CDO Comedy: Customer Screwed Was Bank Doing the Screwing

Listen to this podcast on the rise and fall of CDOs (collateralized debt obligations) at NPR's Planet Money. Listen to the whole thing, it's kind of funny. Below is a quote 14 minutes in. This is why banks should not exist in current form today (imo)!

"So the customer that's being screwed is the bank that's doing the screwing? 


"So it's really the CDO desk, which gets (...) based on much they sell, is screwing their employer?"

"Yes, and this is why the banks imploded spectacularly when the financial crisis hit and the music stopped. Individual bankers had the incentives to blow up their own institutions."

Podcast Link:

They forgot to add the part where they brought in another customer to bet against the customer who bought the CDO (using credit default swaps), if the customer wasn't the bank itself. Or I guess it could've been the bank itself. Did they allow customers to buy CDS on their retained CDOs? Or allow a customer to profit off their incentive to blow up their employer? The bank definitely would've re-insured with AIG. I think I get it, still f'n confused though. Here's an article from April explaining Goldman's ABACUS CDO deal: Abacus Let Goldman Shuffle Mortgage Risk Like Beads.