And Paddy has done another video explainer on the Marketplace website, on credit default swaps: http://www.publicradio.org/columns/marketplace/offair/2008/10/untangling_credit_default_swap.html

That incidentally, was what Washington pols were defending in the early 2000s.

It's only once these were gathered together then sectioned off, then derivatives of these groups of CDOs were gathered and sectioned off. Then allowing third parties to bet on bonds they weren't party to that everything got crazy. With the rating agencies giving their bribed approval for the whole, sickening mess.

That is what Gramm and the Free Market Uber Alles types gave us.

It puts a face to the lie that the ideal role for gov't is to not regulate business. Without intervention, business will almost always go for the short con to goose this quarter's numbers, rather than making longer-term investments that provide true value and wealth.

@Corporate-Shill: Technically, in a ponzi scheme, the money comes from the bottom up.

But yeah, the net effect is the same.

Well ok that's a bad analogy seeing as how they are the containers :D

Beer bottles are hard to arrange that way.

a bank doesn't give you money (interest) for nothing unless it benefits them somehow.

i guess it's a little more complicated than that.

Instead of buying only the toxic debt, that nobody wants, the government would buy controlling stock interest in the company itself. Yes. It sounds a little socialistic but unchecked capitalism led us to this mess.

A stock injection plan, loved by most economists and hated by the companies, was lobbied heavily against. The Paulson plan that made it through had late night language that gave the treasury department the option to choose what would work best for each situation.

Personally, for the big offenders I hope that the government does buy controlling stock interests and not just their bad debts.

In essence there's 5 trillion dollars worth of bonds in the world. But there's 60 TRILLION that's insured by these CDS instruments that are held by big companies and banks all over the world. Being unregulated means that they don't have to have the funds to cover their obligations. And you didn't have to own the bond either to get a CDS.

If all we had to worry about was a subprime mortgage problem, then no big deal. The world's economy could handle that loss. But these companies have networked that toxic debt throughout the world with these crazy CDS instruments. If too many big players go down, then the house of cards collapses.

CDO's are a smaller part of this bigger problem.

@johnva:

Uh, why? That's kind of like saying "some drugs are transported in cars, some in pickup trucks, so let's ban pickup trucks."

I also believe that if it was written from the point of view of a McCain supporter (are there really any of them left?), he would have been calling Obama a terrorist.

I'm surprised he didn't make the obligatory middle name joke as well.

So instead of fixing the economic condition that caused the first bottle to not fill as well as it had been we are just gonna fix the outcome for the investors. So really we have just slowed the collapse by artificially filling the glasses from a 3rd bottle that is fed from the taxpayers pocket. Again where is the fix for the mortgage crisis?

@discounteggroll:LOL

Actually... this is the before AND after picture.You drink before to celebrate BEFORE you realize what you have done and you drink AFTER when you finally realize what you have done.

I guess the glass at the top got the teaser rate or more realistic and affordable payments while the glasses at the bottom got the 1000 dollar a month increase in payment part of the mortgage.

Just for the record, that's a sexy Irish accent. (He's even called Paddy for goodness sake!)

Amway, anyone?

Sounds like one Ponzi scheme was selling shares into another Ponzi scheme who sold shares of the second Ponzi scheme back to the first Ponzi scheme. Then one day the scammers found out they were scamming each other.

And the Stock Market plunges 40% in one year.

Sounds like the people who rated the top tier of the second tower of glasses were incompetant or committing fraud.

@catcherintheeye:

Since he keeps calling the first champagne bottle a CDO I was assuming that's what he was trying to talk about but since the first champagne bottle was actually filled with mortgages, he's illustrating a straight CDO. He's going to need another set of glasses to show how a CDO^2 works.

If you want access to most of the Nomura stuff it's here:

[www.securitization.net]

I don't think they publish much any more.

Not that I have any solutions to any of this...

Abstraction gone awry! Oh my!

Nomura has decent writeups on CDOs and CDOs-squared

"whaaaaaa

@Pious_Augustus:

*Our*

Of course we dont blame Barney Franks and Chris Dodd here for letting them play without economy so how much did Grokster (parent company of this site) give to our lord and savior barrack obama?

It's like P.T. Barnum said: "Every crowd has a silver lining."

Somebody will always buy crap, and the more crap that is sold, the more the seller/packager can say, "Look at all the smart people buying my crap". We think of ourselves as such lofty beings, but we're just animals that still, and always will follow the herd mentality.

I love it when they figure out ways to dumb it down for the rest of us.

I got a simlar power point presentation in the mail with stick figures explaining the sub-prime meltdown. All finaly came together.