Well guess what? The CDO/credit default structure is re-born, only this time in the form of “Bespoke Tranche Opportunities:”
Goldman Sachs Group Inc. is joining other banks in peddling something they’re referring to as a “bespoke tranche opportunity.” That’s essentially a CDO backed by single-name credit-default swaps, customized based on investors’ wishes. The pools of derivatives are cut into varying slices of risk that are sold to investors such as hedge funds.
Rather than a securitized trust filled up with junk mortgages and junk corporate bonds, this ugly beast has greasy hair on it. It’s a securitized trust of derivatives in the form of credit default swaps, ostensibly with psuedo high grade and junk corporate debt issues used as the underlying reference securities. And of course this package will be wrapped up with a credit default swap on the entire cesspool of derivatives.
When this blows, the financial mushroom cloud will be a sight to behold.