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MBIA is suing Merrill Lynch, which paid MBIA to insure securities backed by extraordinarily complex securities, among them collateralized debt obligations secured by collateralized debt obligations secured by collateralized debt obligations that were secured by mortgage-backed securities.
Credit Suisse said it had booked about $125 million in unrealized losses after it bought notes issued by collateralized debt obligations and SIVs in its money market fund.
In part, they are responding to a wave of downgrades to highly rated bonds issued by collateralized debt obligations, which in turn hold other bonds.
Credit Suisse said in a recent conference call that it booked unrealized "value reductions" totaling $125 million after purchasing securities from its American money funds, including asset-backed commercial paper, and notes issued by collateralized debt obligations and SIVs.
The company did not make a prediction about the effect on its books, but it said that as of the end of September, it had provided a net amount of $12.8 billion in liquidity support for commercial paper issued by collateralized debt obligations, or C.D.O.'s.
Middle class citizens are becoming frustrated that the wealthy are saving millions while their own taxes seem to get frittered away by governments, and pension investments are gambled away by collateralized debt obligation traders.
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If the bond insurers were to lose their ratings, not only would it hurt their business, it would also spell trouble for a host of other financial firms that have hedged many of their investment bets by having collateralized debt obligations and other mortgage-related securities insured by Ambac and MBIA.
These are issued by states and cities and collateralized by U.S. Treasurys held in escrow.
An empire detonated by derivatives; the collateral damage caused by all that collateralized debt--securities that created not wealth but nervous insecurity.
Part of the recent widening in GE Capitals credit default swaps may stem from hedging by dealers in collateralized debt obligations, or investment-grade security backed by a pool of bonds, loans and other assets, said Tim Backshall, chief strategist at Credit Derivatives Research, on Monday.
John Paulson isn't featured in The Big Short, but he made far more for his Advantage hedge fund by shorting CDOs (collateralized debt obligations the bonds banks issued that were backed by a toxic mince of hundreds of premiums on mortgages that were, in the main, destined for default by homeowners, rendering the bonds themselves useless junk).
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