Wow. Our experiment is off to a great start—let's see if we can finish it off sooner than expected.
SUPER SENIOR....Looking for more financial geekery? Sure you are! The other day I asked Felix Salmon to explain super senior tranches for us, and today he obliges. It's too complicated to excerpt, but the nickel version is that it became yet another way for banks to increase their exposure to subprime loans by creating a synthetic version of the subprime market that was even bigger than the original. So instead of merely idiotically missing the housing bubble and losing lots of money on supposedly safe subprime-backed CDOs, they idiotically doubled (tripled? quadrupled? who knows) their bet by creating lots of synthetic subprime CDOs and then keeping them on their own books instead of selling them off. When the crash came, then, they lost money on both the real stuff and the synthetic stuff.
The full story is here. Enjoy!