Nov 242008
 

… but didn’t want to admit to ignorance?

Well…not really because CDS and CDO are simply letters which mean lack of appropriate regulation of a free market run rampant on greed. However, when this article popped into my mailbox today, I have to admit to some curiosity when I clicked on a link within it.

The article itself is haunting in it’s familiarity of names dropped within. Citigroup, Genworth Financial, MGIC, PMI, Rescap, GMAC are all names very familiar to members of Australia’s finance game, which only goes to prove that while politicians might be telling us that we’re better off fiscally here in Oz than some nations, we’re exposed and we’ve been exposed to exactly the same economic dangers as any other globalised, developed nation.

The linked article, here for expediency, goes on to explain in considerable detail just how those once gigantic corporates were undermined by their own greed. I quite enjoy Alan Kohler’s analysis of matters fiscal, and this article of his is no different. It’s very well written, very ‘layman’ in it’s language and makes the understanding of the why’s and wherefores in relation to Credit Default Swaps (CDS), Collateralised Debt Obligations (CDO), Synthetic CDO’s, who created them and why as well as who has been likely to have bought them.

Frankly, I find the whole business to be immoral. Banks taking out complicated insurance bonds against the possibility that highly-geared corporate borrowers of those same banks might fall over, then selling those policies as negotiable items to unwitting or gullible investors, seems exactly as Kohler describes it. A dog eating it’s own vomit. Illegality would also apply, were it not for the Clinton Administration in the 1990’s legalising this smoke and mirrors, vomit-eating exercising in financial cannibalism.

Do have a read of both articles. Very informative, easy to understand and highly enlightening.