Who Owns Troublesome CDO/CMOs?

Tuesday, June 26, 2007 | 01:48 PM

There is an interesting article in July Bloomberg Mag ("Toxic Debt")about who owns the CDOs and CMOs now causing so much trobule at Bear Stearns, and possibly elsewhere.

Its only in the dead tree version, so there is only so much I can link to. If you pay for a Bloomberg terminal, you are entitled to the mag as part of your sub (just ask for it). There were four stories in the magazine:

The Subprime Sinkhole

Subprime Money Trail

The Ratings Charade

The Poison in Your Pension

Here is a short excerpt:

"Worldwide sales of CDOs—which are packages of securities backed by bonds, mortgages and other loans—have soared since 2003, reaching $503 billion last year, a fivefold increase in four years. Bankers call the bottom sections of a CDO, the ones most vulnerable to losses from bad debt, the equity tranches. They also refer to them as toxic waste because as more borrowers default on loans, these investments would be the first to take losses. The investments could be wiped out. . .

Because CDO contents are secretive, fund managers can’t easily track the value of the components that go into these bundles. “You need to monitor the collateral in your investment and make sure you’re comfortable there will be no defaults,” says Satyajit Das, a former Citigroup banker who has written 10 books on debt analysis. Most investors can’t do that because it’s extremely difficult to track the contents of any CDO or its current value, he says. About half of all CDOs sold in the U.S. in 2006 were loaded with subprime mortgage debt, according to Moody’s and Morgan Stanley. Since CDO managers can change the contents of a CDO after it’s sold, investors may not know how much subprime risk they face, Das says."

Two things struck me about the magazine coverage: First, the CMO issue is far more widespread than many people realize. Apparently, cheap money made a highly leveraged reach for yield ever more appealing. Lots of surprising players seem to have got sucked in.

Second, the incongrously "fun" graphics Bloomberg used throughout -- they reminded me of a comic book, which is so contra-indicated by the seriousness of the subject matter (maybe they wanted to add some levity to a serious subject).

Its really noticeable in the magazine, but it here are the two graphics I pulled from the online PDF:




Graphics courtesy of Bloomberg Magazine

I'm taking Betty and Veronica down to Pop's Sweet shop after the bell if anyone wants to join me . . . 


The Poison in Your Pension
David Evans
Bloomberg Magazine, July 2007

Tuesday, June 26, 2007 | 01:48 PM | Permalink | Comments (27) | TrackBack (0)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference Who Owns Troublesome CDO/CMOs?:


That'd be swell. I hope the soda jerk remembers to give me extra syrup this time. I gave him an extra dime for it last time and I got the usual amount.

Inflation, eh?

Posted by: Jack Stevison | Jun 26, 2007 2:12:44 PM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™