CSO's.. The "Mother" of all Derivatives"

If you thought Credit Default Swaps were bad, here's a discussion of the CDS monster that Wall Street has created.. the CSO (Collateralized Synthetic Obligation)..

To visualize a CSO, imagine a bunch of CDS contracts put into a basket (much like Mortgage notes were combined into CDO's (Collateralized Debt Obligations).. NOW imagine multiple "baskets" of these CSOs into another "basket" and called a CSO (squared) and you have a recipe for disaster.

Matt Taibbi of Rolling Stone has written an excellent article on CSOs and how a bankruptcy of British Petroleum could have ignited another Financial Meltdown. It's a must-read:

BP's Shock Waves

Btw, I'm on the sidelines in this market.. We're seeing the potential for a reverse H&S formation taking the markets higher, but the lack of volume really has me spooked. If I trade it, I won't be holding any position overnight.

For those of you who had the guts to hold, or buy at sub- DOW 10K, I applaud your guts...

Just make sure you know where to find the exit.

Scrutinizer