CDOs: How Bad Will It Get

This is why our banks are insolvent. Even without the increases in leverage that have been created over the past 15 or so years, when you see losses like this:

The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.

Your bank is toast.

That's 30¢ on the dollar for the best of the best, and just down from that, it's 5¢ on the dollar.

This is why the big banks are insolvent.