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Strategies & Market Trends : John Pitera's Market Laboratory
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To: John Pitera who wrote (11963)2/20/2009 6:53:00 PM
From: Hawkmoon  Read Replies (1) of 33421
 
Our situation is very different in that we have these very complex interlaced CDO's with CDSwaps built into them and there is no effective way to deconstruct them.

Yep.. Not only that, but the monolines, who were defrauded by both the Ratings Agencies and Investment Banks hold the voting rights on most of the ones they offered insurance. So the banks can't sell them off without commuting the monolines liability.

But then again, the banks may not be in much of a hurry to commute those liabilities because they know the courts will eventually rule against them, given the degree of fraud that was perpertrated. But those court rulings may require years of untangling and the banks might be counting on that breathing space.

One thing though.. I seem to recall that most CDO's have a termination date, so I wonder how this impacts the calculations. Will the ultimate answer be to await the legal death of the specific CDO's in question as well as the liabilities held by the insurers?

The one major fly in the ointment there is that the recipients of the payouts from these CDO's have the expectation that they will be paid in full for the insurance that was taken out. The monolines are resisting paying in full for what are obviously assets that were structured upon a fraudulent foundation...

The only solution, IMO, is that the respective major global governments are all going to be required to take control, and therefore, responsibility, for these CDOs and unwind them.

The only other alternative is to "write" the Credit Default Swaps against those CDOs, at a reduced valuation, thereby guaranteeing them.

Hawk
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