Think the problems surfacing about CDO and CDS structures are new revelations? Guess again. The following is what I wrote on May 20th, 2008:
I did a conference call with a branch office of a major investment firm. Again, the question came up asking when CDO prices recover, will firms take writeups. Many people mistakenly believe that CDOs are simply backed by subprime mortgages which will recover when the economy recovers. Not true.
Many (most) CDOs are backed, not just by mortgages, but by credit cards, auto loans, LBO loans, other CDOs and just about any piece of garbage that could have been squeezed into them. Some were "synthetic" CDOs backed by credit default swaps. These vehicles may eventually trade at better levels (some are not trading at all), but I have a better chance of becoming Queen of England than many CDOs have of trading at par or paying off to make investors whole.
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