cdo and the economic crisis
by admin on 27/01/09 at 12:35 pm
Cdo are nothing more than structured bonds. To be clearer of packages that is issued by a bank and other debts in seeking an investor to cover them. But there is one small problem: in containing any type of debt, the subprime.
So happens that a bank that wants funding emits these Cdo seeking credit, promising to repay it with interest. Surely it is more debt, some are the buffer, but those are subprime real sword of Damocles, in fact in the case of default the bank will hand over the money invested in and borrowed money to repay the investor.
The result is a slowdown in finance and a devaluation of these securities and thus the portfolio of banks. Creating additional problems for banks in addition to those already born with just subprime.
There are, however, the insurance assessed with a triple “A”, and in terms of finance means “guarantee”. But now they are doing them too hard to secure these debts. They do not; the economic crisis would suffer another crisis!
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