I do NOT get it?!

I still do not get it!!.
What is meant by a Synthetic CDO short position?
(1)- Selling the security of the CDO.
(2)- selling insurance on the referenced Synthetic CDO mortgages?
In Other words,
How did IKB ( the German bank) lose that One Billion$ in the Abacus deal?! Did they sell insurance to Paluson?

Robert Oak here. The answer is oh so simple. Just see this Rube Goldberg chart, courtesy of ClusterStock and described by this Business Insider article.



So, the answer is they traded in CDSes to short the CDOs.

Subject Meta: 

Forum Categories: 

this is not an instapopulist, it's a comment

Instapopulists should be more like articles, in spite of their shorter length or when they are macro economic EI analysis/postings.

I'm fixing your post to answer your question with an image.

EP is kind of confusing, to get used to what's ok, how it works and so on, so I suggest writing comments first and reading the FAQ, user guide and so on to get the system down.

Hello Robert, Thank you for

Hello Robert,
Thank you for the input.....Even if the above is 100% right (I have a lot of reservations)....the question remains how did IKB lose thatone billion Dollars?
I am told that IKB sold CDS protection to GS which in turn sold that CDS to Paulson?

if IKB issued CDSes

that's news to me. But it's possible. As you can see from the graph, they were primarily sold the rigged CDO (which is a bond), so even if they had some CDSes, each one pays out on one CDOs (or is assigned the default swap to some underlying derivative), so it's possible that wasn't enough to cover their losses due to the rigged game. I think the graph is going off of just the Abacus CDO at the heart of the SEC lawsuit. So, maybe you're reading about their overall derivatives losses vs. just this one?

But realize the posts on EP are picked up by Google news, so we try to keep all posts with questions answered, more like articles, whereas the comments are the wild west. I guess I need to put up more "Must Reads" and make it clear those posts are open threads for any sort of discussion.

I'm working on a major site upgrade so I'll do that but be aware that when it comes to writing up blog or forum (Instapopulists) on this site, the quality standards are are high as we can muster. The reason is I saw we've become an authority, a reference, so better be right because of that! Nothing worse than incorrect or misinformation. We get enough of that one from cable and the MSM.