The National Association for Business Economics survey, released today, found that 51% of those responding had little or no familiarity with the "structure, activities and risks" associated with collateralized debt obligations, or CDOs. CDOs are securities backed by pools of bonds, loans or other assets that are sliced into "tranches" (French for "slice") with varying maturity dates and differing degrees of risk.
A smaller 45% didn't have a good grasp of hedge funds — investment vehicles that are privately run, overseen by investment managers, and not widely available to the public. They use a wide array of investment strategies.
And 68% didn't have a handle on credit default swaps — which investment giant Pimco explains in a bond basics primer as: "In its most basic terms, a credit default swap is similar to an insurance contract, providing the buyer with protection against specific risks."
"There was a joke going around: 'What do you get when you cross a CDO salesman with a Mafia don? You get an offer that you don't understand,' " says Carl Tannenbaum, NABE president and chief economist at LaSalle Bank/ABN-AMRO in Chicago.
Ok, now please think about this for a moment: experts don't understand how credit works these days!!
Let's take a quick closer look at what 51% of what "the pros" understood: "the 'structure, activities and risks' associated with collateralized debt obligations".
Now, I just swung by the page for "collateralized debt obligations" at Wikipedia.org (here: http://urltea.com/1c4r ) and read their definition:
In financial markets, collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product. CDOs gain exposure to the credit of a portfolio of fixed income assets and divide the credit risk among different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are applied in reverse order of seniority and so junior tranches offer higher coupons (interest rates) to compensate for the added risk. CDOs serve as an important funding vehicle for portfolio investments in credit-risky fixed income assets.
...uh-huh.
The best my feeble brain can make of that is that CDOs are debt based on stuff you own. In other words, you default and they get your stuff. So, if you refinance your house or something like that this is an example of a CDO. Now, based on that premise, how screwed is it that more than half of these guys don't even know how it all works?
Sometimes the clamshells they use on the Flintsones don't seem like such a bad idea... in fact, most of the time....
Orignal From: EVEN CREDIT AUTHORITIES DON'T GET WHAT'S GOING ON
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