THE CREDIT CRISIS: How We Got Here - Bloomberg

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"THE CREDIT CRISIS: How We Got Here

The credit crunch hitting financial markets and institutions didn't begin overnight. Bloomberg News presents a package of definitive stories, beginning in May 2007, on the unfolding crisis as subprime mortgages infected the world's banking system..."

http://www.bloomberg.com/apps/news?pid=specialreport&srnum=2

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1. Banks Sell `Toxic Waste' CDOs to Calpers, Texas Teachers Fund

http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=aQWoYszGR6w0

June 1, 2007

"...Worldwide sales of CDOs -- which are packages of securities backed by bonds, mortgages and other loans -- have soared since 2003, reaching $503 billion last year, a fivefold increase in three years. Bankers call the bottom sections of a CDO, the ones most vulnerable to losses from bad debt, the equity tranches.

They also refer to them as toxic waste because as more borrowers default on loans, these investments would be the first to take losses. The investments could be wiped out.

Fleischhacker, 45, says she doesn't associate toxic waste with the equity tranches she's selling. Pension funds in the U.S. have bought these CDO portions in efforts to boost returns.

Many pension funds, facing growing numbers of retirees, are still reeling from investments that went sour after technology stocks peaked in March 2000. Fund managers buy equity tranches, which are also called ``first loss'' portions, even though those investments are never given a credit rating by Fitch Group Inc., Moody's Investors Service or Standard & Poor's..."

[bluesbassman]

2. Good read, very informative.

Where the hell was the oversight? Sure didn't come from the Feds...

Fleischhacker tells the public pension managers that a CDO is like a financial institution: Both have strict oversight, she says. ``The outside agencies that oversee these structures are the rating agencies,'' she says, comparing them with the Federal Deposit Insurance Corp. and the OCC, which regulates banks.

Fleischhacker's comparison is disputed by Gloria Aviotti, Fitch's group managing director of global structured finance, which includes CDOs. ``It's not accurate,'' she says. ``We don't provide any oversight.''

`A Common Misperception'

Yuri Yoshizawa, group managing director of structured finance at Moody's, says people often think of credit raters as investor advocates or oversight groups. ``It's a common misperception,'' he says. ``All we're providing is a credit assessment and comments.''

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3. Seems we've forgotten what word oversight means and the

pension fund managers did not do their homework either :(


Thanks, underfunded pension plans were a big topic in 2002.

[RainDog]

4. k&r - this needs to go to the greatest page

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5. Thanks :) n/t