Ever since 2007 we have had the CDO litigation's. These are in many ways no different to PPI type cases - in that one side says they don't know what they bought whilst the sellers ask otherwise.
Here is a typical example - a school fund allegedly swindled by RBC bank. Let's face it, RBS are one of the better banks too, they are not staffed by the Lehman's jocks or the Bear Stearns mob.
So even in a terrible recession, the litigators can still make fortunes as these cases are for serious money - $30 billion in this case.
The problem is too because of the leverage to trigger losses portfolio's only need to go down by 5% or 10%. In the past few weeks the Mezzanine level of CDO's are off by up to 50% and all equity holders are wiped out if they have any leverage at all. It is hard to see how this can be turned around and demonstrates again the serious dangers of extreme leverage.
7 comments:
Er £30 million, not billion! The School Board is still down £170m out of its £200m 'investment'.
What a School Board is doing borrowing money to invest in CDOs is another matter........
Some are going to feast very well on the coming depression.
Excellent book on the credit derivative fandango - Fool's Gold, by Gillian Tett, an FT journo, starting with their invention by JP Morgan, ending with the forthcoming end of the world. Grab a cop while your money is actually of any use...
EB now that is interesting because JP Morgan had something to do with The White Star Line, whose most notorious ship, Titanic, had an arguement with a rather large iceberg
CDOs were of course invented... what would happen if they were "uninvented", i.e. just made illegal and therefore null & void?
SW - the banks would be bust, you could though tstop new ones from being issued and let them work their way out of the system
So even in a terrible recession, the litigators can still make fortunes as these cases are for serious money - $30 billion in this case.
Think of the Proceeds of Crime confiscation angle if someone had the balls to nick them for Fraud and money laundering!!!
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