December 27, 2007
A CDO Called Norma Goes Too Far
The Wall St. Journal has a terrific front page story on a CDO called Norma -- a new breed of mortgage investment created by Merrill Lynch that illustrates how Wall St. "took a good idea too far" to generate big fees. Unlike traditional CDOs, whose purpose was to diversify investors' risks, Norma increased risks by constructing portfolios of securities with the same risks, subprime mortgage loans. In addition, banks took large pieces of these CDOs for themselves, further concentrating the risks. Whose brainchild was Norma? A Long Island penny stock dealer. The article is complete with a graphic to show you how it works. I hope this isn't the kind of article Rupert Murdoch plans to do away with. WSJ, Wall Street Wizardry Amplified Credit Crisis.
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