as if, for example, Credit Suisse has managed to lose money on stuff that people do understand, like straightforward loans, as well as all the other varieties of toxic slime, so don’t worry about it.
Saul’s Biscuit Tin strategy is looking better and better…
October 23rd, 2008 at 12:14 pm
Me no understand. it’s taken me weeks to find out the difference between a recession and a depression. Now I’m really confused………..
(I know… a recession is when its someone else, a depression is when its you)
October 23rd, 2008 at 12:09 pm
And so say all of us, Val!
Am currently having a wry smile at the Congressional Hearings on the rating agencies; we were writing about them on the Anorak Scoops Washington Post On Sovereign Funds Debt thread back in September but it’s taken Congress this long to catch up with Anorak…
October 23rd, 2008 at 12:02 pm
There are not any British left in the British Isles..
October 23rd, 2008 at 11:55 am
Watching an interview with an American Political Analyst , he pointed out that all the
inexperienced Presidents from Eisenhower, Carter, Reagan, Kennedy and Clinton
failed to bring about any changes because Corporations rule the U.S.A., not Congress.
For the first time though, Americans are waking up to the fact that they are not being
Governed fairly and he says there will be massive protests which will bring about change.
Let”s hope he is right, and the Britsh follow suit!!!!!!!!!
October 23rd, 2008 at 10:36 am
My Dad always said that there would have to be a Revolution within our life-time!
I still have his Che Guevara hat.
Mind you - it looks as if we shall just have to get some wars going - where we haven’t already started one! lol
Would the US please step into the limelight.
Oh that’s right! You already are!
It’s Election Time! Yeahhhhhh!
Fucking perfect timing or what!?!
A simple or paranoid person would think that all this was pre-planned!!!!!!!!!
Good job that I am not like that!