Financial Baseball

While discussing synthetic CDOs one of my colleges suggested that they reminded him of fantasy baseball.  He said that creating synthetic CDOs is like creating a virtual baseball team, and that betting on this virtual team is like writing credit default swaps on synthetic CDOs.

I liked the analogy and thought it might be helpful in explaining some of the details of the sub-prime mortgage crisis.

Applying this analogy to credit rating agencies who gave AAA ratings to crappy securities is like creating a fantasy baseball team that is rated to be as talented as the Yankees but is actually made of mostly minor league players.

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