The next round of bank writeoffs cometh

Slicing and dicing mortgages into bizarre investment products into CDOs, then buying and selling bogus insurance on them in the form of Credit Default Swaps apparently wasn’t enough…

Nope, they had to go and create synthetic CDOs, in which the underlying exposure isn’t mortgages but CDS. Which is air piled on top of air.

There’s $1.2 trillion or so in such toxic glop out there now, some which is worth less than ten cents on the dollar. This means huge writeoffs coming yet again for financial institutions.

CDO cuts show $1 trillion corporate-debt bets toxic

“The same kind of shudders that went through the asset- backed CDO market will probably go through the corporate CDO market”

The banks that structured the securities and investors both failed to do “fundamental credit analysis,” said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago. “They were using correlation models, they were using spread models, but they weren’t doing analysis on the underlying corporations.”

Read that again. The greedheads who created this junk couldn’t even be bothered to evaluate the corporations the financial instruments were based on.

Sue, who is a CPA and a Certified Fraud Examiner, says one of the worst things about all this is the prideful idiots who created such glop were often arrogantly convinced of their inerrrancy and sneeringly contemptuous of everyone else.

Financial examiners will have work for years to come untangling what the greedheads did. Some of these (former) Masters of the Universe might be doing perp walks soon. Be still my heart.

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