C.P.D.O.: a new way for banks to gamble with your money

Just when you think you’ve seen the height of Wall Street’s folly and corruption, a new level of reckless plunder emerges from the ooze. In 2006 ABN Amro, a Dutch bank, invented a new way for huge money barons to invest (gamble) their (our) millions. It’s called a C.P.D.O, or constant proportion debt obligation. A C.P.D.O. is not, as its name might suggest, a debt obligation. Instead it is a credit-default swap or bet against a collection of corporate bonds, i.e., a derivative. (ABN Amro intentionally avoided calling it a derivative, because it knew many of its investors would refuse to buy derivatives.) According to an Australian federal judge this week, the concept was to place a bet, and if you lose, to bet even more the next round, and continue doing so on the grounds that eventually you’ll win!

As Floyd Norris in the NY Times (11/9/12) reports, ABN Amro itself compared this to a “casino strategy” saying, “If you hit a losing streak your net worth can become very low, however most of the time you will be able to ‘bet yourself out of the hole.'” Somehow the brilliant captains of finance who went along with this cockamamie scheme lost nearly everything they put down.

Standards & Poor’s, rated these investments AAA, their highest rating with the highest safety. Why? Because S&P gets paid fees to issue ratings, and if their ratings are high, banks keep using them. If their ratings are low, banks look for competing rating agencies. According to the judge, S&P issued this rating based entirely on ABN Amro’s evidence and rationale, without doing any independent analysis. The judge found against S&P for misleading investors.

The issue here is not that a bunch of wealthy investors lost millions and banks and rating agencies lied, but that the wealth of our society (including Holland, the US, and the entire world) is being gambled casino-style instead of invested for the betterment of the people. Again, why? Over the last 35 years, an enormous amount of wealth has transferred from the 99.9% to the 0.1%. (The wealth and income disparity in the US is at its highest point since the Great Depression.) When the majority of a country’s people have so little wealth, they cannot buy what a country’s industry can produce, leaving factories with excess capacity. The CEO’s of these factories are unwilling to invest in new equipment when they have existing machines and plants sitting idle. Meanwhile, the corporate and financial elite are hoarding mountains of cash. Without avenues to invest this cash for productive uses, they turn to the financial markets with the AAA promise of enormous returns.

While we should be growing food to feed the starving and building homes to shelter the homeless, our economy cannot figure out how to do this — there’s no money in it. Is there not a better way?

Upcoming Actions:

• With the election finally behind us, we will continue to build our base. We are now in contact with those families whose homes are being auctioned in Nov. and who responded to our mailing. Last week in Nov.: Another mailing to all Seattle families going to auction in Dec. and Jan.
• 1st week in Dec.:  Mass phone calling to Seattle families to tell them about SAFE.
• 2nd week in Dec.: Mass meeting of families in foreclosure and their supporters.
• 3rd week in Dec.: We anticipate engaging in direct actions.

You can reach us at info@SAFEinSeattle.org or 206-203-2125.  Please visit our web site:  www.SAFEinSeattle.org.