Another day, another $37 billion of downgrades

Bond rating agency Fitch just downgraded $37.2 billion of toxic glop CDOs from highest rank AAA to junk, the lowest grade. This led a commenter to say Collateralized Debt Obligations should be renamed Cannonballized Debt Obligations.

In related news, E-Trade is toast, and for the same reason, “investments” in toxic waste mortgage-backed securities. Lots more of this will be coming too.

Weren’t these investment bank / hedge fund types supposed to be the best and the brightest? So, how did it get this crazy? Aside from the obvious greed and lack of ethics by too many of those involved, government regulatory agencies were asleep at the wheel, perhaps quite deliberately so.

If you have a retirement or money market fund, they may well have toxic glop in their portfolio. How about your bank? So far the impact from this has seemed rarefied and distant, but that’ll be changing. Consumer spending driven by using home equity as an ATM is gone, which means a business slowdown too. Obvious businesses that will be affected are real estate, travel, and any discretionary spending. Mortgages are way harder to get now and real estate prices continue to fall. So, even if you rent, you can and probably will be affected by the imploding debt market.

The problem with a crisis of capitalism, and this sure seems to be one, is that everyone gets burned. A staunch socialist can lose his job just as easily as a die hard capitalist.

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