Masthead graphic based on a painting by Gudrun Thriemer.

Saturday, November 29, 2008

Alan Kohler, "A tsunami of hope or terror?" Business Spectator, November 19, 2008.

[For anyone who is obsessively following the labyrinth of financial collapse, this will be interesting reading indeed. A CDO is a special form of derivative thievery known as a collateralized debt obligation. Read on and see how it's been synthesized. -jlt]

  ...for the banks, it’s happy days. Suddenly, when the ninth reference entity tips over, they will be flooded with capital. It’s possible they will have so much new capital, they won’t know what to do with it.

As the world slips into recession, it is also on the brink of a synthetic CDO cataclysm that could actually save the global banking system.

It is a truly great irony that the world’s banks could end up being saved not by governments, but by the synthetic CDO time bomb that they set ticking with their own questionable practices during the credit boom.

Alternatively, the triggering of default on the trillions of dollars worth of synthetic CDOs that were sold before 2007 could be a disaster that tips the world from recession into depression. Nobody knows, but it won’t be a small event.

A synthetic CDO is a collateralised debt obligation that is based on credit default swaps rather than physical debt securities.

  If the list of defaults – full and partial – gets to nine, then a mass transfer of money will take place from unsuspecting investors around the world into the banking system. How much? Nobody knows, but it’s many trillions.

Read the rest here =>
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