February 2008

Write-Offs: 02.29.08

$$$ Schwarzman's School Ties [DealBook]

$$$ Vote on whether Tim Sykes has discovered the secret formula for the stock market. [TimSykes.com]

$$$ Sorry Guys, Today Didn’t Happen [LoSC]

$$$ The Boeing Company (BA)

Diary of A Fake Goldman Trader: Becoming Your Dream

Who remembers that Craiglist ad from the 28 year old Goldman banker looking for someone to lavish with his (pretax) $722k bonus? I'm going to go with all of you because, frankly, it/he was unforgettable. The Viking stove, the custom-made oak dresser, the amazing dinners, the shopping, the great wine, the getting each other off fabulously and, of course, the baby's arm aren't things one lets recede from his/her consciousness so easily. Sure, the whole thing turned out to be fake and from the mind of someone named the Cajun Boy who does not really work at Goldman Sachs or at any other financial institution, including Bear Stearns, for that matter, but did anyone give a shit? No, us included. In fact, we were so taken by the imposter-- "real" name: Thad-- that we asked him if we could reprint parts of his journal on DealBreaker so that you all could live vicariously through his fabulous life. He said yes, if it would help him "score ass." So if you enjoy the following installment, show your gratitude.


I seriously can't believe that I'm about to let the following words cross my lips, but this is my diary and the purpose of a diary is for purging the soul and unburdening yourself of any albatrosses that may be weighing you down, right? It's also great for endearing yourself to a large swath of the female segment of the banking industry when parts of your diary just so happen to be published on a widely read Wall Street website, but that's neither here nor there. The fact of the matter remains...

Continue Reading Diary of A Fake Goldman Trader: Becoming Your Dream

Job Of The WeeK: Subprime Trader

Your jobs sucks. That's why we spent part of the afternoon combing through our Career Center in search of the most interesting jobs. There are dozens to choose from, all categorized according to specialization. But one special one has been selected as our Job of The Week.

A multi-strategy hedge fund is seeking an experienced risk taker to trade the mortgage credit space with a particular focus in subprime. Feel free to bring your whole team.

Please Say Norbit II, Please Say Norbit II

ed.jpgNot content to sit idle while their peers at Citadel and Stark Investments lose millions of dollars by backing movies like “Evan Almighty” and “Poseidon,” Elliot Associates has gotten some of that, agreeing to provide at least $1 billion to co-finance 75% of Universal Pictures’ films over the next four years, with Relativity Capital. Relativity is the private equity firm which has gotten some great press lately for convincing defenseless hedge funds to put their green in paper bags and light it on fire via 12-terrible-flicks-at-a-time package deals. Elliot is the firm that, earlier this week, accused Cedar Hill of espionage. Do we smell a craptastic spy film summer 2009, sure to make just as much as "Blond Ambition," if not a dollar more? Methinks yes.


Earlier: How Katherine Heigl's Rack Nearly Sank Bridgewater


Relativity, Elliott Hammer Out Movie Deal [FINalternatives]

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Proxy Battle At The New York Times

It is, officially, on.

A dissident investor stepped up pressure on The New York Times Co. Friday, formally proposing its own slate of four directors and saying the company needs to take more drastic action to compete online.

Harbinger Capital, an investment firm that now owns about 19 percent of the company, filed its own proxy statement with the Securities and Exchange Commission listing its nominees for directors to be elected at the Times' annual meeting April 22.

The Times has already filed its own full slate of director nominees, but has said it was still considering whether to accept Harbinger's candidates.


Fund Nominates 4 for N.Y. Times Board
[Associated Press via Breibart.com]

How To Turn $4.6 Million Into $1 Billion

Politics, of course.

When The Rising Cost Of Oil Hits A Little Too Close To (Steve Cohen's) Home

The unadulterated euphoria you-know-who experiences while mainlining cream filled gold sponge cakes every day at 3 is about to be compromised.

Triple Down! UBS Sees 600 Billion Of Losses For 'Financial Industy'

So far, only 160 billion of losses have been disclosed. UBS sez it's going to get a lot worse.


UBS sees financial crisis leading to industry wide losses of 600 bln usd investment research warned that the financial crisis is far from over with more losses and a stronger impact on the real economy ahead.

'Our global banks team estimates that total industry losses in this financial crisis should reach north of 600 bln usd of which listed banks and brokers should account for 'only' 350 bln usd,' the bank writes.

UBS sees financial crisis leading to industry wide losses of 600 bln usd [CNNMoney.com]

Opening Bell: 2.29.08

pelotoncrash.jpgPeloton Blames Wall Street Lending Crackdown for Fund Collapse (Bloomberg) A London-based hedge fund is blaming tightening credit standards on Wall St. for its collapse. The $1.8 billion fund says that because of, you know, stuff, it just can't get a loan anymore. And it will need to liquidate. Sounds like a market for lemons if the company is to be believe: "Credit providers have been severely tightening terms without regard to the creditworthiness or track record of individual firms, which has compounded our difficulties and made it impossible to meet margin calls." Anyway, a worthy read.


Man Financial and the Core Club contra-indicator… (Footnoted)
Shoulda known something was going to be up at Man Financial. As Michelle Leder points out, this is the company noted memberships to the Core Club in its filings. And its CFO left abruptly in January.

Headed Toward an International Robot Arms Race? (Industrial Market Trends)
Just something to ponder over the weekend.

The Latest Carbon Prices (Alex Kirtland)
Meant to link to this earlier, but Alex Kirtland offers up a surprising chart of carbon offset prices. Check it out. Let's just say, if there were anything like a true market price, it sure as hell isn't showing up. The price to offset a metric ton are all over the place. It also means that there's probably a way to make money on this, although liquidity and fungibility would both probably be an issue. But if you could.

Financial Firms Face $600 Billion of Credit Losses, UBS Says (Bloomberg)
So far they've lost just $160 billion.

Continue Reading Opening Bell: 2.29.08

Write-Offs: 02.28.08

$$$ Inside Loeb/Weill/Blankfein's new apt. [Daily Intel]

$$$ Mel Karmazin’s Own Private Reality [Deal Journal]

$$$ I'm currently working as an admin assistant in a law firm, but I would like to start working at a hedge fund company. I have a friend who started working at a hedge fund company, and she is making really good money - just as an assistant. I'd be willing to perform discreet blow jobs in your home or office for the chance to have a REAL interiew for an open position. [craigslist]

Sears Holdings Chair Sees A Lot Of Sears In Previous Perma-Loser Eli Manning

Oh, man I love sports metaphors. Eddie Lampert do too.

Continue Reading Sears Holdings Chair Sees A Lot Of Sears In Previous Perma-Loser Eli Manning

The Pension Fund Manager Who Went One-On-One With Michael Jordan…And Won

If you’ve ever had a few drinks with fund managers, and followed them with a few more, you know the conversation inevitably turns to performance. Usually it will begin with some fantastic trade but, depending on the crowd, it often winds up with some feat of physical prowess, death-defying daring or sexual triumph.

But the hands down best story we’ve ever heard is the story of the fund manager who beat Michael Jordan in a one-on-one game of hoops. Until now we considered it an urban myth. Something guys told themselves in the dark hours of the night to reassure themselves that their degrees in physics didn’t really make them clumsy nerds.

But the story is true. John Rogers, founder and CEO of Ariel Mutual Finds, the nation’s largest minority-run mutual fund, beat Jordan during a stay at Jordan’s Senior Flight School, a fancy basketball camp for people with a love of the sport and a lot of money. Chris Ballard at Sports Illustrated’s Fan Nation blog got his hands on the video tape and tells the story.

Details after the jump.

Continue Reading The Pension Fund Manager Who Went One-On-One With Michael Jordan…And Won

Buy Neverland Ranch, Don't Matter If You're Black Or White

Many of you received shit bonuses, no bonuses, or, worst of all, UBS bonuses this year, but surely there’s someone out there who can cough up the cash to buy Michael Jackson’s Neverland Ranch, yes? Yes! Say it with me like you mean it! Say it, Andrew J. Hall! Say it, Dan S. Loeb (15 CPW is déclassé, just walk away)! Say it, Citi prop desk, who couldn't get the money together if their lives depended on it but whose collective child/adulthood dream, nonetheless, is sleep where Jacko ‘N Kids hath slept!


Here’s the scratch: Mr. Jackson has less than a month to come up with the $24.5 million dollars he owes on the property that Fox Business reminds us was “at the center of his child molestation case” and then wonders—leadingly, in our opinion—who would want to make the buy? Pretty sure we just offered three serious suggestions but to reiterate: Andrew Hall. Dan Loeb. Citi prop desk. YOU. Though Jackson recently refinanced the estate and netted out $35 million cash, experts say it’s not enough to pay his obligations and the mortgage, especially considering he’s already blown a sizeable chunk of change on pop rocks and an ice cream truck. If that’s the case, the whole thing (land and buildings, rides, trains, art, curtains, cock rings, skin bleach), valued at $50-100 million will go to auction on March 19th for the bargain basement starting price of $24.5. This is a no-brainer.

Continue Reading Buy Neverland Ranch, Don't Matter If You're Black Or White

Dobbs vs Blankfein

oscarsmall.jpgAlright so it would appear we jumped the gun a bit earlier re: Dobbs vs Blankfein. Dobbs didn’t actually say he wanted to rough Blankfein up but he did indeed invite the Little Fella to step into the ring, challenging the CEO to “say it to my face, not to my back, Partner” (we’re in the Old West now). He also called Blankfein a “moron” and a “hot shot,” which we’re pretty sure he meant in the derogatory sense. Then he held up his fists in a threatening manner (if you’re threatened by middle aged men who probably have Type II diabetes) and said “Seriously. Come on down. Open invitation.” So, actually, we maintain that he does want a physical fight. Judge for yourself after the jump, and if you see LB today, pass it on that Dobbs wants to rearrange his face. He'll come around eventually.

Continue Reading Dobbs vs Blankfein

Why Do Rogue Traders Always Lose Money?

Another rogue trader has caused huge losses at a major financial institution. MF Global Inc., which is largest broker of exchange-traded futures and options contracts, has said it set aside $141.5 million to cover losses caused by a trader who "substantially exceeded" trading limits in his own account. The FT identifies the culprit as Evan Dooley, a broker at the Memphis office, and reports that the trades were carried out at the CME Group in Chicago. Wheat traders in Chicago say he took a large short position on Tuesday night that backfired when the market turned the following day.

MF Global blames a failure of "retail order entry systems." We have no idea what that means. It sounds a lot like when our tech people tell us that our email has gone down because of "core switch failure" but they're reversing the polarity so everything will work better from now on.

There's a serious question about how many of these rogue traders are out there. We hear about them when they take losing positions but apparently no one who "substantially exceeded" his or her trading limits has ever made money for his firm. At least, that's what you'd have to believe by the absence of disclosures about gains from rogue traders.


"How come 'rogue trader' disclosures are always losses?" Kynikos founder Jim Chanos asks.

It's a good question. Is it even plausible that rogue traders always lose money? Or are risk management practices generally far more lax than is commonly believed? Are there lots of these "unauthorized trades" that we never hear about because they either make money or don't lose that much? From what we understand about SocGen,it seems at least plausible that they were all too happy to look the other way when Jerome Kerveil's trades were making money.

Rogue wheat trader loses $140m [Financial Times]
MF Global Statement [Wall Street Journal]


Goldman Sachs CEO To Battle CNN Pundit?

hesnothappy.jpgSo Lou Dobbs challenged Lloyd Blankfein to a fistfight last night on his show, based on Blankfein’s suggestion to Dobbs’s boss at CNN that he ought to fire LD’s xenophobic ass? And MSNBC reported the request for a duel on “Morning Joe” today? And sources close to the Little Guy say he’s been dropping hints he’ll accept? We tack on skepticism not because we don’t want to believe all of these magical things did and will indeed occur, but because we don’t want to feel the same searing pain of disappointment we experienced the last time something like this came up and both parties (Andersen Cooper, Vikram Pandit) pussied out at the last second (and because we haven't yet added "Lou Dobbs Tonight" and "Morning Joe" to our regular line-up). Obviously we would be eternally grateful to anyone that can give us some level of assurance here (Dobbs/Morning Joe clip, recently acquired Gold’s Gym memberships, Myoplex receipts, recorded conversations with Charlie Gasparino re: what it feels like to be hit in the face/how one would go about shattering another man’s knee-caps with minimal effort, etc.).

When Journalists Get Stung, The SEC Starts Buzzing

It looks like the Wall Street Journal's James Stewart got caught up in the auction-rated securities trap. And he is not happy about it.

Last year, when some money-market funds turned out to hold some mortgage-backed securities and faced a liquidity crisis, their sponsors stepped in and redeemed the shares at face value. This seemed the only decent course, not to mention a good investment in customer loyalty.

But when I asked a broker at Merrill Lynch if it would do the same for owners of these money-market equivalents, the answer was "no" -- not after the multibillion-dollar write-offs Merrill has taken on illiquid assets. Merrill Lynch and the other big banks that sold these shares have stopped making a market in them, which is a major reason the auctions have failed.

Merrill Lynch, when asked for comment, told me: "We are offering our clients loans which can give them liquidity." It wasn't yet clear whether these would be interest-free loans, which they certainly should be, in my opinion.

He ends the column by calling for the SEC to investigate. "At least two states are investigating, and I would expect them to be joined by the Securities and Exchange Commission," he writes. Since we know SEC enforcement lawyers get their tips from newspapers, you can bet someone has opened a file on this. And with Merrill Lynch playing a central role in Stewart's story, they are probably on the top of the SEC's list.

Risks of a 'Safe' Investment Are Found Out the Hard Way [Wall Street Journal]

Is There A Market Demand For Relative Muni Bond Ratings?

Felix Salmon is skeptical that there is a market demand for bond ratings the differentiate between various issuers. His skepticism, however, is built on a simplistic image of who invests in bonds. To Salmon, it seems that muni bond investors are mostly old ladies in tennis shoes who buy bonds when they aren't protesting water fluoridation. With this image in mind, he simple can't believe that there would be a market demand for muni bonds to be rated relative other muni bonds rather than corporate bonds.

Our response begins with the observation that the alternative is simply implausible. If there is no market demand for the relative rating of muni bonds, why on earth is it happening? Jesse Eisinger hints at some kind of grand conspiracy between the ratings agencies and bond insurers but doesn't really have any evidence for this conspiracy other than the fact that because he rejects the idea—on some principal that's never been articulated—that there's a market demand for relative ratings, he think there must be a conspiracy. This is question begging and violates Occam's razor.

What's more, Salmon's image of bond investors is inaccurate. They are a heterogeneous lot made up of households, mutual funds, pension funds and banks. Even if a good deal of the investors are uninformed, the demand by sophisticated investors at the margin is enough to create the demand for relative bond ratings. Many of these investors have been so sophisticated that they created a demand for services which provide them with the underlying ratings of muni bonds regardless of bond insurance. In short, muni bonds are not the simplistic retail customers Salmon thinks they are.

It may help to take a look at why muni investors require such granular credit analysis. The reason is relatively easy to understand: municipalities have far less and less consistent financial transparency than corporations, especially public corporations. We can see this in the different ways bond prices respond to ratings downgrades. In the publicly held corporate sector, bond prices often don't move much after a ratings change because the ratings are late to the game. The information driving the ratings change is typically already reflected in the bond prices (as well as the stock price). But for municipalities the situation is very different. Without an equity market and free from many financial disclosure rules governing public companies, muni investors are dependent on the ratings agencies to discover information about the financial health of muni issuers. This makes muni investors far more focused on ratings showing small gradations in issuers health than corporate bond investors.

Opening Bell: 2.28.08

searstower.jpgSears Holdings Reports Fourth Quarter and Full Year 2007 Results Has it really been a whole quarter since the last time we talked about a rough earnings report from Sears. It must've been. Net income of $426 million was down significantly from $811 million in the year-ago period. The money line: "Our fourth quarter and full year results continued to be negatively impacted by the worsening economic conditions faced by both our customers and competitors, as well as increased markdowns taken to clear excess inventory."

Movie Revenue Dynamics (Art De Vany)
We linked to it earlier, but Going Private had a really beautiful rant about the whole hedge funds in Hollywood thing the other day. And in case you missed it, you should definitely check out this awesome chart put together by the NYT depicting 20 years of box office data. It's NSFW, but only in the sense that if you're like me, you could get lost playing with it for hours. And the above link is a further discussion, with a chart showing the whole randomness and chaos of the industry.

An unfortunate lack of clarity (Free Exchange)
The job of economic advisor to a Presidential candidate has to be a thankless one. Seriously. You sit them down, explain how stuff like free trade and lack of regulations is actually good in the long run, and the candidate nods all serious, like they really get it. Job done? Then the next day, you see them at the debate and their denouncing free trade, or if not denouncing, pretending to be seriously confused on the matter. How does the candidate look the advisor in the face after having ignored them so roundly in their previous meeting?

Pilots’ Battles Over Seniority Play Havoc With Airline Mergers (NYT)
We've been talking about this pilot seniority issue for awhile, and it's the chief reason we're always skeptical of airline merger rumors, even when the news media says that a deal will occur literally any second now. The NYT takes a good look at the issue of seniority, and explains how it really gets in the way. Megan McArdle argues that this is the fundamental issue with unions: it's not that they fight for higher wages, but that they create structural inefficiencies.

Continue Reading Opening Bell: 2.28.08

Blind Item

Which hedge fund lost a "metric fuckton" (not to be confused with the somewhat larger "Imperial fuckton") on their energy desk over the last several days?

Write-Offs: 02.27.08

$$$ Sailfish Drowns In Credit Crunch, Redemptions [FINalternatives]

$$$ The War on Error [Going Private]

$$$ Blackstone doesn't need banks. [Bloomberg]

$$$ JPMorgan begs to differ. [Bloomberg]

Fox Business Would've Had Her Ride The Unicorn Topless, But Whatevs

From the Horse's Mouth [CNBC]

The (non-embeddable) video above ends with Erin Burnett riding a hobby-horse around set. What’s there to add? Just a slight clarification (the head of the riding-stick on which Burnett gallops is that of a unicorn, not an actual horse, though it follows the hobby-horse construct. We’ll call it a Unicorn Stick ‘til you come up with something better) and some instructions (this clip should be viewed backwards, beginning with Erin Burnett shoving the Unicorn Stick between her legs and humping it around the set. The rest is denouement... and bad puns. Fox Business CNBC programming is getting racier every day).

Credit Suisse Looking To Jump Loan Gun Again?

It looks like Credit Suisse is getting ready to front-run the financing syndicate for the pending $20 billion buyout of Clear Channel Communications. Reuters reporters Jonathan “Keen Eye” Keehner and Brit beauty Megan Davies are reporting that a source tells them the Swiss bank has called potential investors regarding a chunk of the loans and asked what price they would be interested in paying.

Lenders typically attempt to make a coordinated effort to bring loans to market but Credit Suisse has already shown that it is willing to break with this practice. It previously sold off its commitments to the acquisition funding of Harrah's Entertainment Inc.

DealBreaker has been told by sources that Credit Suisse is eager to move its backlog of loan commitments so that it can participate in the financing of new deals at a time when the balance sheets of competitors may still be weighted down by unsold leveraged loans.

CS looks to sell Clear Channel loans - source [Reuters]

Did Auction Rate Securities Ever Have A Natural Success Rate?

When Wall Street withdrew its support for auction-rate securities, many investors discovered their cash is trapped. Their brokers told them their investments in instruments that were marketed as cash-equivalents were suddenly illiquid. Issuers who depended on the securities for financing are being told by their banks that they must refinance, and of course hand over deal fees to the very institutions that allowed the markets to collapse. And now many want to know why the auctions were in such dire condition that the banks decided the cost of supporting them was not longer acceptable.

“How long did they know the auctions were on life support?” one investor with nearly half-a-million dollars in now illiquid auction-rate securities asked DealBreaker.

Continue Reading Did Auction Rate Securities Ever Have A Natural Success Rate?

Huge Congrats, Ben Bernanke

bernanke nyt thumb.jpgNot only did the Beard of Understanding land some prime modeling gigs on the success of his Times spread, but he's reached the penultimate step toward being named Most Popular girl in school (all that's left to do is blow the editor-in-chief of the year book, who tallies up senior superlative ballots). A new CNBC survey of "Wall Street professionals" shows a waning faith in the economy at large but a waxing faith in he who would sooner say the 'r' word than engage in that or any other hair removal process. Thirty-nine "money managers, investment strategists, and professional economists" gave Ben a "B" for his work this month, up from January's "B-." It would've been an "A-" but Charlie Gasparino's mechanic said he was "less than impressed" with the Chairman's work, and failed his Harvard ass.


Fed Chairman Doing Better, But the US Economy Isn't [CNBC]

On Munis, Ratings And Contrarianism

We get called contrarian often enough that we’re nearly resigned to the label. From our perspective, of course, we’re not contrarians at all. We’re so deficient when it comes to having a decent respect for the opinions of mankind that we aren’t even aware of the prevalence or rarity of the positions we take. If we seem contrarian, we suspect it’s just because so many others are wrong so often.

The debate over municipal bond ratings is a good example of this. Over at Portfolio—published out of an august tower located in Times Square—they are convinced that Moody’s, Fitch and the like assign ratings that are too low to municipal bonds. This supposedly forces our towns, cities and states to pay higher interest rates or purchase bond insurance to achieve higher ratings. Jesse Eisinger, who holds the esteemed title of Senior Writer at Portfolio, estimates that this costs municipalities around $5 billion a year.

Continue Reading On Munis, Ratings And Contrarianism

Guess Who's A Fan Of Himself?

Hint: A former hedge fund manager, this guy once accused the S.E.C. of raping him.

Continue Reading Guess Who's A Fan Of Himself?

UBS Chairman Refuses To Leave, Now Ready And Willing To Make This Thing Work

Despite being told by shareholders in general to hit the bricks and by one in particular (Salvatore Cordello, real name) that he’d turned the bank into a “casino,” Marcel Ospel (proverbially) chained himself to the front door of UBS this morning, where he vowed to remain until this so-called “financial crisis” is over. Ospel also made it clear that he’s not in this to make friends (telling the crowd of 6,500, "Popularity isn't the benchmark by which I or the board of directors measure our actions"), nor is he in this to make money (“As you probably already know, results aren’t the benchmark by which I or the board of directors measure our actions, either") a motto the sources in our head tell us he ripped off from Stan O’Neal. Though he chose not to offer any specs on how exactly he plans to put this Swiss bank back together again (we’re hoping for more write-offs, that shit's adorable), Ospel promised to make sure “UBS gets back on the road to success, right after this rousing game of Trader Face or O-Face.”


UBS Chairman Focuses on Turnaround [WSJ]
Trader Face or O-Face? [Details]

Phenomenal News...

oscarsmall.jpg…for all the cross-dressing enthusiasts in the audience (survey says 37 percent). Oscar De La Hoya will be ringing the closing bell at the NASDAQ this Thursday. Will he play it safe in a standard issue silk shorts and robe combo (the appearance is to promote pretty boy’s May 3rd fight), or sate all your appetites with something more appropriate, like fishnets and high heels? Stay tuned.


Oscar De La Hoya to Ring the NASDAQ Stock Market Closing Bell [Yahoo! Finance]

Doesn't *Quite* Answer Our Question But FYI, Goldman Is Letting People Out, If Not In

A friend o' the fired fills us in:

"It's more than just a hiring freeze - yesterday in IBD an MD, VP, and Associate were shown the door in Industrials and two Associates were canned in NR."

Hiring Freeze At Goldman Sachs?

Could be. It’s what we hear, anyway, from several job-seekers told recently that the Masters were unable to start or continue the interview process. That’s all we’ve got at the moment (obviously we encourage you to share any harder or softer information at this time). For now, let’s just try and send some positive vibes Goldman’s (and really everyone's) way, with a little something we like to call:

Continue Reading Hiring Freeze At Goldman Sachs?

Another Alphabet Soup Ready To Run Off The Rails

If it's a day that ends in the letter y, it's probably time to learn about problems in another dark corner of the credit markets. On the lesson plan for today are financial creatures known as variable interest rate entities. These were known as special purpose vehicles, or SPVs, until Enron tarnished that designation for off balance-sheet assets and liabilities. Rather than quitting the SPV business altogether, Wall Street simply adopted a less familiar name and kept right on keeping on.

Now bond research firm CreditSights tells us that VIEs may contribute as much as $88 billion in losses for financial firms. Goldman Sachs, which has done so well in avoiding the worst of the self-harming habits of Wall Street, has warned that it may incur as much as $11.1 billion of losses from VIEs. That's just a few hundred million short of Goldman's earnings for all of last year.

So what went wrong with the VIEs? Stop us if you've already heard this one. They are loaded up with assets such as subprime mortgages, and financed with commercial paper. As their assets get downgraded, investors shy away. The banks have agreed to back the VIEs with line of credit, meaning they wind up buying the commercial paper and notes from the VIEs when no one else will. The troubles of the bond insurers, of course, play a role. If Ambac gets downgraded or split, the assets of the the VIEs will likely have to be written-down. So, yes, once again the off-balance sheet liabilities find their way back onto the balance sheets of the banks.

"The disclosure on VIEs is hopeless,'' S&P's Tanya Azarchs tells Bloomberg. "You have no idea of the structure or how that structure works. Until you know that you don't know anything. It's like every day you come into the office and another alphabet soup has run off the rails."

Update:
A reader asks a fair question: what's the difference between a SIV and a VIE? Well, we used to actually do some work structuring these things back in the days before DealBreaker. The way we remember it is that SIVs are actually a subcategory of VIEs. What we think is being discussed here is another type of VIE, the asset back commercial paper conduit or ABC paper conduit. Although officially off balance sheet, the ABCP conduits are usually backed by credit lines from the banks (whereas SIVs weren't usually officially backed by the banks). When they can't roll over their short-term commercial paper financing, they can turn to the banks to refi. This means they are less risky for outside investors but more risky for the bank parents. Got it?

Goldman, Lehman May Not Have Dodged Credit Crisis [Bloomberg]

Mysterious Mistakes At Merrill

In a filing with the Securities and Exchange Commission on Monday, Merrill Lynch said its cash flow statements for 2005, 2006 and the first three quarters of 2007 were wrong. The statements overstated cash provided by derivatives financing transactions. But, lucky for them, they made another mistake, overstating cash used for trading liabilities. So no big deal, right? Take a little from here, add a little there. It offsets.

Except that we have no idea what this means. What exactly did Merrill get wrong? The actual filing is extremely vague about these errors and it would be helpful to know how and why these were made. It's hard to be confident that Merrill understands its exposure to various derivatives if it only discloses non-specific errors and provides no detail. Anyone care to venture a guess what Merrill's mistakes were?

Merrill 8-K [ML.com]

Opening Bell: 2.27.08

robtollcrane.jpgToll Brothers Swings to Loss (WSJ) The big homebuilder, whose properties you sometimes see in NYC, reported a loss of $96 million, down from $54.3 million. Net signed contracts in the quarter fell 50 percent to $375.3 million. None of this sounds too surprising. The company did do a $153.3 million after-tax writedown, so it sounds like they would've otherwise been profitable, which may be the biggest surprise, unless we're misinterpreting. Here's the announcement. Here's one of the reasons the company is having a rough go of it, according to Robert Toll: "Ceaseless talk of a recession continues to dampen the mood of consumers in general, whether or not a recession actually occurs. For home buyers, we believe this drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines." Hey Rob, want us to stop talking recession? Make some money! See it goes both ways.


2008 Dem Nominee (Intrade)
If the markets are to be believed, HRC didn't do anything to help her case at last night's Dem debate. The former first lady now trades at a mere $.16 on the dollar -- Obama trades at $1.00 minus that. We didn't watch, suffice to say, past the first two minutes, since we had an unwatched episode of The Wire on the on-demand deck. Man, The Tribune Co... where will they cut costs next?

Sustainable Industrialized Food? (Check Out)
Ok, so we're totally addicted to a new blog. It's the Check Out blog and it's a group blog written by product buyers at Wal-Mart -- officially sanctioned of course. And it's actually provocative, which is unheard of for a corporate blog, save a few. It was the first source to disclose that Wal-Mart was dropping HD-DVD, and today it talks about the book The Omnivor's Dilemma, and how that relates to Wal-Mart's items. Is it all a lot of PR? Concievable, but it's got a certain fresh quality to it. Other recent posts have to do with toy safety and Apple TV.

Roubini: Recession May Last Up to Six Quarters (Big Picture)
Whenever they trot out a real bear, you know, a bear's bear, it's Nouriel Roubini, who's been calling for a deep recession for some time. Over at Big Picture, a video of him predicting that a recession will last for six quarter. Okay, that'd be rough, but that's just like a year and a half. We can get through that, no? By the way, the prognosticators at a buyouts conference also put the credit crunch end at about 18 months, so maybe there's some wisdom of crowds going on here. Or maybe this just seems like a safe number. Not too long, not too short.

Continue Reading Opening Bell: 2.27.08

Write-Offs: 02.26.08

$$$ Deals: The Return of Billion-Dollar M&A?
In our M&A Roundup for the week ended Feb. 24, five sizable transactions make acquisitions seem in vogue again — at least for now. [CFO.com]

$$$ Massage exchange? [craigslist]

$$$ LifeCell Corp. (LIFC) [WallStrip]

Is Muni Bond Insurance A Racket?
The Portfolio Gang Responds!

Although it looks like MBIA is now out of the woods, rival bond insurer Ambac’s fate is still murky. Reports indicate that the ratings agencies are now considering the rescue plan worked out by banks and state insurance regulators. The plan may be revealed as early as this week, and will probably involve splitting Ambac in two to segregate the municipal bond insurance business from the less healthy business of insuring riskier credit products.

Last week Holman Jenkins pointed out that segregation is unfair to customers who bought insurance on CDOs because it would “retroactively award municipal clients privileged status at the expense of other clients with equal claim on the insurers.” Bill Ackman, who has been shorting the bond insurers for years, raised a similar point. Indeed, Jenkins expects that the policy holders left with guarantees from the suddenly even more precarious side of the business will launch lawsuits to prevent the break-up.

There’s also a much stranger objection to the segregation plan, one stemming from an objection to the very existence of municipal bond insurance. We first heard about it in Portfolio, of all places. In the latest issue Jesse Eisinger argues that municipal bond insurance is a scam, and it’s victims are municipal governments. This will no doubt come as a surprise to state regulators and treasuries who have been on knife’s edge fearing that the collapse of the bond insurers would make raising money costlier or, in some cases, perhaps impossible. If the governments are the victims here, why exactly are they working to keep the victimization going?

Continue Reading Is Muni Bond Insurance A Racket?The Portfolio Gang Responds!

Could Not Agree More

Unless you work at Merrill, where you could be coughing up blood and they'd tell you to swallow and get back to work (in their defense, iron is a necessary nutrient).

It Was This Or Trying To Use The Excuse That O'Neal Couldn't Reschedule Thursday's Tee Time

mozilo.jpgA congressional hearing set to showcase the vocal stylings of Stan O’Neal, Chuck Prince and Angelo Mozilo with showstoppers on how they lost their companies trillions of dollars but still made out like bandits themselves has been postponed due to the sudden death of the tan one’s mom. We know what you’re thinking but let us be the first (and only?) to say there probably wasn’t any foul play at hand, considering that it was Crocodile who forfeited $37.5 million in payments tied to the BoA deal while Prince and O’Neal decided to keep their $68 million and $161 million, respectively, i.e. Moz is the least likely candidate among the three to pull a stunt. The timing is helpful, though, considering he hasn’t yet come up with a plausible explanation to account for the missing singles his staff wasn’t able to find the time he threw $500,000 in small bills out a plane window over a cattle ranch in Montana, and made them pick up the scratch during a blizzard. That one's going to take a few days. A half-assed “Strippers” isn’t going to pass the sniff test.


Congress' executive pay hearing postponed [CNN Money]

Comcast Packed The Net Neutrality Debate At Harvard

Napping For Comcast.jpg

Yesterday a cameraman for the Free Press caught two members of the audience napping during an FCC hearing on net neutrality at Harvard Law School. Now we don’t blame them for snoozing through a meeting about net neutrality—our eyes glaze over just thinking about it—but it does raise the question: why would you go to an FCC hearing if you are bored by that type of thing?

Portfolio’s Sam Gustin has answered the question: they were there because cable giant Comcast paid them to be there. Comcast had planned to pack the meeting with its local employees, and had paid some people off the street to show-up early and hold places in the line for the employees.

“Some of those placeholders, however, did more than wait in line: they filled many of the seats at the meeting, according to eyewitnesses,” Gustin reports. “As a result, scores of Comcast critics and other members of the public were denied entry because the room filled up well before the beginning of the hearing.”

Money can't buy you love, but it can buy you napping bodies to keep your critics at bay.

Comcast Astroturfs the Old-Fashioned Way [Portfolio.com]

Elliot Accuses Cedar Of Espionage

New York-based hedge fund Elliot Associates filed suit today against Cedar Hill Capital Partners, claiming Cedar schemed to “literally steal [proprietary] software in order to use it for its own trading activities,” an act Elliot deems “nothing short…of corporate espionage.” The software in question is used to analyze fixed-income securities for trading CDOs, and according to the firm, took upwards of two years and millions of dollars to develop. Shed some light time: Elliot manages around $10 billion so it wouldn’t be so far fetched to think Cedar Hill might want some of that. Then again, the firm is run by Paul Singer, who a quasi-reliable source tells DealBreaker is “John Nash-paranoid.” (Who isn’t?)


(It’s times like these that I can’t help but thinking since it’s sort of a fact that at least half of you snakes are going to pull these stunts anyway, why not level the playing field from the start and just say, “Anything goes,” like Ultimate Fighting and whatnot? Then we could spend less time having these petty little arguments and more time trying to guess how many phone books Adam Sender has to sit on to clear the dashboard-- standard Price Is Right rules apply.)

Elliott Sues Cedar Hill For Spying, Stealing [FINalternatives]

Non-Dairy Creamer

rachaelray.jpgSympathies to my Starbucks junkies in the audience who need it between the hours of 5:30 and 8:30 pm—the drug pushers are closing up shop for three hours tonight to re-train the 135,000 baristas that didn’t get fired last week on how to make your bullshit drink. CEO Howard Schultz said he thinks the tutorial will “foster enthusiasm [among] employees” which is an interesting take on the situation. (He also noted that the evening’s event is “a bold demonstration of our commitment to our core and a reaffirmation of our coffee leadership” which I’d been more inclined to buy if they could offer some level of assurance that ritual sacrifice will be involved.) The opportunistic leeches at Dunkin’ Donuts, in order to “ensure that no coffee lover is denied a delicious espresso-based beverage” will be selling lattes, cappuccinos and espresso drinks for the Suck It Starbucks promotional price of 99 cents from 1 p.m. to 10 p.m.

Speaking of Dunkin Donuts, after the jump, a word from DD spokeswoman Rachael Ray. Don’t bother with headphones; this is something you'll want everyone within earshot to enjoy.

Continue Reading Non-Dairy Creamer