The New CDOs
I was planning on writing a blog post examining the political compass and fleshing out each position’s conception of people, the state, and the market to provide an overview of these political philosophies. That got depressing pretty quickly especially looking up “debate forums” where it kind of regresses to name calling and people very clearly talking past each other when discussing these ideas. So I decided to do a post/share/discuss the amusing memes that have come out of Klarna’s recent announcement to finance DoorDash orders.
Collateralized Debt Obligations 1
First, to talk about “CDOs”, I would need to explain its original ancestor. The financial instrument that enabled the near-collapse of the American and global financial markets in 2008: Collateralized Debt Obligations2. The idea isn’t too crazy, you collect a bunch of debtors and the payments they make are spread to the investors. Then you could set the price of a CDO by the trustworthiness of the debtors. It is also important to mention CDOs were offered like bonds in that they provided “steady returns”, not like stocks.
Another important point to mention is that CDOs themselves did not fully enable the financial crisis, it was the credit default swaps that did. CDSs essentially allowed these institutions to make bets on the CDOs. What specifically went wrong is that now financial institutions took on these bets with the pretense that they will never lose. I mean who doesn’t pay off their mortgage right? The problem is people didn’t and now they were on the hook to pay off the bets with insane odds ratio. Ultimately they couldn’t pay it, so the American people did.
Collateralized DoorDash Obligations
This leads us to today, where Klarna has announced that people could finance their DoorDash orders and pay in installments. Although can’t directly make bets on these DoorDash installments, because Klarna is soon going public, people have a way to make bets again with options! (or boring stocks).
Now the speculation against Klarna is this: Can the users of Klarna taking these installments pay of their debt? I am more viscerally inclined towards yes; betting against Klarna at-least in the short-term will not be profitable. Remember, CDOs were on big-ticket purchases like houses, loans, etc., not 8pc wing stop orders.
Anyhow the memes clowning on Klarna has been a solid close-out to March.