"f we were to equate this to a company in adminstration, we would be looking at recoveries of some 80c in the dollar"
Well said. I think that there has been some hype & misunderstanding - as you say, there is an inherent value in all these CDOs. The value hasn't fallen to zero. Don't forget that the CDOs are providing a return or yield. They are also backed by an asset - even if a % of the borrowers completely default.
What the problem is that every banker and his dog has been rushing out to create different types of CDO. So there is no liquid market for the CDOs as there is with currency & stocks.
Couple this with leverage, and the result is the action of the last week (margin call + no liquid market).
Has the market got further to fall? Absolutely.
Is this just a hiccup and will the BRIC story continue next year? I think so.
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