
In a Blast from a Financial Crisis Past, Synthetic CDOs Are Back - marcopolis
https://www.wsj.com/articles/in-a-blast-from-a-financial-crisis-past-synthetic-cdos-are-back-1503912601
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Powerofmene
CDOs helped to usher in the entire collapse of the economy in 2007. I find it
hard to believe that the reemergence of these financial instruments which
function largely in shadow banking are going to be a good thing long-term. It
took several years for the previous CDOs to implode and did nothing but
transfer monies from the middle class to those who could afford to bet on
CDOs. If the same happens again, more will lose their retirements and the
middle class will shrink even more.

More oversight may have been put in place but banks created instruments that
were not regulated before and nothing will prevent them from creating more
instruments that fall outside of the regulators reach. Finally, when you
create instruments that bet on the dbt default, you are likely to achieve just
that......default in large numbers. Without the success of CDOs the banks
could not sell them and for them to be succesful, people must be defaulting on
debt. It has been said that the next financial crisis will come from the
higher incidence of default from car loans and from the burgeoning student
loan default rates.

In my opinion, the increase interest and investment in CDOs spells economic
trouble for all of us.

