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August 30, 2017 | “Atomic Bomb” CDO’s Back in Demand

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

Proof-positive that when we don’t eradicate an invasive species it spreads.  In this case risk-selling financial firms fueled by central bank ‘liquidity’, cross-selling-friendly regulations, and taxpayer insured hubris, are happily extracting billions from risk-blind, yield-desperate, indiscriminate buyers. See:  In a blast from a Financial Crisis Past, Synthetic CDO’s are back:

During the financial crisis, synthetic CDOs became a symbol of the financial excesses of the era. Labeled an “atomic bomb” in the movie “The Big Short,” they ultimately were the vehicle that spread the risks from the mortgage market throughout the financial system.

…Desperate for something that pays better than basic government bonds, insurance companies, asset managers and affluent investors are scooping up investments like synthetic CDOs, bankers say, which had largely become the preserve of hedge funds after 2008.

Investment banks, which create and sell CDOs, are happy to oblige. Placid markets have made trading revenue weak this year, and such structured products are an increasingly important business line.

For the gazillioneth time:  no, we can’t have our capital and eat it too.

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August 30th, 2017

Posted In: Juggling Dynamite

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