Tan Kin Lian's Blog: The CDO time-bomb

Sunday, December 07, 2008

The CDO time-bomb

The CDO timebomb – how it works and why it could sink or save the world economy
Wednesday, 19 November 2008
Alan Kohler

http://www.smartcompany.com.au/Free-Articles/The-Briefing/20081119-The-CDO-timebomb--how-it-works-and-why-it-could-sink-or-save-the-world-economy-Kohler.html

Extracts:
.... the bankers who created the synthetic CDOs knew exactly what they were doing. These were not simply investment products created out of thin air and designed to give their sales people something from which to earn fees – although they were that too.

They were specifically designed to protect the banks against default by the most leveraged companies in the world. And of course the banks knew better than anyone else who they were.

As one part of the bank was furiously selling loans to these companies, another part was furiously selling insurance contracts against them defaulting, to unsuspecting investors who were actually a bit like “Lloyds names” – the 1500 or so individuals who back the London reinsurance giant.

Except in this case very few of the “names” knew what they were buying. And nobody has any idea how many were sold, or with what total face value.

10 comments:

Vitali Zagorodnov said...: Wow, that is possibly the clearest article I have read on the topic...; December 07, 2008 4:59 PM
Anonymous said...: modern economic Nuclear Bomb by the US; December 07, 2008 6:06 PM
Anonymous said...: Although USA appeared to surfer the hardest on the surface, the final analysis would show that USA is actually the sole beneficiary of this big saga. The money that they have collected from all over the world have gone into some unprecedented property development all over the USA.

Obviously the biggest sucker is Europe, who funded much of those property in the USA and suddenly they are told that their money has gone into a black-hole.; December 07, 2008 9:31 PM
Chan J C said...: Understanding is one thing. Get the right act to get the "responsible" to pay for it is the next to do.

Anybody seeking for justice to be seen and keen to join the class action, please email joo_chong@yahoo.com

Regards
JC; December 08, 2008 1:46 PM
Unknown said...: Understanding is one thing.

Getting the 'responsible' to pay is another.

Absolutely right on the mark!

Getting these 'parties' to pay really is..even dragging them by their collars to Court AFTER pooling everyones money; December 08, 2008 3:24 PM
Anonymous said...: Understanding is one thing.

Getting the 'responsible' to pay is another.

Absolutely right on the mark!

Too much time has been wasted.

The best time to get the 'responsible' to pay has probably gone after the 'vulnerable group' is compensated.

If a class action was instituted earlier, it might have saved Morgan Stanley Pinnacle Notes 9 & 10.

Nevertheless, a class action now is likely to save those CLNs yet to failed: DBS HN2 and MS PS 1,2,3,5,6 & 9.; December 09, 2008 9:24 AM
Unknown said...: "If a class action was instituted earlier, it might have saved Morgan Stanley Pinnacle Notes 9 & 10.

Nevertheless, a class action now is likely to save those CLNs yet to failed: DBS HN2 and MS PS 1,2,3,5,6 & 9."

I am surprised thats such a falsely drawn analogy be allowed to permeate freely in a rather open forum.

Is the poster trying to imply Class Action would have been THE EVERYTHING SAVIOUR!? Who is this person to say so, and so indignantly!?

Hes like blindly and ignorantly saying Class Action alone would have save an overall poorly performing 2008 market!?

On hindsight, were those statements deliberately structured to invoke some sort of 'overwhelming support' for IMMEDIATE legal action!?? Is SOMEONE bent on manipulating fiction for fact, even amongst victim groups??; December 09, 2008 4:59 PM
Anonymous said...: Some of those belong to 'vulnerable group' have been compensated - by HLF.
Full amount less the interest paid.
Evidence was shown on 6 Dec at HLP.
U no longer can get them to help.

So wat U'd do?

U get Wayangnologist to say, "On hindsight, were those statements deliberately structured to invoke some sort of 'overwhelming support' for IMMEDIATE legal action!?? Is SOMEONE bent on manipulating fiction for fact, even amongst victim groups??"

If U re the victims, only U can help yourself.
Wat is there to invoke?

For DBS HN2 and MS PS 1,2,3,5,6 & 7, they have yet to fail. If no credit event in the next 4 to 5 years, they will get the annual return plus the principal if held to maturity. It means the GAME can pray on!

For DBS HN5, ML Jubilee 3 & MS PS 9 & 10, U decide!; December 09, 2008 5:34 PM
Anonymous said...: Some of those belong to 'vulnerable group' have been compensated - by HLF.
Full amount less the interest paid.
Evidence was shown on 6 Dec at HLP.
U no longer can get them to help.

Some of those old folks who are eligible for the compensation if they bought the CLNs solely on their names were still there on 6 Dec sourcing for advice on ways of compensation. The RMs are smarter than We thought and they got the old folks' children to jointly buy the product. So they are out! They are still hoping to be at the mercy of the FIs.

For DBS HN5 note holders, it was long announced that $80m would be paid to the vulnerable group.

HLF has the whole list of those vulnerable and many Minibond holders eligible have been compensated in Mid Nov. As regards Pinnacle CLNs, only 9 & 10 are dead so HLF has got plenty of time to response.

Those not within the vulnerable group, what should they do?

Come to the open forum to read Wayangnologist said about,
"...
the poster trying to imply Class Action would have been THE EVERYTHING SAVIOUR!? Who is this person to say so, and so indignantly!?

Hes like blindly and ignorantly saying Class Action alone would have save an overall poorly performing 2008 market!?....
"

The poster didn't imply anything. The poster said that THING had changed and it was getting harder and harder. The poster said that the victims had only themselves to depend upon!; December 09, 2008 8:46 PM
vertigoer said...: From what I read, 7 out of 100 defaulted equates to Bank taking all money from customers who bought this CDO.

Essentially, the banks are not just insured from the risky loans to Lehman brothers, they also stand to profit.

In such case, I think the CDO issuing banks paying back the investor the amount minus defaulted loss to Lehman without bankrupting the bank seem viable.

Hope the US justice system are able to do justice by forcing the banks who created the CDO payback some money to investors.; December 11, 2008 5:33 PM