Remember those toxic assets and how the government was going to buy them up, sell them later to recover their value?
You must read this Financial Times article:
Here is the Magic Secret Decoder Ring to translate:
CDO - Collateralized debt obligations
Mezzanine - Underlying asset is subprime, "risky" mortgage
ABS - Asset backed securities
Tranche - Slices of risk levels within a bundled group of securities
Out of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi.
The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.
So, how to destroy all trust, credibility and confidence in a matter of a year? Rate risky assets as safe so people will buy them.
It looks like the global financial sector created a Second Life fantasy financial world and the Linden dollar wasn't even pegged to anything but a bad math base equation.
Hiding toxic waste and looking for a brighter day just ain't workin' here. Take a deep breath, pull the band-aid off in one jerk and get it over with. Open the hood to the public on these inane fantasy derivatives.