Talk:Synthetic CDO

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'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.'

[...]

'It offers a highly-rated, investment-grade, fixed-interest product paying a 1 or 2 per cent premium. Those investors who bother to read the fine print will see that they will lose some or all of their money if seven, eight or nine of a long list of apparently strong global corporations go broke. In 2004-2006 it seemed money for jam. The companies listed would never go broke – it was unthinkable. '

'Here are some of the companies that are on all of the synthetic CDO reference lists: the three Icelandic banks, Lehman Brothers, Bear Stearns, Freddie Mac, Fannie Mae, American Insurance Group, Ambac, MBIA, Countrywide Financial, Countrywide Home Loans, PMI, General Motors, Ford and a pretty full retinue of US home builders. '

[...]

'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.'

'It will be the most colossal rights issue in the history of the world, all at once and non-renounceable. Actually, make that mandatory.'

'The distress among those who lose their money will be immense. It will be a real loss, not a theoretical paper loss. Cash will be transferred from their own bank accounts into the issuing bank, via these Cayman Islands special purpose vehicles. '

http://www.businessspectator.com.au/bs.nsf/Article/A-tsunami-of-hope-or-terror-LHRJP?OpenDocument Jim Bowery (talk)

I'm trying to figure out what's changed with the Dodd–Frank Wall Street Reform and Consumer Protection Act law. Haven't found a lot but this page over at "Riski" is helpful: http://freerisk.org/wiki/index.php/CDO_regulation. There's some complex stuff about the "flip clause" dealing with subordination and who gets paid (investors or the corporation) - see Lehman Sues BNY Over Role in Disputed Derivatives Deal (October 2011). Also, New Basel rules could hit synthetic CDOs – Goldman Sachs. Hmm, just found this: http://lawbitrage.typepad.com/blog/2011/09/sec-proposal-would-likely-prohibit-controversial-synthetic-cdos.html SEC Proposal Would Likely Prohibit Controversial Synthetic CDOs]. II | (t - c) 22:37, 22 October 2011 (UTC)Reply

It appears that an editor included a comment in the "Debate and criticism" section of the article which belongs on the Talk page. I've moved the comment here to highlight it for further review and discussion with a view to improving the article:

Objection: Synthetic CDO's, the most common types, are issued on a pool of synthethically referenced Corporate-Debt, known as CDSs. Synthetic CDO's had not much, if nothing, to do with Sub-Prime crises, which was largely due to Cash Mortgage CDOs, or RMBS etc..

In the article context, the comment appeared in this fashion (within parentheses):

Synthetic CDO's have been strongly criticized for making the Subprime mortgage crisis (Objection: Synthetic CDO's, the most common types, are issued on a pool of synthethically referenced Corporate-Debt, known as CDSs. Synthetic CDO's had not much, if nothing, to do with Sub-Prime crises, which was largely due to Cash Mortgage CDOs, or RMBS etc..)worse than it already was — or as journalists Bethany McLean and Joe Nocera put it — turning a "keg of dynamite" that was subprime loans "into the financial equivalent of a nuclear bomb". Zuckerman calls the growth of synthetics, "the secret to why debilitating losses resulted from a market that seemed small to most outsiders".

Regards, Geoff | ^{Who, me?} 22:10, 6 January 2016 (UTC)Reply