The Leader was at the U.N. today talking about God knows what but it seemed to have to do with Global Warming. Seems as though we are going to be the world leader in staying the path of the warming planet. Its always good to be the leader of something. It appears according to the New York Times today that the world hasn't gotten any warmer for the past eight years so maybe we are already winning. Of course the Times goes on to explain hat scientists believe that changes in the world's oceans have caused this "temporary" cooling. Although last year the Times told us that the world was warming ever year. Then again the Times...oh hell, I'm confused.
Anyway, did you think about the issue I was wondering about yesterday? I was also wondering about how much those wonderful folks who bought all those CDOs rated Triple-A by those wonderful folks at Moody's, Fitch and S & P got paid as well. You know, these creations were not purchased by little white haired old ladies. They were purchased by funds run by highly paid guys in which little white haired old ladies invested. And I betcha that these guys (and gals...let's be fair) got paid based on the yield provided to the funds through the investments they made. Now what we have to determine is whether these guys and gals got their arms twisted by the buy side people who were creating this stuff irrespective of demand or did they actually create the demand that got the stuff created? And if they were investing for little white haired old ladies or on behalf of YOUR 401K, shouldn't their due diligence have been of a higher standard--like was it too much to ask of them if they had a clue as to what they were buying or was blind reliance on the rating agencies who were mandated by Congress to perform the role not the best idea they ever had or should they have thought about the fact that Fanny and Freddie were geared up a 100 times? Or were they getting paid cash bonuses for investing in instruments whose performance would not be known for years? And if all of this is true why aren't they getting hammered like the banks? If anybody has a clue, call me. One thing you will discover is that their activities, on paper at least, were more closely regulated than those of the banking sector. Can anybody say Bernie Madoff? Regulated? That implies politicians might be involved. Anyway, as the guy on the street corner says, "Check it out."
As you can see, I'm still waiting for the results from Pittsburgh. So far it looks as though The Leader is going to take another shot at world leading despite the fact that he seems to be having a bit of a problem leading at home. I fear that he may well be more successful at financial regulation than in anything else that really counts which means that at the end of the day we could well wind up with a reserve currency that isn't worth very much and banks that don't make very much money. That is if he stops playing Blind Man's Bluff with poor old David Patterson. If he doesn't do that, aint nuthin' gonna happen. Who knows, maybe a Ward Healer from the South Side is what the World needs. We will soon find out
Charles, just to add a wrinkle on your review of the market dynamic above. Let's introduce the Monoline Crossing (somewhat Cassandra-ish in retrospect). The monolines insured the AAA's of many CDO/CLO/CBO's. They conducted (?) extensive due diligence and the (now) double AAA paper was acquired primarily, if not exclusively, by BANKS. Spread arbitrage was back in fashion, and the runways were awash with product. The banks could not let a good deal go by, and enormously expanded the CP Conduit and SIV funding vehicles, to the tune of hundreds of billions of dollars. However, the banks did little credit work, largely trusting the analytics of the monolines and the rating agencies (dual default probability at its finest). The buyers of that conduit and SIV paper were the money markets, who also conducted (it seems) little due diligence, but benefited from the "moral" obligation of the banks to bring the whole enchilada back on balance sheet when things went awry. Isn't it somewhat ironic that the banks were both sell side and the ultimate buy side en masse, credit-risk be damned!
ReplyDeleteBai Mianbao