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Crisis explainer: Uncorking CDOs
Marketplace Senior Editor Paddy Hirsch gives a bubbly explanation of the intricacies of "collateralized debt obligations" -- those financial instruments that got us into this financial mess.
Hostile takeovers
We all know what a takeover is. That's when one company agrees to be bought by another. But what happens when companies don't agree and the takeover goes hostile? Senior Editor Paddy Hirsch explains.
Derivatives
Credit default swaps? They're complicated -- and scary! The receipt you get when you pre-order your Thanksgiving turkey? Not so much. But they have a lot in common: They're both derivatives. Senior Editor Paddy Hirsch explains.
Bonds, notes and bills
So much government debt! But what's the difference between the Treasury's bills, notes and bonds? Senior Editor Paddy Hirsch explains.
Inflation
Most economists agree that inflation of about 2% or 3% annually is a natural function of a growing economy. But people are worried government stimulus measures could spark much higher inflation. Senior Editor Paddy Hirsch explains
High-frequency trading
High-frequency trading is creating a ruckus on Wall Street. Marketplace Senior Editor Paddy Hirsch explains what high-frequency trading is and why some people are up in arms about it.
Factoring
Many small businesses get the cash they need to operate and expand from so-called factors. One of the biggest factors in the business is CIT, and with CIT on the ropes, small businesses are worried. Senior Editor Paddy Hirsch explains what factoring is, and how it works.
Financial alchemy
Many asset-backed securities have been downgraded from AAA recently. But at least one issuer has miraculously repackaged a downgraded deal to make some of its bonds worth a AAA rating again. Senior Editor Paddy Hirsch explains.
Where's the toxic waste?
Banks are paying back TARP money and claiming they're the picture of health. So what happened to all those toxic assets that were clogging their arteries a few months back? Senior Editor Paddy Hirsch explains.
Dark pools
Dark pools are exchanges where people trade stocks anonymously. Senior Editor Paddy Hirsch explains how they work, and why the SEC is considering regulating them.
The 'repo' market
Senior Editor Paddy Hirsch explains why the repurchase (or repo) market is a vital part of the financial system, and why the government is considering changes to it.
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Comments
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From Troy, MI, 03/26/2009
Why has there been no investigation as to why Moody’s and Standard & Poor’s gave these CDO’s such high ratings? Was it their stupidity or was there some type of collusion or kickbacks involved. Could there have been ‘pressure’ from the government to get more people to buy homes? Some people understood the risk and bought the Credit Default Swaps. And, can we trust Moody’s and Standard & Poor’s to do a good job in the future?
From CA, 03/16/2009
Robert Cringely says that Wall Street has been able to put Collateralized Mortgage Obligations back together since they were first developed in 1973 (http://www.cringely.com/2009/03/the-not-so-bad-bank/).
Sounds sensible. But if he's right, why would I have first heard it from a technology writer?
From los angeles, CA, 01/31/2009
Great! Thanks for the ease of understanding, Paddy! Maybe too good to upset the masses(or the Champaign Bottle) once more of us are clear of what's been going on and/or what continues to going on!
From Tampa, FL, 01/12/2009
I went through all the videos. All them are very interesting. Your metaphor makes it easy to understand complicated financial terms. Over all very informative about the recent financial crises.
01/04/2009
I think one important thing not covered in the video is that the CDO are used to enhance the credit of the assets in the tranche.
http://en.wikipedia.org/wiki/Securitization#Credit_enhancement_and_tranching
http://en.wikipedia.org/wiki/Tranche
The regulators fail to properly asses the credit risk because they treat the assets in the CDO to have independent risk of failure when in fact they don't as the above video demonstrates.
The causality is also wrong. The top tranche doesn't get filled up first because it is the least risky. It is the least risky because it gets filled up first. Good video though.
From Fort Worth, TX, 12/22/2008
Thanks Paddy for the insight and for simplifying these important and complex, real practices. Keep up the good work!! I look forward to more topics being added. In the meantime, I'm going to get a drink...
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