Madoff vs. Citibank

Recently a something was sent into More Money Friday HQ. After letting the dogs sniff it and checking carefully for explosives the letter was opened. Turns out one of my regular readers (coffee on all bran will do that to you) had a few questions for me. The first one was, “What is the difference between what Bernie Madoff did and what Citibank does with a savings account?”

First the short snarky answer. The difference is that if you are Citibank and you completely mess up your depositors get their money back, and you then get taken over by the feds. However if you are Madoff and you mess up you get 150 years in a maximum security prison. I just hope Bubba, because everyone in prison is named Bubba, didn’t have any family that lost any money or their house in the recent down turn.

Now that I’ve gotten it out of my system, the long boring answer. To clear things up lets talk about savings accounts. When I put my money into a savings account the bank uses some of that money to make loans to its customers. When the customers pay back the loans with interest the bank keeps part of the interest and gives the rest to the savings account holders. You get this interest because by putting your money into a savings account, rather than a checking account, you are willing to have your access to the money restricted. If you are willing to increase the level of restriction you’ll get a higher interest rate, and the bank will call it a Certificate of Deposit. So again the money you earn from a savings account is coming from the interest paid on loans.

What Madoff did is a Ponzi Scheme the returns earned by the investors/suckers were generated by other people giving Madoff money for investment. As new money entered the “fund” Madoff would turn around and give it to the people who invested in the fund first. Now he didn’t distribute all the money to the earlier investors, he kept quite a bit of it in a cash reserve, and of course he took quite a bit of it himself. Such a scheme will keep “working” so long as more money keeps coming into the fund than going out. Because he was advertising a great return at LOW volatility people were happy to let their money sit with him and let all the gains be on paper.

Now there were some people out there who realized that what Madoff was doing was not, for lack of a better term, completely kosher. When asked his general strategy Madoff claimed that he was doing a covered split-strike conversion. Now while this sounds like Wall Street techno-babble, as it was designed to, it is an actual investment strategy involving the use of options. The thing is, if he had been doing it the volume of such trades would have shown up on a statistical analysis of the Chicago options markets. The markets showed no such activities, so those who did their home work knew that Madoff was lying at least about how he was making his money.

What is the moral of our story? There are several. First never invest with someone with a name like Made-off. Second, if it sounds too good to be true, it would be better used to grow prize winning petunias. Third, do your home work before giving your money away.

Next time, which I promise will be before Labor Day, the letter’s second question: “Why is deflation a bad thing?”

Game theory and stimulating the economy

Game theory is an interesting branch of mathematics with many applications in the sciences such as biology, computer theory, and most importantly to us economics. The details of the field are not (currently) in my areas of expertise, and are only tangentially related to the vision statement of this blog. If you are interested in understanding more check out your local library, or Wikipedia.

Instead I’m going to focus on one small part. One notion in game theory is that one must consider the moves of the other players when determining your strategy. For example, in chess while it may be a good and proper thing to take your opponent’s rook; doing so at the expense of your queen may not be such a good move.

Now we move on to economic stimulation. (Insert Objectivist smut joke here) In such a game the playing pieces are dollars, the objective is to increase the speed of the movement of the dollars. What about the players? The players are technically everyone in the economy, but for the moment we are only going to consider you, and whom you are giving your money to.

The strength of the economy is related to how much money is moving around, and how quickly it moves. Cash sitting in the bank isn’t doing much for the economy, but once it changes hands it shows up as part of GDP, the measurement used to determine when we get out this recession. Now you could spend every cent you have, and then borrow more on top of that, and borrow, and spend, and borrow and spend. However that’s how we got into this mess in the first place.

Therefore one needs to look at ways of spending less, but making it count more. So we have to consider what the party we give the money to is going to do with it. Here’s where competing economic theories determine the next move. If you are a proponent of the trickle down theory of economics then you would make sure that the party you give your filthy lucre to already has quite a bit of it.

On the other hand, a while back I heard that the most effective way for the government to stimulate the economy was by increasing unemployment benefits. This provided over a dollar of stimulation for every dollar spent. The exact number slips my mind but I believe it was $1.24. I’m sure that a reader with better google-fu than I will correct me. The reason for this is unemployed people tend to spend most to all of their benefit and do so quickly.

Thinking along those lines you would want to give your money to someone or something that would turn around and spend it again soon. This makes it a great time to buy a Corvette, or a Chrysler that seats about twenty. Also mom-and-pop operations are a great place to spend your money. These usually lack massive reserves of capital and the ability to pull large amounts of money from the capital markets. Additionally if you are in an area that is harder hit than most, think about spending more of your money locally.

Similarly, charities are wanting for money in the best of times. In the worst of times fewer people give and more need their services. Giving your money, and/or your time to your favorite charity can do amazing things. However not all 501c3′s are created equal, if it has the word “foundation” in its name, odds are good that it has an endowment larger than the mind can comfortably comprehend. So your energies would be better sent in other directions. Personally I am a fan of churches, food pantries/soup kitchens and Goodwill.

Next time, at a reader’s request, a profile of a man who is going to be indisposed for the next 150 years.

Fever Dream: Credit Cards

Today More Money Friday shall inaugurate a new occasional feature, the fever dream. In these types of posts I let my mind wander far and wide as to how the financial system could be in a more imperfect world. It also seems appropriate to start the fever dream series this week because I’ve got one heck of a chest cold. Note this is what happens when I run out of regular ideas, so if you don’t like this e-mail me your questions. If you do like it, e-mail me some areas upon which you would like me to expound.

Lets talk credit cards, and just how complicated they could be. This idea came to me when I heard a story on NPR about how credit card companies have started tracking more data about how their cards are used. I thought I should take this to it’s illogical extreme.

Should any credit card companies want to use this scheme please contact me directly so we can work out licensing fees.

First instead of granting you an interest rate as soon as you get the card, they credit company would give you a letter grade A through F. This grade would be based on such things as personal income, FICO score, credit report details, economic outlook, and history with the company.

Next calculations are made on the purchase end. Several factors relating to the purchase will go into the calculations such as the time and day of purchase, buying something at 7pm on a Saturday would get a different ranking than buying at 3pm on a Tuesday when you’re supposed to be at work; amount of the purchase, $5.00 vs $500 vs $50,000; Vendor type. bookstore, online retailer, big box, fast food; and geographic location, NYC vs Podunk ND, vs Paris France. All credit receipts would have this information on them. This will, for sake of simplification, place all purchases in a tier I-V.

Now just cross reference your grade with the tier of your purchase on the handy dandy chart to find the applicable interest rate. Any payments less than 100% of the balance will graciously applied equally to all non-empty tiers. Would you like to know in advance which tier your purchase would belong to? Well for a minor fee the credit card company will send you their formulary which describes in loving detail what goes where. To give companies another area in which to compete each one could come up with their own unique formulary. In fact a single company may have several different formularies based on the class of card that you have chosen.

Note the credit card companies reserve the right to recalculate your letter grade, the chart of interest rates, and the formulary no more frequently than once a year. Any changes will take effect on the 1st of April. Also to keep things fair for all parties involved: issuance of credit cards, canceling of cards, or balance transfers may only occur during the first quarter. Unless you do not have a card then you may get your first one at any time that is convenient to you.

200 brownie points and a noh prize to the first reader who correctly identifies where my idea was cribbed from.

Next time, which may be the 26th, or it may be the 3rd: Game theory as it applies to economic stimulus.

MPG and your wallet

This week the US house passed legislation affectionately nicknamed “Cash for clunkers.” During discussions over coffee I have heard several people kvetching, “What’s the point? People are going to just trade in their old gas guzzling SUV’s for shiny new gas guzzling SUV’s.”

The basic response I have to that is “Lets not have the perfect be the enemy of the good, any increase in MPG is an improvement.” However lets dive a little deeper and crunch some numbers.

Lets say that you are a two car family. You have an SUV that gets about 12 MPG and a smaller car that gets 25. You are considering upgrading one of your cars to a hybrid, A hybrid SUV at 20 MPG or a Prius at 37. Unfortunately you do not have the free cash/credit to upgrade both. So at first glance you would go for the Prius with a 12 MPG upgrade.

Now for the number crunching. Assume that you drive both vehicles an equal number of miles in a week. For convenience sake lets say you drive them 250 miles a week each, (taken from “Change your oil every 3 months/3000 miles”) and that gas is currently priced at around $3.00/gallon. So lets calculate out the weekly gas budgets for all four modes of transport.

Old SUV 250 miles / 12 MPG = 20.83 Gallons * $3.00 = $62.50
New SUV 250 miles / 20 MPG = 12.50 Gallons * $3.00 = $37.50
Total Savings $25

Old Car 250 miles / 25 MPG = 10.00 Gallons * $3.00 = $30.00
New Car 250 miles / 37 MPG = 6.76 Gallons * $3.00 = $20.27
Total Savings $9.73

Now isn’t that interesting. The SUV improvement gives us an additional O$15.27/week, or $794.04 per year. Of course with this model we are ignoring the relative upfront costs of each of the options. Although similar calculations could be made with kg of CO2. However I do not know the conversion factor between gallon of regular gasoline and weight of greenhouse gas emissions. Plus money is usually a stronger motivating factor than doing good for the environment.

Before I get angry e-mails here are some disclaimers.  The maximum MPG allowed under the legislation for the replaced vehicle is 18, not 12.  Also the minimum difference in MPG’s to get the bonus is 4 not 8.  Rerunning the calculations going from 18 to 22 on the SUV side, the Prius becomes more attractive.  The actual calculations are left as an exercise for the reader.

Additionally the bill has to survive the Senate, where it is sure to be mutated into something different.

Next time, a credit card fever dream.  Keep those cards and letters comming.  They keep me warm at night.

Money for Nothing (Free Chicks not Included)

The word of the day is arbitrage. Arbitrage can be loosely defined as, “Taking advantage of market inefficiencies to make profit without risk.” Now US Treasury bonds are considered to be risk free, but trading in them is not arbitrage, because that market is generally efficient. So for arbitrage to be worth the effort (and it can be a lot of effort) the return must be higher than treasuries on an annualized basis.

Off the top of my head the most inefficient market I can think of is Intrade. Regular readers of this blog will recall that while futures started out just for agricultural commodities the concept can be applied to other things. (Irregular readers of this blog should get more fiber in their diet) Intrade does this in spades, they have futures contracts on sporting events, weather, and most popular political events.

All of these contracts are cash settled. Cash settlement works like this: Lets say I buy a futures contract on sliver for $5/oz that expires in June. When June rolls around silver is trading on the spot market for $5.50/oz, so I buy the silver with the futures contract for $5 and then turn around and sell it again for $5.50, making an “instant” .50/oz. With cash settlement the .50/oz goes directly from the seller of the contract to the buyer. Conversely if the spot market had a price of $4.50/oz that day, the buyer would pay the seller the $.50/oz. At Intrade the spot market on the day of expiration is determined by an event. For the political markets the contracts are binary in nature. Either the event happens, and the “spot” is set to 100, or it doesn’t and the spot is set to 0.

So lets find an example of a political inefficiency. Ah here’s one, right now the quote on a Democrat winning the 2009 VA gubernatorial race is 43.0 and a Republican winning is 60.0. So if I were to sell both of those contracts I would have 103 points and when November rolled around one of the contracts would settle at 100 which I would have to pay out, but the other would end up at 0. This gives me 3% profit after just over 5 months. These get more interesting as the election draws closer.

Intrade has these opportunities all over the site. They come in several different flavors. The example above can be considered “Mutually exclusive” arbitrage. If the sum of the prices of all mutually exclusive end states doesn’t equal 100 you can make money. Another is “substitute arbitrage”. Back in 2008 there was a contract “Obama wins Iowa and gets the nomination” there was also a contract for “Obama is the Democratic presidential nominee”. Since he had already won Iowa the prices of those two contracts should have been the same. There is “Logical Arbitrage” There are contracts out there for third party candidates to win. Sell these contracts like no tomorrow.

Finally there is “Multiple Market Arbitrage”. Intrade is not the only place where you can place political bets. Many of the same contracts are also listed on the Iowa Electronic Market. In theory the price found at one market should be found at all other markets. If not, again buy low and sell high. Just note that IEM contracts settle at only $1.00. So for every contract you buy (sell) at Intrade you would have to sell (buy) 10 contracts at the IEM.

Sounds great doesn’t it? However in the interests of full disclosure here are some reasons why you may not make money doing this. First off arbitrage is a game of small numbers. Like the above you are probably only going to see a percentage profit at most. Second arbitrage opportunities don’t last long. As soon as enough people see the inefficiency in the market they take advantage and it dissipates.

Third is the Bid/Ask spread. You cannot buy and sell at the same price. The quotes above are from the last trade. Odds are good that the price to buy those contracts is higher (and/or the selling price lower), possibly high enough to push the total above 100. Finally you have to pay commission on all your trades. Because you are making at least 2 trades at a time, and because again it’s a game of small numbers, the profit potential can often go poof.

Next week, why focusing on MPG is looking at the wrong end of the horse (so to speak).

Forward thinking about Futures

Since this week’s topic is futures I thought it would be neat to publish it IN THE FUTURE. If all of my temporal calculations are correct you should be seeing this at about 12:01 EDT May 23. Of course if they are wrong I’ll have sent this 8 years into the past and destroyed the world. Well nothing ventured nothing gained.

Futures contracts are a type of derivative. They evolved from forwards contracts. You use simplified forms of forward contracts all the time. Does this sound familiar? “Yes I’d like to place an order for delivery. One extra large, deep dish, with calamari, corn, and goat cheese.”

“That will be $19.79. It should be there in 30 minutes.”

Or am I the only one who regularly orders from Peter’s Peculiar Pizza Palace and Cigar Shoppe? Er um where was I. Oh yes, ordering a pizza is a forward contract. Two parties agree on delivery and payment of a good (or service) at a later time.

The futures market as we know it today started with such agreements between industry and farmers. It used to be that agricultural prices were extremely volatile. They would drop like a rock when the harvests started to roll in and then quickly climb upward once winter rolled around. Large companies aren’t big fans of uncertainty. So they started saying to farmers, I’ll pay you X per ton of grain if you deliver it in June, sign here.

Eventually these ad-hoc agreements weren’t efficient and a market sprang up for trading these contracts, this gave us the Chicago Board of Trade. It was in Chicago because at the time that was the main transportation hub for agricultural goods by rail. So now instead of having to hunt down a soy farmer you just go to the market and put your order in that way.

Futures contracts are different from forwards, not just because they are openly traded, but because they post a value each day, and this is how money can be made in the market. When you enter into a futures trade you need to deposit an amount of money with the exchange, to show you’ll be able to honor the trade when it comes due. This is known as a margin account. When the markets close for the day a new agreed upon price will have been set for that contract. Based on this number money will be moved between margin accounts. If it went up those who are long gain money and those who are short lose money. Conversely if it goes down the shorts get richer and the longs get poorer.

Futures are often used to hedge. Lets say you are a farmer with an uncomfortable number of acres of soy beans. You would like to sell your soy in October, but are afraid of the price falling. You can take a short position in soy, so if the price goes down you make money to reduce your loss. Or you could be Delta Airlines. You are worried about the price of oil, and there by the price of jet fuel, going up. So Delta goes long on a crude oil contract, as the price of oil goes up they get richer.

As you can see, not all futures are for crops. While it started out that way futures have moved to track other things. It can be tangible things such as the price of precious metals, oil, or natural gas; or intangible things such as interest rates, foreign exchange rates, or the winner of the next presidential election.

Then again they don’t have to be used as a hedge, they can be used to speculate. You may not need 100 troy ounces of gold in July but you can still go short on that futures contract. But beware, futures are in the advanced class of investing. Due to the nature of the margin account you can lose more than your initial investment. Also if you do not unwind your trade you may find yourself on the hook to sell several thousand barrels of oil, or wake up to see your lawn, your dog, your car, and your significant other buried in raw coffee beans.

Next week, using political futures markets to illustrate the concept of arbitrage.

Tires, egos and 99 red balloons

Last week while I was working on the sub-prime story the following question was brought to my attention, “What should I invest in as a hedge against hyper-inflation?” O_o My short answer to that question is, “You should invest in guns, ammo, and canned food.”

Now for the longer answer. Regular old, run of the mill inflation is caused by there being an imbalance in the system where by too many units of currency (dollars) are in circulation for the amount of goods and services in the economy. Lets talk for a moment about how dollars are created.

In the concrete sense dollars are created by the US mint. However in the abstract sense dollars are created by banks and other creditors. It’s fun with numbers time so break out your slide rules and abaci (abacuses?). Lets say there is one bank and all the money in the economy is held by Allen. Allen has $100.00 that he puts into a checking account The Bank. The Bank holds on to part of Allen’s money, say 8%, but loans out $92 dollars to Bob. Now there is $192 in the economy. Bob can then deposit that money back into the Bank. With $192.00 of deposits on the books the bank needs to hang on to at least $15.36, so it could loan Chuck $84. And the cycle will continue on.

If the government is concerned about the level of inflation it has several options. It could mandate that banks hold on to more of their depositors’ money. This would reduce the amount available for loans. Such laws are currently being debated by your friendly neighborhood congress critters as a reaction to the recent financial crisis. However the more common approach is to increase short term interest rates. This would make borrowing money more expensive and therefore less attractive.

Should your main investing concern be hedging against inflation you have several options. One is to invest in commodities, particularly gold. The prices of the commodities are subject to inflationary rise, and gold has historically held its value in terms of the amount of goods an ounce can purchase. Secondly you can pick up inflation indexed treasury bonds. These bonds are backed by the full faith and credit of the USA and their coupon payment is a function of the official rate of inflation. Finally if you feel the inflation will be constrained to the US you could invest overseas. Particularly in yen, pound sterling, and euro denominated securities.

Hyper-inflation on the other hand is a completely different animal. It represents a lack of faith in the currency. There are two usual proximate causes of hyper-inflation. The first, and more common, is that the government decides to print money. Usually when a government is short on funds it will write treasury bonds and treasury notes. Because these are a form of credit standard inflation rules will apply. However it may be that the government in question cannot afford the rates the market is asking for its debt. So it instructs the mint to turn the presses up to 11.

The second cause is external. This happens when those from outside the country feel that the currency is grossly over valued. They start selling/dumping the currency on the forex like it’s going out of style. If the country imports most of its goods and services they will quickly require more and more of the local paper to bring in. These causes usually trigger each other and it’s academic as to which one comes first.

Going back to my investment suggestion. Basically if you are concerned about hyper-inflation in the US, what you are saying is you expect the entire world to decide that the currency that is the most widely traded and most widely held is worth exactly as much as the paper it is printed on. This would require an epic fail of the world economy.

Alternately, you think that the Obama administration is going to start printing money. I also find this highly unlikely. First prices for may goods and services (especially housing) are deflating. Secondly commercial credit has gone from the Atlantic Ocean to the great salt flats. Lastly there has been a time within my lifetime that treasury bonds were paying 9% and change. As of now the yield on the 5 year is at 1.97%. In short the market and the government will have no issue adsorbing additional government debt for the foreseeable future.

Questions? Comments? Concerns? Ideas for next week? Leave me a comment. Next week, improving your foreseeable future with futures contracts.

Sub-prime: what it is, and why you should care

Sub-prime refers to a class of borrowers.  Their credit rating is below that which would qualify them for a rate based on the prime rate.  The Prime Rate itself is basically the best rate you can get when you borrow money from a bank.  Most people get rates that are quoted as “Prime 1″ or “Prime X”.  However once you have become Sub-prime your credit is so bad that the prime rate doesn’t even factor into the equation.

Such people often have unstable incomes and limited assets.  However everyone needs to live somewhere; so in order to get mortgages that they can afford they got Adjustable Rate Mortgages, or ARM’s.  Most ARM’s are described as 2/28 or 3/27, meaning that the initial ‘teaser’ rate was locked in for 2 or 3 years before it adjusted up.  When the housing market was going up up up, after the initial period they could use the newly created equity in their homes to qualify for a lower rate on a standard 30 year fixed.

Additionally there were such things as “Interest Only Mortgages”.  This acted rather like a corporate bond.  Every month you just make an interest payment.  Then at the end of the loan term, usually no more than 5 years, the entire balance is due.  Again if the market is going up, or you only plan on living in your home for a short period of time, this is not a problem.

Such loans were also popular with people trying to flip real estate.  Buy a house, [fix it up], sell it, PROFIT!  Just so long as the housing market stays strong you can make a lot of money quickly.

So that’s one side of the equation.  On the other side of the equation were mortgage brokers such as Count(r)y Wide. They made these types of loans to as many people as they could.  Then in order to have the cash on hand to continue making the loans they pooled and securitized them so that they could be sold on the open markets.

For some reason that congress is currently looking into, these debt securities were rated AAA [best possible] by the credit rating agencies.  So this created conditions where there was an instrument out there that had returns equal to junk bonds, due to the higher interest rate the home owners were paying, but according to the ‘experts’ they were practically risk free.  Everybody and his brother bought into these securities, driving up the value.

Then the reality cycle did what cycles do and housing prices started to go down.  Some people started to default on their loans.  Eventually a European banker said, “Hmmm that’s odd, why isn’t this AAA rated device paying off the way it should.  Let me look a bit deeper into it. … !?  HOLY $#*@!, SELL! SELL! SELL!” And practically overnight Mortgage Backed Securities turned from a safe investment into toxic waste.  What was trading briskly was now worth about 4 cents on the dollar, assuming you can find a buyer.

Again many many big banks had these on their balance sheets, and as they put out quarterly reports they were forced to adjust the value of such assets to match the market.  This write off impacted the bottom line, which sent Wall Street into a correction.

So that about covers the what, now why you should care.  Unless you have 10% down or more it will be difficult to buy a house.  The stock market has dropped, I see this as a buying opportunity for most stocks (not housing or financial, they still have a way to go).  If there is a government bail out interest rates on everything will go up, especially short term (ie credit card) rates.  And if you have an ARM?  Talk to who holds your loan now.  In MOST cases they would rather renegotiate than foreclose.  Banks do not like having to sell real estate, they are not good at it.

Next week: inflation. It’s not just for your ego anymore.

How Credit Default Swaps turned AGI into IOU

I’m back. Did you miss me? Well all the arrows and bullet holes in my walls say that you did. Smith and Weston: when you care enough to shoot the very best. I have a good excuse, these past few months I’ve been working like Mike Rowe. While you may not consider tax preparation a dirty job, there are nights when I’ve needed a shower after what I had done.

Moving on. I’ve heard several people, including CNBC commentators, state that they didn’t understand what credit default swaps were. I’m here to help clear up the mystery

Credit default swaps work a lot like home owners insurance. You pay the insurance company a premium every year/month then if/when a fire, robbery, tornado, or possibly flood, occurs the insurance company will cut you a fat check. Alternately, you live a blissfully dull life and the insurance company keeps all the premiums you sent them. Credit default swaps are similar, except instead of a house it’s a bond or other loan, a default or bankruptcy would trigger the payment rather than a robbery, and it is technically not insurance.

The theoretical purpose of swaps is to hedge risk. You are willing to accept less of a return on a bond, your interest payments are decreased by the swap payments, in exchange for less default risk. The counter party is willing to get into this agreement because they believe based on their experience that the money they take in from the swap(s) will be greater than any probable lump sum payments. The periodic payments will range from $.01 to the annual coupon payments on the bond, and the lump sum payment will range from $.01 to the maturity value of the bond.

Now we know the what and why of credit default swaps. The begged question is, “What went wrong?” Basically, and this is a major oversimplification, two things went wrong. The first thing is the housing market assploded. Many many CDS’s were created for the Collateralized Debt Obligations which were backed by sub prime mortgages. These CDO’s were highly rated, so the counter parties (like AGI) didn’t charge much for the swap.

The second thing that went wrong is CDS’s are not insurance. Insurance is a highly regulated industry. Some say more so than prescription drugs. CDS’s are privately negotiated contracts between two parties. So unlike insurance, the government doesn’t say that you must have X number of dollars in reserve for every Y dollars of CDS obligation.

Also unlike insurance CDS’s can be used speculatively. Going back to the example of home owner’s insurance, I am not allowed to take out a home owners policy on say 1600 Pennsylvania Ave, or 1 World Trade Center. (What too soon?) However I could enter into a CDS based on A mortgage backed bonds issued by GM even if I don’t own any such bonds, or any bonds at all.

Now there are some whom are claiming the use of CDS’s are what’s causing GM’s bond investors to balk at the current offer. That they would rather see GM file chapter 11 so that the CDS would fire and they would get most of their money back. However if one looks at the numbers this doesn’t hold up. The latest offer I’ve heard is the government will get 50% control, the UAW 40% , and bond holders 10%. If one looks at the amount of money put in, the bond holders should get about 60%, the UAW 40%, and the government lovely parting gifts.

Like Mike Rowe I need your questions and ideas to keep this thing going. I’m quickly running out. I’ve got one maybe 2 weeks left in reserve. Next week a review of sub-prime mortgages, and the CDO’s that destroyed the economy.

Punt

Apologies, but with the training for a new government position (the position is new, not the government) I have not been able to write up my promised screed on credit default swaps. Also I have apparently forgotten how to break up sentences.

Anyway, the job starts Monday. Since I’ll be working for the government, I foresee having more than enough time to explain CDS’s.