Time to expose those CDOs: Just how much should a debt vehicle backed by subprime mortgage bonds be worth these days? Two years ago, most banks and insurance companies assumed the answer was close to 100 per cent of face value – or more. Since then, however, that “price” has clearly collapsed, triggering tens of billions of dollars worth of writedowns, particularly in relation to a product known as collateralised debt obligations of asset-backed securities (CDO of ABS.) But as the zeroes relating to writedowns multiply, a peculiar – and bitter – irony continues to hang over these numbers. Notwithstanding the fact that bankers used to promote CDOs as a tool to create more “complete” capital markets, very few of those instruments ever traded in a real market sense before the crisis – and fewer still have changed hands since then. Thus, the “prices falls” that have blasted such terrible holes in the balance sheets of the banks have not been based on any real market numbers, but on models extrapolated from other measures such as the ABX, an index of mortgage derivatives. What has blown up the capital markets is thus a set of theoretical swings in prices that were always pretty abstract....WHAT?
[ cf Gillian Tett Bears Bad News About CDOs ]
Marketted products without markets...
So clearly now, it is time to simply call in the Tall Ones and.... What if the Irken Tall Ones are not going to come and protect us????
WHAT IF WE ARE THE INNOCENT CHILDREN WE ARE TRYING TO PROTECT!!!
Maybe what we need is to go into rehab, and explain that it was not really our fault, that it was all of that Moonshine that the Supply Siders under Milton Friedman sold us, and the drug abuse of the Total Deregulators under the Evil Klintonesta Regime, and that we should not be held accountable, because evil liberals are EVIL!
Think of the Innocent Children...