Library Fine CDOs the Future of University Financial Strategy

Library Fine CDOs the Future of University Financial Strategy

In a stroke of genius, the University of Otago has bundled individual outstanding library fines, referred to as book-backed securities (BS), into collateralised debt obligations (CDOs) made up of thousands of outstanding fines. It is rumoured that the promising financial strategy was adopted in order to finance the acquisition of Larnach Castle and attract a new Vice-Chancellor.

The CDO is divided into layers of securities called tranches, which separate the BS based on risk rating. Book-borrowers with a history of reckless behaviour, such as accidentally walking away with books from the reserve section, will be classified as high risk BS.

Additionally, the University has bought the CDOs of every library in New Zealand and is offering investors a chance to invest in a “synthetic CDO” which essentially receives insurance premiums from investors in the base CDOs. The only drawback of this scheme is that if any of the CDOs fail, the University will be liable for their full value. 

Some have raised concerns that the CDOs are undiversified and rely too heavily on risky sub-prime BS. In response, the University simply stated that they were “too big to fail” and threatened to expel those making the claims for breaches of the new Code of Conduct which includes gathering in groups of more than two people, and possessing a vape.

This article first appeared in Issue 11, 2021.
Posted 4:46pm Wednesday 19th May 2021 by Critic.