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longship

(40,416 posts)
5. CBOs????
Mon Mar 21, 2016, 02:04 AM
Mar 2016

Don't you mean CDOs? Collateralized Debt Obligations. In the case of the mortgage meltdown of 2007-8, they weren't so collateralized as they were sold.

The epitome of insidiousness of the big Wall Street banks wasn't the CDO. It was the synthetic CDO, whose contents were not just mortgages, but also credit default swaps on other mortgage bonds (which precisely replicated the bond's risk therefore the original mortgage bond), plus since there were trash bonds which wouldn't sell because they were junk. They wrapped them all up into the synthetic CDOs, with the same layered tranches. S&P and Moodies would still rate the top tranches as AAA (equal in security to federal treasury bonds, no risk) even though they were nothing but recycled junk from the bottom tranches of other mortgage bonds.

And the Wall Street banks did this over and over and over again. The entire mortgage bond infrastructure was nothing but tissue paper. And every retirement account in the world bought them. And they were all replicated by insurance, the credit default swaps, which gave the investment banks even more product to sell, since the swap exactly replicated the risk of the original mortgages and could be built into yet more CDOs.

The only problem is, if house prices did not keep on rising, the whole thing collapsed on itself. As soon as the teaser rates on the adjustable rate mortgages expired, those mortgages would default, all at once. When that happened, the mortgage bonds would default, ALL AT ONCE. The credit default swaps would then become due, ALL AT ONCE. The issuers of that insurance (mainly AIG) would all go broke, ALL AT ONCE. Then, the Wall Street banks holding an incredible amount of debt on their books would then collapse, ALL AT ONCE.

That is what happened in 2008. And when Treasury Secretary Hank Paulson let Lehmann Bros fail, the collapse went into hyperdrive. We were clusterfucked.

And the $800 billion TARP bailout had zero for those who lost their homes, because the only thing the government cared about was the Wall Street banks. They were too fucking big to fail.

Thank you very little Bill Clinton and George W. Bush.

I saw it...and we will get screwed again, worse than before. Punkingal Mar 2016 #1
Right. elleng Mar 2016 #2
They got a new fancy name nadinbrzezinski Mar 2016 #3
Saw that. highoverheadspace Mar 2016 #20
yup nadinbrzezinski Mar 2016 #21
I have read the book multiple times, movie coming from NetFlix Wed. longship Mar 2016 #4
CBOs???? longship Mar 2016 #5
and none of the Wall Street slime went to jail pfitz59 Mar 2016 #6
To hell with the sellers. longship Mar 2016 #8
And don't forget John Thain (Merrill) Ruby the Liberal Mar 2016 #17
There should have been frog marches out of the ratings agencies.... Spitfire of ATJ Mar 2016 #9
Excellent summary. JDPriestly Mar 2016 #10
Ya gotta love it Ruby the Liberal Mar 2016 #18
Seriously, a good movie. K&R nt killbotfactory Mar 2016 #7
If CDOs are properly rated and properly tranched, I don't see much of a problem jmowreader Mar 2016 #11
They weren't properly rated, they never will be when ratings agencies are afraid onecaliberal Mar 2016 #12
usually the funds HIRE the ratings agencies--no conflict there! n/t librechik Mar 2016 #15
Should be "must see" for all Americans. Saw it a couple days ago, great movie. Scuba Mar 2016 #13
Here's what I don't get: I loan you money, and two people who have nothing to do with us hedgehog Mar 2016 #14
How in the hell is that legal. onecaliberal Mar 2016 #16
Thanks for the reminder Ruby the Liberal Mar 2016 #19
Be prepared to get pissed and have your mind blown several times at the fact onecaliberal Mar 2016 #22
This is the first time my husband told me to keep the DVD hedgehog Mar 2016 #23
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