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Welcome to the major leagues of debt. Collateralized debt obligations, almost always referred to as a CDOs, are horrendously
complicated deals that often leave anyone without a MBA wondering what was put into these CDOs.
The first thing to
understand about bonds, (aka debt) is that bonds are often backed by something else. Think about your home mortgage. If you
don't pay your mortgage, the bank can take the house. You end up homeless, and the bank sells the house to pay off the rest
of that mortgage. There is something "backing" that mortgage; something lender can fall back on, if you don't pay your bills
like a good human being. That's called collateral.
CDOs are one flavor of an entire sector of investing called structured
finance, and they are also backed. CDOs, in the simplest concept, are just bonds backed by something else. In most cases,
a CDO is backed by a collection of various types of debt. CDOs can be home mortgages, or other types of debt like credit cards,
auto loans, and personal loans. Most of these types of debt are usually considered a bit more risky and they don't have the
backing that a home loan does. So, if you think it through, you can imagine that CDOs are usually considered a risky investment.
To take a step further, understand that CDOs have multiple flavors within each CDO. These flavors are called tranches. If you've taken French, you might recognize the word, it means "slice" or "portion." Each slice of that CDO you invest in is a little different and carries different amounts of risk.
You could invest in the lowest risk tranche of the CDO, which would
provide you lower risk. But, you don't get a good return on that investment. Or, you can be the heroic adventurer of bonds
and invest in the lowest-grade tranche of the CDO. You'll make an amazing return, but if the economy even looks at you wrong,
you might lose the entire investment.
CDOs aren¿t easy, and are almost always invested in by mutual funds, insurance
companies and hedge funds. As an individual investor, you will probably not come across a CDO you can participate in.
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Thursday, July 10, 2008
Alaska State Senator Indicted on Public Corruption Charges
Comtex
WASHINGTON, July 10, 2008 /PRNewswire via COMTEX/ ----WASHINGTON, July 10 /PRNewswire-USNewswire/ -- John Cowdery, a current member of the Alaska state Senate, was indicted on charges arising out of a federal investigation into public corruption in the state of Alaska, Acting Assistant Attorney General Matthew Friedrich for the Criminal Division announced today.
A two-count indictment returned by a federal grand jury in Anchorage on July 9, 2008, charges Cowdery with one count of bribery and one count of conspiracy. The indictment alleges that Cowdery and his co-conspirators, including Bill J. Allen, the former chief executive officer of VECO Corporation, and Richard L. Smith, VECO's former vice president, corruptly offered and agreed to give financial benefits to another state legislator (State Senator A) to influence and reward State Senator A in exchange for State Senator A agreeing to perform official acts as a member of the Alaska State Legislature.
The indictment specifically alleges that VECO Corporation, which at the time was a multinational oil services corporation, had a significant financial interest in contracts with oil producers in Alaska and, consequently, supported certain oil and gas legislation pending in the Alaska state legislature in 2006. The indictment further alleges that, in exchange for $25,000 - characterized as political campaign contributions - Cowdery, Allen, Smith and others sought an agreement with State Senator A that would require State Senator A to vote in favor of the oil and gas legislation favored by VECO. Cowdery and the alleged co-conspirators agreed to this plan, according to the indictment, through a series of telephone calls and in-person meetings.
If convicted, Cowdery faces a maximum penalty of 10 years in prison on the bribery count and a maximum penalty of five years in prison on the conspiracy count, as well as a maximum $250,000 fine for each count.
An indictment is merely an accusation and defendants are presumed innocent until proven guilty at trial beyond a reasonable doubt.
To date, there have been seven criminal convictions arising out of the ongoing investigation into public corruption in the state of Alaska. Thomas T. Anderson, a former elected member of the Alaska House of Representatives, was convicted in July 2007 and sentenced to five years in prison for extortion, conspiracy, bribery and money laundering for soliciting and receiving money from an FBI confidential source in exchange for agreeing to perform official acts to further a business interest represented by the source. Peter Kott, a former Speaker of the Alaska House of Representatives, was convicted in September 2007 and sentenced to six years in prison for extortion, bribery and conspiracy. Victor H. Kohring, a former elected member of the Alaska House of Representatives, was convicted at trial in November 2007 for attempted extortion, bribery and conspiracy, and was sentenced to three and a half years in prison. Four other individuals, including Allen and Smith, have pleaded guilty to felony public corruption charges.
This case is being prosecuted by Trial Attorneys Nicholas A. Marsh and Edward P. Sullivan of the Criminal Division's Public Integrity Section, headed by Chief William M. Welch II, and Assistant U.S. Attorneys Joseph W. Bottini and James A. Goeke from the District of Alaska. The ongoing investigation is being led by the FBI and the Internal Revenue Service-Criminal Investigation.
SOURCE U.S. Department of Justice
http://www.USDOJ.gov
Copyright (C) 2008 PR Newswire. All rights reserved
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