Party Pooping Free Market Rebels Still Fighting The Entity

Posted by John Carney, Oct 16, 2007, 3:18pm

MCP.jpgWe’re totally surprised that there has been so much negative reaction to the plan by the Treasury Department, Citigroup, JP Morgan Chase and Bank of America to create a $100 billion fund to buy bad credit products that no-one else wants with money from investors who wouldn’t buy those credit products directly. Doesn’t everybody understand that the solution to debt problems is always more credit? If you don’t invest in the Entity, somebody bad wins!

One group that doesn’t get it is the editorial board of the Wall Street Journal. Listen to this unabashed MLEC bashing: “The announced vehicle, dubbed the Master-Liquidity Enhancement Conduit, will only buy highly-rated paper, to ensure investor confidence. The trouble with this theory is that investor confidence has been shaken because people no longer feel they can trust the ratings. This in turn has resulted from the fact that much of the now-dubious debt was rated not on the value of the collateral, but on the strength of the bank (such as Citibank) that issued it,” the Journal editors moan.

And they don’t stop their bitching there. Check this out: “So we're left to wonder whether Citibank isn't trying, in effect, to pull off the same trick twice. The conduit would issue debt and use the proceeds to buy otherwise illiquid commercial paper. But why would anyone buy the conduit's debt? Because J.P. Morgan, Citibank and Bank of America stand behind it! And, for good measure, Hank Paulson says the consortium is doing the right thing. That's not exactly the same as telling people the new paper is safe, but it's not exactly a federal disclaimer, either.”

Rupert Murdoch probably made them write that. Who can you trust if you can’t trust the Wall Street Journal to back Hank Paulson’s plan to bail out Citigroup? Hey guys, Hank was appointed by George Bush. If you don’t back Hank, Hillary wins! Someone get Larry Kudlow on the phone.

What’s that? Even Larry’s a skeptic? Say it ain’t so. “Now let me get this right. Here’s my reading. At the urging of the Treasury, the big banks that couldn’t sell asset-backed commercial paper, have decided to pool their resources and create a new vehicle to do what? Sell more asset-backed commercial paper. The markets aren’t buying it. They gave it a big Bronx cheer,” he writes. Oh, how the mighty have fallen.

You know what these people aren’t noticing? That the proper name of the Entity is Master-Liquidity Enhancement Conduit. Got that? “Master.” You know what that means? That’s right. It means that it’s in charge. Get with the program. They wouldn't call it that if it weren't going to totally run things. The Master is all up in the credit marketz enhancing ur liquidity.

For reals.
House of Paulson? [Wall Street Journal]
More Shoes to Fall [Kudlow's Money Blog]

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Posted in: The Entity

Comments

Posted by , Oct 16, 2007 3:33PM

sure the ratings were wrong for subprime-backed bonds -- we are learning that up to the AAA level those investors may see losses.

but this super SIV will not be touching that stuff -- SIVs buy a wide array of collateral including credit card-backs, CMBS and other ABS - that stuff is fundamentally sound and trading down simply on a technical basis.

i dont know why everyone is calling this a toxic fund

Posted by , Oct 16, 2007 3:43PM

Will it offer 100% transparency (i.e. we always know exactly what is in it, and what is inside the stuff inside the thing?) ... Will it trade on a public exchange so that we always know what it's worth? If yes, yes and yes then it's a good investment.

Posted by satanist, Oct 16, 2007 3:44PM

I wonder what the Krazy KEOs are saying about this...

Posted by , Oct 16, 2007 3:52PM

so i hear the ax fell on some groups in morgan stanely..where's the post dammit!

Posted by Michael Bolton, Oct 16, 2007 3:55PM

for 3:33

The wide array of collateral you just described has a whole lot of potential for ending up with the same kind of problem as the "subprime" infested bonds. Not to mention that even though such assets are "trading down on a technical basis" markets are still efficient...efficient at telling you they don't know how to price this junk, and that they are unsure about each and every assumption made. So, you're right this is not toxic, it's just how should we say...chemically enhanced

Posted by thimbu, Oct 16, 2007 3:59PM

Lol...
(i.e. we always know exactly what is in it, and what is inside the stuff inside the thing?)

So, you're right this is not toxic, it's just how should we say...chemically enhanced

Keep it up expose this BS

Posted by lets have fun, Oct 16, 2007 4:01PM

I wish the banks would write this stuff off, so we could see how many stuffed suits could walk around greenwich with a dazed, "I lost my fuckin job" look. Maybe Citi can have a going out of business sale like every other business that fucks up and has losses.

Posted by , Oct 16, 2007 4:30PM

Michael Bolton would you care to elaborate on what credits you believe have the potential to demonstrate subprime resi type losses?

Posted by inIT4the$, Oct 16, 2007 4:36PM

They will fuck you and fuck you and fuck until you say no...and then try to fuck you again. It's jus' how they wuz raized!

Seriously people, why would I want to buy repackaged shit, it's still shit. Except now it's off balance sheet shit.

Posted by Chris, Oct 16, 2007 4:42PM

@Anonymous, 3:33PM-

If everybody else sees something and you don't, you're either:

A.)A genius
-or-
B.)Wrong

Maybe on this one you should go back and double check your work.

Posted by anon, Oct 16, 2007 4:43PM

4:30- CMBS has had some of the same dodgy underwriting, as have leveraged loans. Check out the CMBX, for example. Also its not just subprime mortgages, because credit quality is getting really bad even in "prime" second liens. To think that they will be able to (or want to) separate the good from the bad is a ridiculous. Some of the stuff in these ABCP conduits, like CDO squareds, are more or less impossible to value, no matter the collateral.

Posted by wtf, Oct 16, 2007 5:45PM

@ chris
or maybe you have to look at how much everyone who see's the same thing have to gain/lose ($$$) by "seeing the same thing" and maybe the person who doesn't see that thing is merely the one who has nothing to gain/lose ($$$).
The only time the street sees the same thing at the same time is when they have too much too lose by not seeing it .
Think about who wins if Citi goes T/U - ken griffen, stevie cohen (as an aside, stevie cohen is married to his match.com (b/f craigslist and jdate existed), match) then think about how many thousands will lose? Maybe this should be called what it is -a paulson lead bailout? But seriously would you have rather august 15th have been just the pre game to the real show? Think dow 9000 before you answer and then think about how many of us would have jobs at dow 9000.

Posted by Holla Bitch, Oct 16, 2007 7:28PM

WTF,

Kid, if it's gonna trade 9000, it's gonna trade 9000 and ain't gawddamn thing Paulson and his merry MLiC-kers can do about it.

The truth is simply this, these pos banks sold shit that they had no idea how to price at origination, except to move, much less how to value on an ongoing basis. Do you really think Sudeep, Parneet and Min Lee up in SP Eng. have any friggen clue how a 6 tranche multi layered synthetic CDO package should behave when 2/3 of the original origantors (he he) are bankrupt?? Or better yet if that Choate schooled turd Chasworth Chalsey-SVP Rates has any fuckin clue how to even understand the memo of greek letters and "these little squiggly lines that look like horsehoes" that these poor Sudeep and Min Lee keep sending him??

Recall there homeboy, that none other than those vaunted masters of CMBS bad boyz over at Bare Fears seriosuly fucked up not 1 but 2 of their cds based funds- oh yeah and dropped a cool $1B of their hard earned coin on that Spector led re-up. So ask yourself this my fellow proletariat, if these guys can't price exotic abs/cmbs/rmbs wtf makes you think the jolly idjuts at Shitty and the rest know how ??? Face it comrade the gig is damn near up, pray you get bonused before 12.31.07 or better that you get cash in hand before then and get thee to a low rent district and wait for the hurricane of shit that is on its way to pass.

Good luck fucker.

Posted by , Oct 17, 2007 12:04AM

Whatchu talkin' about, Holla Bitch? Sudeep has a PhD in Engineering ... if he can design integrated circuits, what makes you think he doesn't know how to price a bespoke synthetic CDO^2 with an unknown number of defaulters? Parneet did his PhD is HIGH ENERGY PHYSICS. Motherfucker can split atoms, OF COURSE he can price any wildly exotic derivatives during periods of extreme market turbulence. And Min Lee spent 8 months getting a Masters in Financial Engineering, after spending 9 years studying the movement of a grain of pollen in a glass of water, which happens to be exactly the same as how financial markets work. As for, Chasworth he might not know about the greek alphabet, but it's all been explained to him in a specially created language consisting of claps, grunts and clicks so that we are sure he understands. It's all been approved. What kind of idiot are you anyway, with all your skepticism and irreverence? Do YOU know how to build a particle accelerator? I didn't think so! Now do your patriotic duty and lift that ask!

Posted by just me, Oct 17, 2007 7:13AM

The big difference between atoms, circuits and mortgage stuff, is that atoms, circuits etc always act the same way. people drive the mortgage mkts and people are fairly unpredictable. Perhaps having advanced degrees in math/science isnt that applicable to life. A 3rd year IB analyst makes more than a 20 year PhD atom splitter- maybe theres a message in there for you Mr Anon.

Posted by , Oct 17, 2007 9:28AM

just me, you complete inability to detect obvious sarcasm leads to me dismiss everything you say. IN fact I'm going to take the opposite position of whatever you say.

Posted by Chris, Oct 17, 2007 10:08AM

@Anon, re: Looking at what everybody else has to lose...

I've been on a lot of message boards for a long time, and I always get a rise when somebody such as yourself takes the time to point out the obvious. Going forward, I should probably start looking at both sides of the coin in every argument I involve myself in, so as to avoid the embarassing realization - for example, right now - that I failed to look at the various arguments to the contrary.

It's clear this is a big poker game. It's clear there are many parties, some of which gain, others lose, some perhaps don't benefit in any way. For some of the Big Banks, it's almost like a prisoner's dilemma when it comes to cooperation.

P.S. Holla Bitch has it right re: DOW 9000. Regardless, I'm on the buyside and we're long/short...so as long as things are moving, great for us.

Posted by , Oct 17, 2007 10:15AM

"we're long/short...so as long as things are moving, great for us."

Yeah right ....

Posted by Chris, Oct 17, 2007 10:27AM

@Anon, 10:15 -

I must have gotten it wrong. I guess as long as things are *not* moving, things are fine?

I dunno, you tell me. You probably know my business better than I do.

Posted by , Oct 17, 2007 10:31AM

Chris, if your longs go up and your shorts go down then thing are fine. Pretty simple.

Posted by just me, Oct 17, 2007 2:21PM

I am willing to bet that mr anon will be on the unemployment line by..I guess Dec 1.........I hear they dig your sarcasm there, esp, when they hand you a check and ask about your experience cleaning toilets and flipping burgers.....learn to mow lawns so you can work in the spring

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