5 Comments for this entry

1. John M. says:

   July 4, 2007 at 4:46 AM

   Trust everyone is having an enjoyable and safe holiday. Looks like our friends from across the pond are contributing the fireworks today

   “Fidelity chief Bolton warns packaged loans market echoes split-cap trusts”, by Patrick Hosking and Siobhan Kennedy, The Times, July 4, 2007.
   

   One of Britain’s leading fund managers said yesterday that the $1 trillion (£500 billion) institutional packaged-loans market was flawed and posed significant risks to investors.

   Anthony Bolton, the founder of the fund manager Fidelity International, likened the so-called Collateralised Debt Obligation (CDO) market to the UK’s split-capital investment trust sector, which collapsed in 2001 and 2002.
   …

   Mr Bolton, speaking at a conference in Monaco, said: “CDOs remind me of the split-capital trusts and the problems there. They prolong the party and put off the day of reckoning. I still think there are major risks with these.”

   CDOs and collateralised loan obligations (CLOs) are bundled-up packages of bank loans and mortgages routinely bought and sold in the international capital markets. The underlying loans are packaged up to appeal to investors with differing risk appetites. The industry has mushroomed in recent years, but there are growing concerns among regulators that CDOs can be difficult to value accurately because the markets in them are illiquid and there is no quoted price.
   …

   Richard Wohanka, chief executive of Fortis Investments, said that the media had overreacted. “I think the press has gone berserk on CDOs and the sub-prime debacle. CDOs are nothing but a bond, but highly illiquid . . . If you buy a CDO, you need to understand it has a good yield but be clear to hold it to maturity.”

   The scariest part of the article, at least for this blogger, was that last bit. Even though it was supposed to be soothing, all I could picture was this supposed African method for catching a monkey and, if you’re an old Star Trek fan, the Ferengi’s First Rule of Acquisition — Once you have their money, you never give it back.

   Have a great time at the picnics. But if you’re investing your pension money tomorrow … be careful out there!
2. Rebel says:

   July 4, 2007 at 3:33 PM

   Happy 4th to you too… GLVAR stats for June are out and sales continue to dive.
3. MikeC says:

   July 4, 2007 at 5:16 PM

   John:
   >>Looks like our friends from across the pond >>are contributing the fireworks today

   I especially got a chuckle out of that line. Heck, the fireworks were likely made in China. The debt for buying the fireworks is now held in China too! Lucky for China, they hold enormous mountains of “I.O.U.”‘s from the U.S., which we all know the U.S. would be perfectly good on if China ever wanted to cash them all in.

   Perhaps a new approach is needed in order for North American adults to *really* understand the vast amounts of money that is owed to foreign investors and governments? Methinks some simple yet shocking analogies need to start being hammered into everyone’s head.

   Cause right now, few people could care less that the U.S. has borrowed away it’s own future.
4. NVmike says:

   July 4, 2007 at 6:10 PM

   Happy Fourth of July, you Doomsayers!
5. metroplexual says:

   July 5, 2007 at 6:12 AM

   Happy 4th from Colorado Springs!

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