4 ms·

CDOs weren't the problem. You see, mixing together dog-shit ONCE isn't that big of a deal. CDO-squared (CDOs of CDOs) were a problem. If you took those 60

CDOs weren't the problem. You see, mixing together dog-shit __ONCE__ isn't that big of a deal. CDO-squared (CDOs of CDOs) were a problem. If you took those 60 dog-shit loans, mixed them together, and created 10 high quality loans out of them, problems began to occur. Even then, it wasn't the CDO-squared that collapsed the whole thing. It was the CDS: the "insurance" (so to speak) on the CDO-squared that made things go haywire.

oliwary 4y ago
I am fascinated by the number of layers of abstractions built on top of each other in these financial products... Bankers seem to rival programmers in their ability to stack abstractions on top of each other until it is impossible to understand how the underlying system relates to the top layer.
- pseudosavant 4y ago
  You could say that MBS/CDOs were 'leaky abstractions', and that there were equivalents to 'code smells' to suggest they weren't the golden debt they masqueraded as. I can't think of other professions that develop the same level of abstractions that programmers and bankers create. Layers and layers of inputs and outputs.
  - TheOtherHobbes 4y ago
    You could also say they were deliberate fraud. The number of big-name banks whose actions are questionable [1] - if not actually criminal - is astonishing. [1] As reported by insider papers like the Financial Times.
- htrp 4y ago
  A structured products desk is basically a microservices team
pseudosavant 4y ago
Nested leveraging is a common theme. Each layer is leveraged and but supposedly protected by another layer's risk management. Go through enough layers and you eventually hit an insurer that has zero chance of being able to cover all of the losses of everyone. It could be CDS of CDOs of CDOs, or coins being backed by other coins. Thankfully the average person is less affected by crypto losses than mortgages, or in the case of the depression, stocks.
6stringmerc 4y ago
Actually AIG and other bond insurers really got the bailouts too. I remember a guy bragging about helping another firm backdate its books to get bail out money. He was bragging. Still remember his name and how he got his pill head daughter a Cush company paid job in London.
bagels 4y ago
Were the risk models assuming no correlation between the risk of the underlying securities?

CDOs weren't the problem. You see, mixing together dog-shit __ONCE__ isn't that big of a deal. CDO-squared (CDOs of CDOs) were a problem. If you took those 60

oliwary 4y ago

I am fascinated by the number of layers of abstractions built on top of each other in these financial products... Bankers seem to rival programmers in their ability to stack abstractions on top of each other until it is impossible to understand how the underlying system relates to the top layer.

pseudosavant 4y ago
You could say that MBS/CDOs were 'leaky abstractions', and that there were equivalents to 'code smells' to suggest they weren't the golden debt they masqueraded as. I can't think of other professions that develop the same level of abstractions that programmers and bankers create. Layers and layers of inputs and outputs.
- TheOtherHobbes 4y ago
  You could also say they were deliberate fraud. The number of big-name banks whose actions are questionable [1] - if not actually criminal - is astonishing. [1] As reported by insider papers like the Financial Times.
htrp 4y ago
A structured products desk is basically a microservices team

pseudosavant 4y ago

Nested leveraging is a common theme. Each layer is leveraged and but supposedly protected by another layer's risk management. Go through enough layers and you eventually hit an insurer that has zero chance of being able to cover all of the losses of everyone. It could be CDS of CDOs of CDOs, or coins being backed by other coins. Thankfully the average person is less affected by crypto losses than mortgages, or in the case of the depression, stocks.

6stringmerc 4y ago

Actually AIG and other bond insurers really got the bailouts too. I remember a guy bragging about helping another firm backdate its books to get bail out money. He was bragging. Still remember his name and how he got his pill head daughter a Cush company paid job in London.

bagels 4y ago

Were the risk models assuming no correlation between the risk of the underlying securities?