That's not the issue so much as should financial institutions and other companies be allowed to carry them on their books as anything other than illiquid assets, and if so, specifically what kind and specifically why?

You can securitize all you want, but if the result is not a security grade asset, and insurance companies and pension funds cannot by them, why bother?

The defense from smoke and mirrors and "the smartest men in the room" effect is simple rules. Simple rules like, no CDO based on derivatives can be rated as better than junk, and for CDO's composed entirely of original assets, the weighted average of the rating of the tiers of the CDO cannot be greater than the weighted average of the rating of the original assets generating its income.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.