Thanks for linking to the WSJ article on synthetic CDO’s which I almost missed. I got the same sick feeling reading it as when I realized how Bear Stearns was funding subprime mortgage vehicles through commercial paper being bought by money market funds.

If small Australian towns were unknowingly putting their cash on the wrong side of credit default swaps, and could lose 100% of their principal with default rates as low as 3-6% on pools populated by Lehman and GM, then we are looking at major problems.

I was a banker that helped Orange County, CA entities avoid/emerge from bankruptcy in the mid-90’s and that debacle seems almost quaint in comparison.

Gee, let’s see. The investment banks are making 80 % of their nut through proprietary trading.

I wonder if they would steal from me, observing my account, tracking my trading orders, watching my margin vulnerability, using their mutual funds to move the market. No, surely not.

Let’s all invest in equities! Yeah

Yeah, so. Probably did us all a favor. Bernie. Do the right thing. Spill your guts then show some guts.

Skippy

http://uk.reuters.com/article/companyNewsMolt/idUKN2354355520081223?pageNumber=1&virtualBrandChannel=0

Suing the SEC now that would be interesting, failure to act, due diligence, culpable.

skippy

Hello Yves. This is reminiscent of the early, more simple, days of the derivatives markets. The classic story for introductory rate-swap presentations circa 1985 was that of Pan Am. Pan Am could borrow at much lower rates in places like Switzerland than in the USA, precisely because some people overseas just assumed they were an American national airline (appeared in 2001: Space Odyssey and all that, must be a good company), so Pan Am would issue debt in Swiss Francs and then the friendly bankers would help swap the money back to dollars and a tenor that suited.

Right from the beginning the OTC derivatives markets were geared to arbitrage ignorance. The polite term was “information advantage.”

Merry Christmas! We’ll do better next year.