by Dave Kranzler, Investment Research Dynamics:
“Hope and Change.” Remember that campaign slogan? Boy, we sure hope something like the 2008 financial collapse doesn’t happen again. But alas, Obama didn’t change anything. In fact, the financial fraud and risky leverage embedded in the system is worse now than back then.
Among Wall Street’s improvised electronic devices, aka roadside financial bombs, that blew up our financial in 2008 were Collateralized Debt Obligations (CDOs) which had credit default swaps “wrapped” around them. This was the financial tactical nuke the blew AIG and Goldman. These securities were cesspools of subprime mortgages thrown into a security that was “sliced up” into various tranches with varying degrees of risk. Goldman would sell these primarily to hedge funds and insurance companies. Goldman would then underwrite credit default swaps which offered other hedge funds and insurance companies the ability to bet on the CDO blowing up and, conversely, allowing investors who bought into the CDO “insurance” against the CDO blowing up.
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