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Post by jeffolie on Jul 22, 2007 11:44:45 GMT -6
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Post by unlawflcombatnt on Jul 22, 2007 14:59:52 GMT -6
Jeff,
Thanks for posting that link. It gives an outstanding explanation on the subject of margins and leverage, and how BBB rated securities become AAA if packaged right.
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Post by jeffolie on Jul 22, 2007 16:22:51 GMT -6
There's trillions of dollars in derivatives riding on these shaky CDOs. At last some mentions the D word - derivatives. Does that mean that the entire hedge fund empire—which is built on a foundation of dodgy loans and quicksand---may be headed for the crapper? No one really knows. But a pall has settled-in over downtown Manhattan where gloomy-looking men in pinstriped suits are waiting for the other shoe to drop. Y'see, the hedge fund industry is based on the bizarre notion that one does not have to produce anything of value to make boatloads of money. You don't even need assets any more---just a risky loan that can be transformed into an investment grade security through the magic of “securitization” a sprinkling of Wall Street snake oil. Abrah Kadabra---presto-chango! It's like taking shards of bottle-glass and selling it as the Hope Diamond. Who's gonna notice? The only catch is that--now that these toxic CDOs are going to auction--there are no bids. That's a bad thing. “No bids” means that $1.4 trillion of shaky investments have no discernable market-value. The CDOs were graded “mark to model” which translates into “mark to fantasy”. It means that the investment bankers and hedge fund managers got together over Martinis one night and pulled a number out of a hat. Now no one wants to buy them. They're worthless. The skydiving hedge funds just pulled the CDO rip-chord and nothing came out but confetti. Aaaaaaaahhhh! And that's just half the story. There's trillions of dollars in derivatives riding on these shaky CDOs. www.marketoracle.co.uk/Article1600.html
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Post by unlawflcombatnt on Jul 22, 2007 17:09:07 GMT -6
Y'see, the hedge fund industry is based on the bizarre notion that one does not have to produce anything of value to make boatloads of money. You don't even need assets any more---just a risky loan that can be transformed into an investment grade security through the magic of “securitization” a sprinkling of Wall Street snake oil.... That's a perfect summary of the current situation. True capital investment may result in production of wealth. In contrast, financial "capital" investment creates nothing but more artificial wealth, artificial money, and overvalued assets. The only catch is that--now that these toxic CDOs are going to auction--there are no bids. That's a bad thing. “No bids” means that $1.4 trillion of shaky investments have no discernable market-value. The CDOs were graded “mark to model” which translates into “mark to fantasy”. It means that the investment bankers and hedge fund managers got together over Martinis one night and pulled a number out of a hat. Now no one wants to buy them. They're worthless.... This means that $1.4 trillion in wealth simply vanished into thin air. And that $1.4 trillion wealth loss is the equivalent of over 10% of our GDP, or over 3 times as much as annual GDP growth. And that's just half the story. There's trillions of dollars in derivatives riding on these shaky CDOs. This is an Economic Armageddon just waiting to happen.
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