“Large pension fund managers working for those with the least to lose tend to be the biggest patsies when it comes to misguided investments,” declared Dan Amoss in an e-mail to The 5. “The speculation du jour is called a CDO, which stands for collateralized debt obligation.”
While that might sound sophisticated, a CDO is little more than a portfolio of loans like the kind a banker would hold. Wall Street divides the claims on these loan portfolios into “tranches,” or segments with different risk/reward profiles.
“The patsies, expecting they’ll get 20% annual returns with no risk, have been buying the riskiest tranches -- the ones that will absorb the first wave of defaults when they inevitably occur,” explained Dan. It doesn’t seem to matter if these tranches are backed by, say, subprime mortgages written in Detroit at the peak of the housing bubble.
“Putting lipstick on this pig may seem like a savvy way to generate profits for the likes of Bear Stearns, but it strikes me as dishonesty, not beauty,” Dan told us. “Angry politicians will know where to look when it comes time to look for scapegoats.”
While that might sound sophisticated, a CDO is little more than a portfolio of loans like the kind a banker would hold. Wall Street divides the claims on these loan portfolios into “tranches,” or segments with different risk/reward profiles.
“The patsies, expecting they’ll get 20% annual returns with no risk, have been buying the riskiest tranches -- the ones that will absorb the first wave of defaults when they inevitably occur,” explained Dan. It doesn’t seem to matter if these tranches are backed by, say, subprime mortgages written in Detroit at the peak of the housing bubble.
“Putting lipstick on this pig may seem like a savvy way to generate profits for the likes of Bear Stearns, but it strikes me as dishonesty, not beauty,” Dan told us. “Angry politicians will know where to look when it comes time to look for scapegoats.”
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