#cdo's

Another documentary that should probably be required viewing before a person is allowed to claim America as the greatest country in the world.

The best part is when the French finance minister repeatedly refers to Hank Paulsen as “Honk.”

Hi All,

Hope all is well with you and yours.  A while back I posted about an essay on Financial Markets and Philosophy.  Quiet a few of you generous folk offered to read an excerpt of the essay and am looking for some to take on the task of reading through the first draft (Roughly 12 Pages Double Spaced).  

If you're so inclined, drop me a line (in my inbox with your email address) and I'll send it your way, it should be rather interesting! 

All signs point to yes:

In the run-up to the global financial collapse, Citigroup’s bankers worked feverishly to create complex securities. In just one year, 2007, Citi marketed more than $20 billion worth of deals backed by home mortgages to investors around the world, most of which failed spectacularly. Subsequent lawsuits and investigations turned up evidence that the bank knew that some of the products were low quality and, in some instances, had even bet they would fail.

The bank says it has settled all of its potential liability to a key regulator – the Securities and Exchange Commission — with a $285 million payment that covers a single transaction, Class V Funding III. ProPublica first raised questions about the deal [1] in August 2010. In announcing a case, the SEC said it had identified one low-level employee, Brian Stoker, as responsible for the bank’s misconduct.

Oh, I see. Another "rogue trader". The old "just a few rotten apples" canard.

It made no mention of the dozens of similar collateralized debt obligations, or CDOs, Citi sold to investors before the crash.

A bank spokesman said the SEC would not be examining any of those deals. “This means that the SEC has completed its CDO investigation(s) of Citi,’’ the spokesman asserted in an e mail.

“The $285 million settlement resolves only the Class V Funding III CDO, and we will not hesitate to bring further charges where we determine that there has been unlawful conduct,” an SEC spokesman said.

Did Citi get a sweet deal? Some observers think so.

“Citibank arranged countless CDOs that were built to fail, but the SEC apparently limited its case to a single CDO where they had particularly vivid and powerful proof,” says Stephen Ascher, a securities litigator at Jenner & Block, which has sued Citibank on various structured finance transactions.

“This represents extreme caution, at best — and a failure to grapple with the magnitude and harmfulness of the misconduct, at worst.” [...]

If Class V Funding III was some outlier, the SEC’s action might make more sense. But it wasn’t.  Citigroup’s CDO operation churned out at least 18 CDOs around the same period. Often they were large CDOs, created with credit default swaps, effectively a bet that a given bond will rise or fall. Most of the CDOs included recycled Citi assets that the bank couldn’t sell. By purchasing pieces of its older deals, Citigroup could complete deals and keep the prices for CDO assets higher than they otherwise would be. Some investors helped picked the assets and then bet against them, facts that Citi didn’t clearly disclose to other investors in the deals.

Closing the book on Citi’s CDO business means the public may never know the true story of Citigroup’s, and Wall Street’s, actions during the financial crisis. One of the largest victims of the CDOs was the bond insurer Ambac. The now-bankrupt firm settled with Citi in 2010, long before it got to the root of the problems with securities Citi convinced it to insure. A shareholder class action lawsuit that is wending its way through the courts has the potential to reveal some details, but often such cases are settled with evidence then sealed from public view. [+]

Michael Lewis

“What I have learned about the hedge fund business is that I hate it.” 

I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck..... What is the point? They will all be forgotten in fifty years anyway.

--Andrew Lahde, who bet against subprime and made over 800% returns

He got to say "I told you so". He got to be an underdog. And he got  O( 10,000,000 ) dollars.