Obama loses another point with me

[ChasingBlueSky 0]

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So backing one financial fuckup is better than the other? Alot of the people that got fucked were under ARMs

Who was sucker enough to get an Adjustable Rate Mortgage, see that teaser rate, get hypnotized by it, and then think that they would never get dicked by the bank and have the rate jacked way higher after the initial teaser period?!

Talk about your moronic wishful thinking! These are people, it appears to me, who allowed themselves, against all normal thought processess that should go on, that they would forever keep that wonderfully low introductory rate, and that the banks would never feel the desire to increase the rate to make themselves more money.

Clearly everyone was an economics major in college.

Fact: there are people that finance, loans, etc just don't make that much sense to. These subprime/ARM dealers were very much like a used car salesman. Many were suckered and conned into it. See: Credit Cards and debt consolidation companies.

But go ahead and judge everyone who got an ARM as moronic. It must be nice to be that high up on the evolutionary chart to make sweeping accusations like that. /boggle

_________________________________________
you can burn the land and boil the sea, but you can't take the sky from me....
I WILL fly again.....

[billvon 2,400]

> that the banks would never feel the desire to increase the rate to make
> themselves more money.

As you well know, banks cannot simply "increase the rate to make themselves more money." The rate is adjusted (up _or_ down) based on a variety of indices, not the whim of the bank. Indeed, any mortgage holder who has a bank increase their rate "just to make themselves more money" rather than on changing incides would have grounds for an excellent lawsuit, one they would likely win.

You have a good underlying point, but lose it in the attempt to denigrate mortgage holders.

[livendive 8]

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So backing one financial fuckup is better than the other? Alot of the people that got fucked were under ARMs

I think making *reasonable* attempts to help folks keep a modest house to live in is more palatable than making any attempts to help people keep a second or third house.

Roof over the head = basic need
Rental properties = luxury

Blues,
Dave

"I AM A PROFESSIONAL EXTREME ATHLETE!"
(drink Mountain Dew)

[DrewEckhardt 0]

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So backing one financial fuckup is better than the other? Alot of the people that got fucked were under ARMs

I think making *reasonable* attempts to help folks keep a modest house to live in is more palatable than making any attempts to help people keep a second or third house.

Roof over the head = basic need
Rental properties = luxury

Blues,
Dave

The modest (2-3 bedrooms) houses I've seen for sale have all listed for $800-1.4M.

If some one stretched for one of those even though they couldn't afford fully amortized payments but could squeak by on an option arm instead of buying a $500K condo or renting a $1500-$2K/month apartment do they deserve to be bailed out?

Or should the government let the forclosure happen and prices fall 80% to their long term inflation-adjusted average price which has held steady apart from a few small peaks so that people who had enough self control to stay out of the market craziness can once again afford homes?

Witholding hosues from the people who behaved themselves seems less fair to me.

[livendive 8]

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So backing one financial fuckup is better than the other? Alot of the people that got fucked were under ARMs

I think making *reasonable* attempts to help folks keep a modest house to live in is more palatable than making any attempts to help people keep a second or third house.

Roof over the head = basic need
Rental properties = luxury

Blues,
Dave

The modest (2-3 bedrooms) houses I've seen for sale have all listed for $800-1.4M.

If some one stretched for one of those even though they couldn't afford fully amortized payments but could squeak by on an option arm instead of buying a $500K condo or renting a $1500-$2K/month apartment do they deserve to be bailed out?

Or should the government let the forclosure happen and prices fall 80% to their long term inflation-adjusted average price which has held steady apart from a few small peaks so that people who had enough self control to stay out of the market craziness can once again afford homes?

Witholding hosues from the people who behaved themselves seems less fair to me.

While I didn't restate my position in the post you quoted, I did say upthread that I believe the maximum "bailout" homeowners should receive is help reworking their loans to interest rates appropriate for their credit rating. Do I correctly understand the question you're asking is whether folks who can't afford "fully amortized" payments, i.e. they couldn't afford the payment on a 30-year fixed with even 0% interest should be bailed out? I absolutely think those folks should go back to renting something they can afford. The fact that this would make home prices more reasonable is a nice bonus, but I'd have the same opinion regardless of that.

Blues,
Dave

"I AM A PROFESSIONAL EXTREME ATHLETE!"
(drink Mountain Dew)

[georgerussia 0]

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I see your point. Flip side to that one is, however... many of the people that bought into these loans were sold on them by unscrupulous banks and offerings that they perhaps lacked the intellect to realize were dangerous/unstable/whatever. I'd say that more or less makes them "innocent" because they lacked the knowledge or ability to understand exactly what they were getting into.

I would disagree with this statement. This is basically saying that someone who signed the paper without reading it should be "innocent". No, they are just stupid.

Just look on "stated income" loans. Most of the people who would take those loans would be the people who knowingly LIED about their real income. This is obvious as anyone with verifiable income would just get a regular loan with much better terms. As far as I remember, providing false information in the loan application with intent to get a loan is a crime itself (not sure if it's federal or state), so "innocent" here does not really fit anyway.

And for those who got equity out because they "needed money"? They will need to understand that money do not come out of nothing, and that they need to do some research before signing up for a loan if terms are not clear. Damn, people spend _weeks_ searching the Internet and reading reviews before they buy a $2000 camcorder! Probably a $300,000 loan would worth at least the same amount spent on research?

* Don't pray for me if you wanna help - just send me a check. *

[DSE 3]

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I would disagree with this statement. This is basically saying that someone who signed the paper without reading it should be "innocent". No, they are just stupid.

A very large number of people finding themselves either now homeless or heading in that direction are mentally and/or physically handicapped.
There's a part of me that just doesn't quite feel human calling them "stupid."

[jamieG 0]

I do not think they were "stupid " , perhaps due to clever sales techniques they did not understand what they were getting into, especially the risks they were taking. I believe many banks are being sued by local boroughs who find themselves in the same boat having bought complex financial packages thinking they were saving money...

Are people who get suckered by Skyride stupid ? No , probably more unwary and as Obama says " innocent ". Not all , but certainly a good portion of the people.

[rushmc 18]

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I would disagree with this statement. This is basically saying that someone who signed the paper without reading it should be "innocent". No, they are just stupid.

A very large number of people finding themselves either now homeless or heading in that direction are mentally and/or physically handicapped.
There's a part of me that just doesn't quite feel human calling them "stupid."

Maybe you can help me here. I see and read things like you have posted here. But I also rear that 4% or less of mortgages are in default (the last time I read it and that is very regionalized)

How does this number traslate into so many being homeless?

I am not trying to minimize the hell some must be going though. I will admit that lenders (and I have worked with some) would at times loan up to 125% the value of the property

But I have to agree that, they signed the paper. Unless they were lied to, how can anybody else be held as responsible for their mess?

I rambled a bit , sorry

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[DSE 3]

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But I have to agree that, they signed the paper. Unless they were lied to, how can anybody else be held as responsible for their mess?

I rambled a bit , sorry

I didn't suggest that victims are not responsible, I submit that they aren't "stupid."

I understand. It's really, really difficult for smart people to comprehend that there truly are trusting people of lesser intellect that aren't able to ascertain what's being put in front of them. I realize that the right wing societal system would sooner force a mother to birth a mentally handicapped child and then toss the human's life into a trash bin of "lesser thans" because they're not smart enough to co-exist but they don't deserve any sort of socialized assistance, either.
And I realize it's hard for conservatives to understand that the situation America now finds itself in is entirely due to greed, the majority of which falls squarely on the shoulders of the Wall Street nee' White House conservatives for taking advantage of a system designed to assist the disadvantaged.
In fact, when it comes to the math of the whole thing, I'm pretty stupid myself and only by sheer luck do I not find myself in the same situation as my younger sister and another relative.


Sorry, I rambled a bit too.

[rushmc 18]

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But I have to agree that, they signed the paper. Unless they were lied to, how can anybody else be held as responsible for their mess?

I rambled a bit , sorry

I didn't suggest that victims are not responsible, I submit that they aren't "stupid."

I understand. It's really, really difficult for smart people to comprehend that there truly are trusting people of lesser intellect that aren't able to ascertain what's being put in front of them. I realize that the right wing societal system would sooner force a mother to birth a mentally handicapped child and then toss the human's life into a trash bin of "lesser thans" because they're not smart enough to co-exist but they don't deserve any sort of socialized assistance, either.
And I realize it's hard for conservatives to understand that the situation America now finds itself in is entirely due to greed, the majority of which falls squarely on the shoulders of the Wall Street nee' White House conservatives for taking advantage of a system designed to assist the disadvantaged.
In fact, when it comes to the math of the whole thing, I'm pretty stupid myself and only by sheer luck do I not find myself in the same situation as my younger sister and another relative.


Sorry, I rambled a bit too.

Ok, I understand the part about stupid

What I do not understant is a the obligatory shots you had to include in your response.

You are right about one thing, I dont understand you, and if this post is any indication of what you think, I really dont want to.

Oh, and you never did answer my question so I will assume you cant
(remember the question about the number of homeless?)
Have a nice day

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[Shotgun 1]

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A very large number of people finding themselves either now homeless or heading in that direction are mentally and/or physically handicapped.
There's a part of me that just doesn't quite feel human calling them "stupid."

I wouldn't call them "stupid" either, but I'm fairly certain that they are a minority of the people who have lost their homes or are facing possible foreclosure.

[DSE 3]

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Oh, and you never did answer my question so I will assume you cant
(remember the question about the number of homeless?)
Have a nice day

I can't answer it any better than you can. I've heard a variety of numbers. If they're coming from the government, they're lies. If they're coming from Wall Street, they're damn lies.
You don't know any better than I do how many are losing their homes and how many aren't.
If I were forced to base my estimation on the number of foreclosures I see in *my* area (which is a fairly financially stable area, not generally prone to be in line with national averages) then the number is a helluva lot more than 4%.
Gee...Fox News I'm SURE, has spent at least 30 seconds of time with their best blonde bimbo researching these numbers. I don't think *anyone* has a clear idea, least of all you nor I.

I know you don't understand the obligatory "shots."
Any more than I understand a social strata that would force a woman to birth a disadvantaged child that society then ignores "because God wills it."
When we help those disadvantaged humans obtain the most important possession of all, greedy men that are golf buddies with Bush and his cronies would take great pleasure in stealing those possessions after having led trusting, innocent souls down a road of false pretense. And those that support the cronies call the victims "stupid." Is it really that hard for advantaged people to understand disadvantaged people???? If truly so...I'd reapply the label of "stupid" in the other direction.
....we live in very different worlds, so we'll never understand each other's viewpoints. The difference is, I once did. I served my time.

[georgerussia 0]

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A very large number of people finding themselves either now homeless or heading in that direction are mentally and/or physically handicapped.

For homeless (which I read as "did not own a home" as no reasonable bank would give a homeless-jobless person a loan) - they did not own it, and they will not own it because they cannot afford it. Homeownership, like owning any other property, is not granted, and not everyone is entitled to it. This is life.

For "mentally handicapped" (which is really stupid term) - are we talking about legally incapable people? If yes, they should not be able to enter any contract anyway. If no, they have signed it, and now it's their own problem. If a person signs a paper without understanding what they signed for and just listened to oral promises, they won't hold it for long time anyway.

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There's a part of me that just doesn't quite feel human calling them "stupid."

I have no problem with this. Being physically handicapped does not mean that the one will not do stupid things.

* Don't pray for me if you wanna help - just send me a check. *

[georgerussia 0]

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I didn't suggest that victims are not responsible, I submit that they aren't "stupid."

So how'd you call someone who now claims they signed the loan paper for a very large amount without reading it, and being completely unaware what they're signed for? If this is not stupid and irresponsible behavior, than what IS irresponsible behavior?

* Don't pray for me if you wanna help - just send me a check. *

[rushmc 18]

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Oh, and you never did answer my question so I will assume you cant
(remember the question about the number of homeless?)
Have a nice day

I can't answer it any better than you can. I've heard a variety of numbers. If they're coming from the government, they're lies. If they're coming from Wall Street, they're damn lies.
You don't know any better than I do how many are losing their homes and how many aren't.
If I were forced to base my estimation on the number of foreclosures I see in *my* area (which is a fairly financially stable area, not generally prone to be in line with national averages) then the number is a helluva lot more than 4%.
Gee...Fox News I'm SURE, has spent at least 30 seconds of time with their best blonde bimbo researching these numbers. I don't think *anyone* has a clear idea, least of all you nor I.

I know you don't understand the obligatory "shots."
Any more than I understand a social strata that would force a woman to birth a disadvantaged child that society then ignores "because God wills it."
When we help those disadvantaged humans obtain the most important possession of all, greedy men that are golf buddies with Bush and his cronies would take great pleasure in stealing those possessions after having led trusting, innocent souls down a road of false pretense. And those that support the cronies call the victims "stupid." Is it really that hard for advantaged people to understand disadvantaged people???? If truly so...I'd reapply the label of "stupid" in the other direction.
....we live in very different worlds, so we'll never understand each other's viewpoints. The difference is, I once did. I served my time.

I am sorry you need to think that corps and Bush (in general) are evil and greedy. I do understand the position though as that is what is taught in the liberal world.

Dont spend too much time worrying about those who work hard and end up with more than you do either. Cause if you do, you will not sleep much

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[billvon 2,400]

>Dont spend too much time worrying about those who work hard and end up
>with more than you do either.

You mean the liberal elitists? Yeah, they probably all speak French or something.

[Ron 7]

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You raise a good point, and I guess the distinction I see is a difference between someone who bought a home to live in and someone who bought a home to make a profit on.

Why is trying to make money a bad thing? I will readily admit that people that speculated should lose their investment. Just like I have no problem with people who bought the bonds losing their investment...Or those that packaged them getting fired with no golden parachute.

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I also suggested we only allow them to restructure their loans to an interest rate appropriate for their credit. If they just flat-out bought too much home for their income and credit rating, I say let them sell & and buy something smaller or lose it and go back to renting.

Who gets to make that call? I think if you bit off more than you can chew, it is no ones fault but your own. The same with the investors, the same with the employees that made those loans.

Do I think the Govt should encourage home owners to work with banks for reasonable rates? Yes. And I think it is really in the banks best interest.

Do I think the Govt should force the banks? No.
It is a dangerous step when we allow the govt to override contracts between parties.

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[rushmc 18]

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>Dont spend too much time worrying about those who work hard and end up
>with more than you do either.

You mean the liberal elitists? Yeah, they probably all speak French or something.

Maybe, but it does not give them the right to talk down their noses and tell everybody they are smarter than eveybody else huh

If the shoe fits buddy

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[Ron 7]

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Clearly everyone was an economics major in college.

Neither were you.

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Many were suckered and conned into it.

They still signed on the dotted line. When my fiance and I were looking for a house we bought the house we could EASILY afford. In fact, she did not work the first year and I afforded it with no problem. It should be paid for in around 8 years...Maybe sooner.

Sure, people tried to get us to buy a much bigger house. We just bought the house we wanted and could easily afford on one salary. Do we have the McMansion everyone else has? No, but we have a nice new normal sized house that was built for us. We splurged and got the fireplace ect...But again, all easily within the budget.

So yeah, I do blame people for buying a house based solely on want with no regard for the ability to afford it without some crazy financing.

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But go ahead and judge everyone who got an ARM as moronic

Rates were at an all time low....Where did they think they were going to go?

If the only way these people could afford such a house was some crazy numbers magic....What did they really think would happen? That they were going to be able to flip the house? My Dad and I had talked about the market busting back in 2002-2003.

Anyone that thought that rates were going to stay low and prices were going to continue to rise forever...Just were not paying attention.

Does that make them bad people? No, but it does mean they were not fiscally responsible.

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[billvon 2,400]

>Maybe, but it does not give them the right to talk down their noses and tell
>everybody they are smarter than eveybody else huh

If I were you, I wouldn't spend too much time worrying about those who work harder and end up with more than you do.

[ChasingBlueSky 0]

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Does that make them bad people? No, but it does mean they were not fiscally responsible.

So individuals who were not fiscally responsible should not be helped but a systemic failure of banks that had the same problem should be bailed out? High risk asset backed securities like CDOs and their off shoring to hide the risk is more of major issue with our current economy than the person who defaulted on their mortgage when their rates went into orbit.

I see a double standard here just because the banks tend to wear a suit. Meanwhile you have the GOP representative from MN claiming that it was the minorities getting subprimes that caused all of these issues. Oh, and I know they get only the best suits because I placed a few people within these CDOs and made a small fortune off of their irresponsible spending when they over staffed. They told me they were invincible to the economy for at least the next dozen years. I may not have studied the economy in college, but I was educated by the banks that are currently being closed on how they viewed it. This was only 2 years ago. But maybe we can keep continue to swapping anecdotal stories, eh? That should prove the point I'm sure.

_________________________________________
you can burn the land and boil the sea, but you can't take the sky from me....
I WILL fly again.....

[Ron 7]

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So individuals who were not fiscally responsible should not be helped but a systemic failure of banks that had the same problem should be bailed out?

Did I say that? Nope.

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High risk asset backed securities like CDOs and their off shoring to hide the risk is more of major issue with our current economy than the person who defaulted on their mortgage when their rates went into orbit.

I never said anything but people who took out loans they could not afford did not show financial sense. The rest is something you never read from me.

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I see a double standard here just because the banks tend to wear a suit.

You see a double standard since you WANT to see a double standard.

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Oh, and I know they get only the best suits because I placed a few people within these CDOs and made a small fortune off of their irresponsible spending when they over staffed.

Good for you!

I made a small fortune getting my degree and a new job. Most importantly my fiance and I didn't let anyone talk us into buying more house than we could easily afford on one salary. So, we made a good financial choice....Those that had to do creative financing did not IMO.

Our house will be paid off in ~ 8years. My 06 car is paid off and we are working on paying off her 06 car. (our cars both broke down after moving here ...Otherwise we would not have bought new ones).

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They told me they were invincible to the economy for at least the next dozen years.

They clearly were wrong....Just like those that thought an adjustable rate and buying more home than they could afford were also wrong.

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I may not have studied the economy in college

Then why did you make this comment?

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Clearly everyone was an economics major in college.

I don't get it???? I thought that was implying that you knew something that other posters didn't know. Sorry if I mistook that intent.

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but I was educated by the banks that are currently being closed on how they viewed it.

And my fiance works for a bank...Her Dad worked for a bank, my Mom worked for a bank...Your point?

You think that people who bought more house that they could afford and had to get an adjustable APR to be able to do it, in a market that was primed for a bubble...Made a GOOD financial choice?

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[kallend 1,623]

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Does that make them bad people? No, but it does mean they were not fiscally responsible.

What does that make the presidents Reagan and Bush, who each in his turn turn presided over the largest increases in spending unmatched by income in the history of the world?

If the guys in the bully pulpit behave as if it's OK to borrow borrow borrow, why are you picking on the little folks who pick up on that behavior instead of on their leaders?

...

The only sure way to survive a canopy collision is not to have one.

[ChasingBlueSky 0]

Ok, stick to your anecdotal stories and strawmans, you even drew me into using one. Meanwhile Wallstreet is happy to become socialist because they helped destroy the capitalist market. It only took our investors to prove Marx right. The system is broken and has been broken for years. They work with our money not to help the free market but to help their own personal interest. WaMu is seized and their CEO who is on staff for three weeks before he is fired gets to walk away with $16M. But yet people want to point the finger to the people that defaulted on their ARMs when their rate skyrocketed because those in Wallstreet needed more money. And here I thought Bush claimed he cleaned up Wall Street a couple years back. Meanwhile you have a company like Goldman that sells off subprime and then bets on the incoming collapse and it's executives make a windfall of $4B in 2007.

Then there are the CDOs and their Special Purpose Vehicle which spawned blazing new industries of CDOs in the Caymen's. Short story on CDOs? You have a financial problem, well, repackage it into a CDO, offshore it to hide that risk and then sell it to Asia. Is it really something that could or should be sold? No, not at all. It's a major gamble, like placing your life savings on the long shot at your local horse track of winning the triple crown that year.

So these guys made hard and fast with OUR money trying to make themselves more money and screwed up. Now they need $700B of OUR money to bail them out. Yet people want to point the fingers at those that defaulted. Ok, have fun. That's the problem here with our current myopic culture. People are looking to place blame on something they can understand and grasp and it's easy to see all the For Sale signs popping up around town. Then you think "well, hell, I managed it why can't they?" Meanwhile the man behind the current problem is giving it to you in the ass and walking away with your money and enjoying the high life with your money they gambled away. To help solidify your opinion you have the talking heads on TV telling you that you should be upset with Bob and Jane that defaulted and they are the reason why everything else is going wrong. And everyone smiles and nods as more money is taken out of their pocket.

Long story on the just how destructive CDOs are. If you really wanted to learn just how deep this rabbit hole goes it will take you a few weeks of reading.

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WHAT IS a CDO?

I mean really?

A public answer:

Collaterized Debt Obligations are investment vehicles consisting of subclasses (called tranches) of bonds, stratified by credit rating (usually AAA down to BBB-), the underlying collateral of which is a large pool of other bonds (be they corporates, asset- backed securities (ABS), or even tranches of other CDOs).

Similarly, "CLOs" and "CMOs" are bonds based on pools of loans (often used to fund leveraged buy outs) and mortgage bonds. ("CDOs" may include loans and often include mortgage bonds, but typically in small amounts amid a highly diversified pool.)

The pool is assembled by an investment bank, which hires a Portfolio Manager and a Trustee. The Bank then forms the CDO's Issuer (a "special purpose vehicle" usually offshore), sells the tranches to institut- ional investors, nets from the proceeds its fat fee, and retires to a beachhouse in South- hampton for a month, leaving the PM and Trustee to run the deal.

A fair enough answer as far as it goes. But it fails to fully capture the economic reality of most of the deals I worked on across the past six years.

A few pointers, then:

-- A CDO often happens because a guy with a problem calls an investment bank. Or maybe the bank calls him. To inform him of the problem.

-- The guy with the problem almost always winds up as the Portfolio Manager of the CDO that seems to be his solution.

-- And he often goes home after closing with the riskiest tranche in his pocket.

Three examples:

A Simple Problem: Languishing in the deep trough of an interest-rate cycle, a pension fund's bond portfolio is yielding peanuts -- making it hard for the fund to meet long-standing commitments to pensioners.

Solution: Moonlighting. Why not make a little gravy on the side by serving as Portfolio Manager of a CDO (or a dozen) with a pool of bonds similar to your own? No need to hire new spreadsheeters -- the same guys watching your in-house portfolio can manage the CDOs.

A More Complicated Problem: An insurance company is pushing regulatory limits on investments characterized as debt, whether due to underperformance of same, or regulatory change, or poor management by the in-house spreadsheeters.

Solution: New Bonds for Old! Rather than wade into the markets to dump or improve your portfolio trade-by-trade -- why not let Bank take, say, $500 million in old bonds off your hands and repackage them in a new CDO? Bank is confident that by applying its expertise and working its clients it can place your lumber at competitive rates.

And remember, you'll be collecting the Portfolio Management Fee every payment date -- along with whatever interest trickles down to the BBB- tranche you'll be buying to close the deal. Nobody else wants that piece -- Moody's is saying it looks like $30 million -- and holding it will focus your managerial mind, assuring portfolio performance for all investors top to bottom. Won't the regulators be pleased to find your books lighter by $470 million in yesterday's bonds?

Such "repackaging" is now utterly common, and, in my experience, the raison d'etre of most CDOs.

So it's not simply that bankers think CDO fees are awesome. But rather that the world is full of bond portfolios that regularly need tune-ups, as things change or stuff happens. With the advent of Excel, the CDO became the efficient solution to a problem as old as finance.

(What's that? Can't quite swallow the whole $30 million BBB- piece? Bank will be happy to take half, at its usual discount, and sell it tomorrow to a guy in Asia re-wrapped and enhanced with an extra 10 bps of coupon interest. Bank is here to get deals done.)

A More Interesting Problem: The spreadsheeters at a "hedge fund" specializing in mortgage-backed securities fail to sniff a change in the wind, an approaching squall -- and suddenly realize they're hardly hedged at all. Something must be done.

But such bonds are arcane and lightly traded (to be kind) -- hard to sell in the secondary market even in the best of times.

Solution: Bank will be happy for an appropriate fee to launch a Synthetic CDO with a "notional" (imaginary) Reference Portfolio that happens to be identical to your imperiled portfolio of MBS.

Bank will also be happy to serve as Counterparty to the Credit Default Swap Agreement at the heart of the CDO contract, acting as Protection Seller -- and thereby cushioning the CDO investors against the ill effects of any Credit Events that may befall the Reference Portfolio.

(For example: A subprime mortgage bond in the Reference Portfolio -- and thus also in the troubled hedge fund -- is downgraded by Fitch. Or misses an interest payment. The Trustee notates the occurrence of a Credit Event. And the market price of the bond drops like a rock. But if you bought Protection in a swap agreement, hey, you got some cushion.)

So, to solve the unhedged hedge fund's problem, it merely remains for said fund to buy the entire CDO.

?!?

That's right. There's no third-party investor behind the curtain. The guy with the problem is not only serving as Portfolio Manager -- but he's buying every tranche for (say) $500 million.

The sale proceeds get invested in secure collateral -- because remember, this is a Synthetic CDO, which means the Reference Portfolio is just a list of MBS issues stapled to the back of your Private Placement Memo. There is no underlying pool of bonds to purchase.

So the $500 million -- net of bank fees, rating agency fees and other closing costs -- goes to the Issuer's reserve account, in the Trustee's care. But nobody holds cash. So instead it gets parked in a safe investment that happens to throw off enough income to make the CDO work. Which investment, in this case, is credit card asset-backed securities.

?!?

That's right, we put the five centamills in credit card bonds -- Moody's and S&P said fine.

But are they safe?!

Safe?! They're golden!

That's what you said last year about the mortgage bonds! Who says credit card bonds can't fail?!

They never have! They got a stellar track record!

If all goes well, each quarter the interest income from the $500 mm in credit card ABS pays (i) the coupon interest on the CDO tranches to the investor (the hedge fund), (ii) the management fees to the Portfolio Manager (the hedge fund), (iii) the swap premium to the counterparty (the bank), (iv) the Trustee fee and (v) miscellaneous expenses.

And upon the occurrence of Credit Events, the Counterparty as Protection Seller (the bank) will compensate the CDO Issuer as Protection Buyer, as per the terms of the swap agreement. Which compensation then flows to the investor (the hedge fund). Until the Protection written into the deal has been exhausted. After which further losses will be absorbed by the $500 mm credit card ABS -- thus reducing the amount of principal repaid to the investor (the hedge fund) when the deal winds up.

So, is this really a CDO? Sure -- says right here on the cover.

But in essence it's nothing like a vehicle for public investment. More like a tailor-made, if byzantine, insurance policy. And it may be that the lawyers who drafted the deal, and the rating agencies that blessed it, maybe even the tax man, have little or no idea of the economic reality.

So what's a CDO really?

A CDO is a problem solver. And each quarter in the business world problems blossom anew. That's why there's so many CDOs.

It's a wild world we've weaved since the advent of Excel -- a worldwide web of complex derivative liabilities. Is it a more dangerous world than the one that preceded it? Do the rating agencies have the muscle and talent to police it? Can any self-regulatory system work when We're all Yuppies Here and nobody gets paid unless the deal gets done?

However that may be, at the moment nobody in the world has a clue as to what their CDOs are really worth. And they are waiting for a man in a Big Suit to tell them.

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you can burn the land and boil the sea, but you can't take the sky from me....
I WILL fly again.....