What Are "Collateralized Debt Obligations?" Watch These Champagne Glasses. [Videos]

 

There's a lot of funky financial terms getting thrown as we try to explain how the money meltdown started in the first place, and one of the funkiest is a CDO or "collateralized debt obligation." Luckily, Paddy Hirsch from Marketplace is here to explain it using just champagne glasses, a whiteboard, and a sexy British accent..

Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.Basically, the CDO manager has a champagne bottle filled with mortgages. Every month when the debtors pay their mortgages, it fills the bottle with payments. The cork pops off and he pours the bubbly over a tray of glasses, each one representing a tranche of increasing risk.

The glasses at the top, rated AAA, get paid first and the least amount, and the bubbly flows down to AA, BBB, BB and equity, the tray at the bottom.

The party gets bad when people stop paying their mortgages. Now the bubbly only reaches the first levels, and the BB and the equity don't get paid at all. To make it worse, we have a SECOND CDO manager.

His bottle, instead of being filled with the mortgages, is filled with the BB-rated securities. When a few people stop paying on the first bottle, that means his bottle has no juice at all. He has a whole champagne glass tower with glasses rated AAA through BB like the first one, but it's not getting filled up at all. Then the champagne towers fall over and crash and Wall Street evaporates and there's runs on the bank some wisenheimer paints the Wall Street bull's balls blue. That's CDOs for you.

If you enjoyed that one, he also made another video explaining Credit Default Swaps, which are what brought AIG down.

Crisis explainer: Uncorking CDOs [Marketplace]

Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.

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PHOTO: Wall Street Bull Had Blue Balls Today [Money Meltdown]

 

The balls of the famous Wall Street bull got painted blue today. Before they were cleaned, a Gothamist reader snapped this pic. In terms of the creative comic output it's sparked, this may be the funniest economic meltdown ever.

Wall Street Really Needs Relief [Gothamist]

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Alaskan Independence Party sponsored By Iran

 

The Jed report comments on the Salon article about the Alaskan Independence Party, which Todd Palin joined and Sarah Palin supports:

David Talbot reports on what would have been the crowning achievement of Alaskan Independence Party founder Joe Vogler had he not been first killed in a plastic explosives deal gone bad:

Vogler's greatest moment of glory was to be his 1993 appearance before the United Nations to denounce United States "tyranny" before the entire world and to demand Alaska's freedom. The Alaska secessionist had persuaded the government of Iran to sponsor his anti-American harangue.

That's right ... Iran. The Islamic dictatorship. The taker of American hostages. The rogue nation that McCain and Palin have excoriated Obama for suggesting we diplomatically engage. That Iran.

The following year, Todd and Sarah Palin attended the AIP convention, and Todd Palin joined the party shortly thereafter.

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Top Maryland cops ordered nonviolent peace activists' names added to anti-terror, drug trafficking databases

 

Saying "I don't believe the First Amendment is any guarantee to those who wish to disrupt the government," former Maryland state police superintendent Thomas E. Hutchins authorized the infiltration of several anti-war and anti-death-penalty nonviolent protest groups, then added their members to the national terrorism database and the Washington-Baltimore High Intensity Drug Trafficking Area database. In all, 53 citizens were thus included (that we know of -- it'd be naive to think that Maryland is the only state where the police abuse their powers). The police admit that there was "no evidence whatsoever of any involvement in violent crime" by those classified as terrorists.

Stunned senators pressed Sheridan to apologize to the activists for the spying, assailed in an independent review last week as "overreaching" by law enforcement officials who were oblivious to their violation of the activists' rights of free expression and association. The letter, obtained by The Washington Post, does not apologize but admits that the state police have "no evidence whatsoever of any involvement in violent crime" by those classified as terrorists.

Hutchins told the committee it was not accurate to describe the program as spying. "I doubt anyone who has used that term has ever met a spy," he told the committee.

"What John Walker did is spying," Hutchins said, referring to John Walker Jr., a communications specialist for the U.S. Navy convicted of selling secrets to the Soviet Union. Hutchins said the intelligence agents, whose logs were obtained by the American Civil Liberties Union of Maryland as part of a lawsuit, were monitoring "open public meetings." His officers sought a "situational awareness" of the potential for disruption as death penalty opponents prepared to protest the executions of two men on death row, Hutchins said.

"I don't believe the First Amendment is any guarantee to those who wish to disrupt the government," he said. Hutchins said he did not notify Ehrlich about the surveillance. Ehrlich spokesman Henry Fawell said the governor had no comment.

Md. Police Put Activists' Names On Terror Lists (via /.)

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After The Bailout AIG Bought Themselves A $440,000 "Retreat" At A California Resort [Aig Goes On Vacation]

 

Now that AIG has been nationalized, some folks are wondering just how their tax dollars are being spent. If you're among them, we have some bad news for you from ABC. They are reporting that papers uncovered by congressional investigators show that "less than a week after the federal government committed $85 billion to bail out AIG, executives of the giant AIG insurance company headed for a week-long retreat at a luxury resort and spa, the St. Regis Resort in Monarch Beach, California." Ouch.

ABC says that the documents show that the company, yes the company, paid more than $400,000 for a week long retreat at the resort. The bill included $200,000 for rooms, $150,000 for meals and $23,000 in spa charges.

"They're getting their pedicures and their manicures and the American people are paying for that," said Cong. Elijah Cummings (D-MD).

AIG's former CEO told Congress today that AIG was a victim of a "crisis in confidence" and an "unprecedented global catastrophe," but records show that there were serious concerns about the way the company was being managed.

In March, 2008, the Office of Thrift Supervision wrote AIG, "We are concerned that the corporate oversight of AIG Financial Products…lacks critical elements of independence, transparency, and granularity."

Congressman Waxman also said that there was evidence that the former CEO changed the bonus schedule in order to insure that top executives would continue making multi-million dollar salaries, even as their company went broke.

"Mr. Sullivan and the other top executives should have had their bonuses slashed due to poor performance," said Waxman.

Sullivan received a $15 million golden parachute payment when he was let go in June, says ABC.

After Bailout, AIG Execs Head to California Resort [ABC] (Thanks, Melanie !)

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