Collateralized debt obligations rise from the dead

A frightening Halloween development – the rise from the dead of collateralized debt obligations ( CDOs). These little darlings nearly brought down the entire financial system in 2008. But the fees that CDOs generate are just too attractive for financial firms to pass them up. And even if they blew up and contributed to the Great Recession, nobody went to jail.

skeletonsThis time around, the CDOs are called collateralized loan obligations (CLOs) but don’t be fooled. They have the same risks of CDOs and they are booming. They are bond-like products that are made up of many risky loans. Just like before, the loans packaged into these CLOs were made to risky borrowers. This time the risky borrowers are not individual homeowners but companies that are already overloaded with debt. The idea that failed so spectacularly last time was that a package of these loans would be considered diversified because whatever caused one to fail would not cause the others to fail. That idea was ridiculous with high risk mortgages and it is ridiculous with junk bonds issued by debt-laden companies.

I have written about these risks before:  http://secdefenseattorney.com/blog/2017/08/24/almost-10-years-ago-the-beginnings-of-the-great-recession/ 

http://secdefenseattorney.com/blog/2017/10/31/synthetic-cdo-is-back-that-is-scary/

Check out this New York Times article on this absolutely horrifying development.  We do not need to relive the horrors of just ten years ago.

 

tiger logo

Lisa Bragança recovers losses for investors all over the country, protects whistleblowers, and defends individuals and businesses in government investigations. As a Branch Chief with the SEC Division of Enforcement, Lisa conducted and supervised insider trading investigations and a wide range of investment fraud and Wall Street misconduct.

You can reach Lisa at (847) 906-3460 or Info@SECDefenseAttorney.com. www.SECDefenseAttorney.com

Disclaimer: This information is for general purposes only and should not be interpreted to indicate a certain result will occur in your specific legal situation. The information on this website is not legal advice and does not create an attorney-client relationship.