What Is A CDO And Why Should I Care?
For many in this country economics have become a nightmare. On top of all of the basics about how money works, another layer has come completely unraveled. That being the business of “shadow banking”.
To the degree that the population becomes wise to how this works, is the degree to which all of us can avoid the pitfalls of financial oppression.
The warning signs were clear that nothing good would come from the development of Collateralized Debt Obligations, CDOs. I was fortunate to have been in banking and in a group which voiced serious concerns over the development of crazier and crazier esoteric instruments. They were to be peddled as “same as cash” but were in fact far from that. By July 07 the auctions for these began to fail as financial institutions backed away.
The bankers started pushing the CDOs out the door. They managed to get them off their books and into the hands of others, most of whom were sold these as “same as cash” which of course they were not.
Who created these? Companies like Blackrock and Nuveen. The market for these froze by mid-Feb 2008. 300 billion dollars of “same as cash” assets were so much dead meat.
Those who had trusted that these instruments were really the same as cash found their economic lives grinding to a halt. The regulators of course were flooded by complaints.
The players in the industry feigned innocence. The investigations continued. In the end many small investors got back their principal at least.
The press ignored the story. It must be a coincidence that the wrong-doers were also major sponsors.
What got the press to cover the story was the total meltdown in September 08. When Bernanke and Paulson demanded 700 billion dollars for Wall Street the story started to unfold to the public.
Where is the accountability you may ask? It isn’t too much a stretch to get the idea now in November of that year that to a large degree the money being paid back to investors for the CDOs will effectively come out of the pockets of the US Treasury.
The rough condition of the stock market just after the last election was rumored to in part have been due to the rumor that “full bonuses” may not be forthcoming to the architects of the meltdown.
So what kind of bonuses are we talking. Dick Fuld, had in 07 cleared 34 million.
Clearly Rand’s notion of enlightened self-interest did not trump raw greed for the banking industry. For more on Rand, see Objectivism and the 1957 novel “Atlas Shrugged”.This all plays nicely into the capital C Conspiracy Theorists who are ready to gloat over the “I told ya so’s”.
Bailing out the international “Too big to fail” shows that the notion of national sovereignty is a thing of the past. The public has been asleep as the barbarian bankers not only got past the gates but quietly took over.
Will the New Vikings prevail? Stay tuned