7 ms·

Does anyone know if it's possible for an individual to buy a CDO? Supposedly everyone wants to get rid of these things and is desperate for cash, which makes i

by smanek 18y ago

Does anyone know if it's possible for an individual to buy a CDO? Supposedly everyone wants to get rid of these things and is desperate for cash, which makes it seem like a decent opportunity for buyers. If I had $10,000 I could afford to lose (and was willing to take a long shot with) is there some market where I can buy those sort of assets?

Tangurena 18y ago
To start with, you have to be what is commonly called an "accredited investor." This is a requirement because almost none of the "investments" sold as CDOs are registered with the SEC. The accredited investor loop-hole is the one you'll need to invest in hedge funds and the like: it means something like you're a big boy now, and you don't need the feds protecting you from crooks. Alternatively, your organization will need to be qualified as an institutional investor. http://en.wikipedia.org/wiki/Accredited_investor http://en.wikipedia.org/wiki/Accredited_investor http://en.wikipedia.org/wiki/Institutional_investor http://en.wikipedia.org/wiki/Institutional_investor Ask your broker if they've got any they want to unload.
- smanek 18y ago
  I'm a bit short of the wealth requirements to be called an accredited investor ... (1M net worth + 200K/year income). That just seems blatantly unfair to me. It's the government setting up a different set of rules for the rich.
  - anamax 18y ago
    > I'm a bit short of the wealth requirements to be called an accredited investor ... (1M net worth + 200K/year income). >That just seems blatantly unfair to me. It's the government setting up a different set of rules for the rich. Those rules are set up to protect you from unsafe investments, scams, and the like. After all, you need to have enough money to keep paying taxes....
  - gscott 18y ago
    > That just seems blatantly unfair to me. It's the government setting up a different set of rules for the rich. There was one VC here that mentioned how someone emailed him about also investing in 3 of the companies that he had invested in, and how he couldn't let the person do it because the person didn't fit the requirements to be an "accredited investor" then he mentioned what three companies they were. They were all money pits with no path to profitability. I believe the "accredited investor" bit helps people from having there life's savings thrown away on a unregulated bad investment. The ultra rich either inherited money or built a real business from the ground up and sold it. I would suggest one of those paths instead :)
    - gojomo 18y ago
      But doesn't the current crash highlight the superfluousness of the 'accredited investor' limits? Even investments poor people are allowed to make -- like common stock of giant financial institutions, even those with government sponsorship (Fannie/Freddie) -- can essentially go to zero. The general markets are down 45% from their peaks. Why should submillionaires be denied the chance to put 55% of their portfolio in T-Bills, and 45% in highly-risky unregistered private securities? That wouldn't have done any worse than the public stock market... and might do a lot better, if you understand the private companies involved. And if submillionaires are such easy marks, why not any limits on how much they can gamble in casinos or even state lotteries? The 'accredited investor' limits are silly; a phony security blanket at best, an unfair impediment to broad-based entrepreneurship and investing at worst.
      - deleted 18y ago
        [deleted]
  - ojbyrne 18y ago
    Just a slight quibble. It's 1M net worth or 200k/year. You make it sound like it's "and."
ctkrohn 18y ago
I'd stay away from CDOs, but there are great opportunities in cash subprime and Alt-A mortgage bonds. If you know how to analyze the deal structures, it can be very lucrative. If you run the bonds to extremely draconian default and loss scenarios, you can still end up with 15-20% yields. $10,000 is too little -- for agency MBS, $15,000 is the minimum purchase size, and I think the rules are similar for non-agency bonds. Most of the high-end brokerage firms can help you, though. I know Merrill Lynch and Bear Stearns Private Client Services (now a division of JPM) deal in mortgage bonds for individual investors.
chris11 18y ago
I really doubt you could buy a CDO for a fair price. The banking crisis basically happened because banks had their assets overvalued and over leveraged their securities. And I believe that through some accounting tricks, most bulge bracket banks are still overvaluing their securities. And in some cases once the securities are correctly valued, the banks will be insolvent. That is one problem the bailout money is for, to enable banks to correctly value securities. So I believe that if a bank actually sells any CDO's at a fair price, there will be major problems with keeping the rest of the securities overvalued. And from the way I understand it, most of these over valued securities are based on multiple assets, so one CDO is going to track other CDO's, you can't pick a CDO that is solely based on correctly valued assets. Compare it to a local bank that is insolvent.And this bank has overvalued their assets. So I am looking to buy a house, and see that the bank has called the loans on two houses that would be in my price range. Except one of the houses has been used as a meth house, and the owner would have to pay an extra 60-70k to make the house habitable. Well, it would be an easy choice for me, I would want to buy the other house for less than the value of the loan. Only in this comparison that doesn't work. See, the bank found out that if they grouped the mortgages together, they could sell overpriced pieces of the mortages. So I would not be able to buy anything from the bank that would give me legal ownership of property. And the mortgages are grouped together, so for every dollar I invested in one property I would be investing a dollar in that meth house. Nobody really knows what the CDO's will be worth in 10 or 15 years, but I do know that the banks don't have a strong desire to price CDO's low enough to actually sell them.

by smanek 18y ago

Tangurena 18y ago

To start with, you have to be what is commonly called an "accredited investor." This is a requirement because almost none of the "investments" sold as CDOs are registered with the SEC. The accredited investor loop-hole is the one you'll need to invest in hedge funds and the like: it means something like you're a big boy now, and you don't need the feds protecting you from crooks. Alternatively, your organization will need to be qualified as an institutional investor. http://en.wikipedia.org/wiki/Accredited_investor http://en.wikipedia.org/wiki/Accredited_investor http://en.wikipedia.org/wiki/Institutional_investor http://en.wikipedia.org/wiki/Institutional_investor Ask your broker if they've got any they want to unload.

smanek 18y ago
I'm a bit short of the wealth requirements to be called an accredited investor ... (1M net worth + 200K/year income). That just seems blatantly unfair to me. It's the government setting up a different set of rules for the rich.
- anamax 18y ago
  > I'm a bit short of the wealth requirements to be called an accredited investor ... (1M net worth + 200K/year income). >That just seems blatantly unfair to me. It's the government setting up a different set of rules for the rich. Those rules are set up to protect you from unsafe investments, scams, and the like. After all, you need to have enough money to keep paying taxes....
- gscott 18y ago
  > That just seems blatantly unfair to me. It's the government setting up a different set of rules for the rich. There was one VC here that mentioned how someone emailed him about also investing in 3 of the companies that he had invested in, and how he couldn't let the person do it because the person didn't fit the requirements to be an "accredited investor" then he mentioned what three companies they were. They were all money pits with no path to profitability. I believe the "accredited investor" bit helps people from having there life's savings thrown away on a unregulated bad investment. The ultra rich either inherited money or built a real business from the ground up and sold it. I would suggest one of those paths instead :)
  - gojomo 18y ago
    But doesn't the current crash highlight the superfluousness of the 'accredited investor' limits? Even investments poor people are allowed to make -- like common stock of giant financial institutions, even those with government sponsorship (Fannie/Freddie) -- can essentially go to zero. The general markets are down 45% from their peaks. Why should submillionaires be denied the chance to put 55% of their portfolio in T-Bills, and 45% in highly-risky unregistered private securities? That wouldn't have done any worse than the public stock market... and might do a lot better, if you understand the private companies involved. And if submillionaires are such easy marks, why not any limits on how much they can gamble in casinos or even state lotteries? The 'accredited investor' limits are silly; a phony security blanket at best, an unfair impediment to broad-based entrepreneurship and investing at worst.
    - deleted 18y ago
      [deleted]
- ojbyrne 18y ago
  Just a slight quibble. It's 1M net worth or 200k/year. You make it sound like it's "and."

ctkrohn 18y ago

I'd stay away from CDOs, but there are great opportunities in cash subprime and Alt-A mortgage bonds. If you know how to analyze the deal structures, it can be very lucrative. If you run the bonds to extremely draconian default and loss scenarios, you can still end up with 15-20% yields. $10,000 is too little -- for agency MBS, $15,000 is the minimum purchase size, and I think the rules are similar for non-agency bonds. Most of the high-end brokerage firms can help you, though. I know Merrill Lynch and Bear Stearns Private Client Services (now a division of JPM) deal in mortgage bonds for individual investors.

chris11 18y ago

I really doubt you could buy a CDO for a fair price. The banking crisis basically happened because banks had their assets overvalued and over leveraged their securities. And I believe that through some accounting tricks, most bulge bracket banks are still overvaluing their securities. And in some cases once the securities are correctly valued, the banks will be insolvent. That is one problem the bailout money is for, to enable banks to correctly value securities. So I believe that if a bank actually sells any CDO's at a fair price, there will be major problems with keeping the rest of the securities overvalued. And from the way I understand it, most of these over valued securities are based on multiple assets, so one CDO is going to track other CDO's, you can't pick a CDO that is solely based on correctly valued assets. Compare it to a local bank that is insolvent.And this bank has overvalued their assets. So I am looking to buy a house, and see that the bank has called the loans on two houses that would be in my price range. Except one of the houses has been used as a meth house, and the owner would have to pay an extra 60-70k to make the house habitable. Well, it would be an easy choice for me, I would want to buy the other house for less than the value of the loan. Only in this comparison that doesn't work. See, the bank found out that if they grouped the mortgages together, they could sell overpriced pieces of the mortages. So I would not be able to buy anything from the bank that would give me legal ownership of property. And the mortgages are grouped together, so for every dollar I invested in one property I would be investing a dollar in that meth house. Nobody really knows what the CDO's will be worth in 10 or 15 years, but I do know that the banks don't have a strong desire to price CDO's low enough to actually sell them.