I really doubt you could buy a CDO for a fair price. The banking crisis basically happened because banks had their assets overvalued and over leveraged their securities.
And I believe that through some accounting tricks, most bulge bracket banks are still overvaluing their securities. And in some cases once the securities are correctly valued, the banks will be insolvent. That is one problem the bailout money is for, to enable banks to correctly value securities.
So I believe that if a bank actually sells any CDO's at a fair price, there will be major problems with keeping the rest of the securities overvalued.
And from the way I understand it, most of these over valued securities are based on multiple assets, so one CDO is going to track other CDO's, you can't pick a CDO that is solely based on correctly valued assets.
Compare it to a local bank that is insolvent.And this bank has overvalued their assets. So I am looking to buy a house, and see that the bank has called the loans on two houses that would be in my price range. Except one of the houses has been used as a meth house, and the owner would have to pay an extra 60-70k to make the house habitable. Well, it would be an easy choice for me, I would want to buy the other house for less than the value of the loan. Only in this comparison that doesn't work. See, the bank found out that if they grouped the mortgages together, they could sell overpriced pieces of the mortages. So I would not be able to buy anything from the bank that would give me legal ownership of property. And the mortgages are grouped together, so for every dollar I invested in one property I would be investing a dollar in that meth house.
Nobody really knows what the CDO's will be worth in 10 or 15 years, but I do know that the banks don't have a strong desire to price CDO's low enough to actually sell them.
And I believe that through some accounting tricks, most bulge bracket banks are still overvaluing their securities. And in some cases once the securities are correctly valued, the banks will be insolvent. That is one problem the bailout money is for, to enable banks to correctly value securities.
So I believe that if a bank actually sells any CDO's at a fair price, there will be major problems with keeping the rest of the securities overvalued.
And from the way I understand it, most of these over valued securities are based on multiple assets, so one CDO is going to track other CDO's, you can't pick a CDO that is solely based on correctly valued assets.
Compare it to a local bank that is insolvent.And this bank has overvalued their assets. So I am looking to buy a house, and see that the bank has called the loans on two houses that would be in my price range. Except one of the houses has been used as a meth house, and the owner would have to pay an extra 60-70k to make the house habitable. Well, it would be an easy choice for me, I would want to buy the other house for less than the value of the loan. Only in this comparison that doesn't work. See, the bank found out that if they grouped the mortgages together, they could sell overpriced pieces of the mortages. So I would not be able to buy anything from the bank that would give me legal ownership of property. And the mortgages are grouped together, so for every dollar I invested in one property I would be investing a dollar in that meth house.
Nobody really knows what the CDO's will be worth in 10 or 15 years, but I do know that the banks don't have a strong desire to price CDO's low enough to actually sell them.