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Invisible Synthetic CDO Zombies

March 22, 2013

John Carney at CNBC: “Invisible Zombies: The Quiet Return of Synthetic CDOs“:

Linking to a report from Mary Childs at Bloomberg, Carney explains that Citigroup has in the past two years sold ~3 billion dollars of synthetic collateralized debt obligations.

These CDOs are not on exchanges, avoiding new regulatory efforts under Dodd-Frank and are therefore “invisible” to regulators. The article doesn’t explain why they are “zombies” (actually zombies seems to be only in the headline and unrelated picture) but presumably it’s because these CDOs are lurking in the background as possible fear. I’m sure the “zombies” in the headline will help get traffic but it seems more like a timebomb or toxic sludge.

Is this the same kind of “zombie CDO” that Aaron Johnson referred to in FT ?

And in terms of Academia, speaking of the new CDOs, some firms may be trying to use them to bet against the Student Loan crisis-bubble. See SeekingAlpha: “Shorting Student Loans: The Next Major Credit Bubble” by Nicholas Pardini. But contrast Quora: “Are student loan securities being used in synthetic CDOs like mortgage-backed securities were, and will this eventually have the same disastrous effect on the market?

And then consider FinancialPost: “Fending off university-attacking zombies” by David Naylor — about the zombie ideas in higher educations.

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From → debts, economics

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