• News

    Someone Forgot To Immunize Citi For Allegedly Lying To CDO Investors

    Always remember to put the broadest possible disclaimers of liability into all your marketing documents and contracts. It’s not like anyone is going to read those things anyway, at least not until they’ve already lost $1 billion.

    / May 9, 2014 at 3:10 PM
  • Unfair to put Sergio Ermotti here but whatever, you knew what you were getting into when you took over UBS.


    UBS Ripped Off Some Synthetic CDO Investors Because That’s Just What You Did In 2007

    The SEC settled a little crisis-era CDO fraud case with UBS today and the fraud is pretty entertainingly shitty. Basically UBS provided the warehouse for a synthetic CDO where the notorious ACA was the collateral manager, and the disclosed deal was that, when the CDO closed, it would enter into (as protection seller) any CDS […]

    / Aug 6, 2013 at 4:13 PM
  • 163213-fabrice-tourre-of-goldman-sachs-prepares-to


    Jurors In Tourre Case Approached Deliberations With Razor Sharp Intensity, Ideas For Production Team Casting The Banker And The Emoticon

    To help inject humor into what was an otherwise intense process, Ms. Rhett said she and other jurors compared the lawyers’ likenesses to actors. “I’m only going to say that there was someone who looked like Dan Aykroyd, someone who looked like Kevin Spacey and someone who looked like a cross between Patrick Stewart and […]

    / Aug 5, 2013 at 12:11 PM
  • We still love you Fab!


    Fabrice Tourre Will Never Sell Synthetic CDOs In This Town Again

    Poor Fab! I, for one, was utterly persuaded that he didn’t commit securities fraud by sending an email that he admitted was “not accurate” but not “false,” but the significance of that distinction seems to have eluded the jury: A federal jury found former Goldman Sachs Group Inc. trader Fabrice Tourre liable for misleading investors […]

    / Aug 1, 2013 at 4:22 PM
  • winkemoticon


    Fabulous Fab Jury Not As Turned On By Talk Of CDO’s As One Might Have Hoped

    Presumably, out there in the universe exists at least a handful of people for whom words and phrases like “Which tranche of this collateralized debt obligation would be the fulcrum security in a liquidation scenario?” constitute foreplay, or, at the very least, interest them in the slightest/don’t cause them to nod off like they just […]

    / Jul 31, 2013 at 2:50 PM
  • I hope he is the best witness. He seems like he would be. Good luck today Fab!


    Fab Tourre’s CDO Deal Wasn’t Complicated Enough

    If you wanted to short the housing market in 2007 you could just buy protection on mortgage-backed securities via a synthetic CDO, and that’s what John Paulson did in the Abacus deal, for which Goldman Sachs and Fab Tourre got in trouble. But the problem with that is that buying protection costs money; just for […]

    / Jul 24, 2013 at 10:53 AM
  • If I were Fab I'd just get up on the stand and be like "I told those dopes at ACA like fifty times that Paulson was short, I don't know why they heard the opposite." At this point wouldn't you believe him over a bunch of people who are all "I don't remember who told me what"?


    SEC’s Witnesses Against Fab Tourre Have Nothing But Nice Things To Say About Him

    I haven’t been following Fabrice Tourre’s trial all that closely but I gather that the main evidence against him is that a Goldman saleswoman, Gail Kreitman, told her client ACA Capital Management that Paulson & Co. was going to be a long investor in a CDO called Abacus. That turned out to be false, and […]

    / Jul 23, 2013 at 12:35 PM
  • I can't even any more


    Judge Doesn’t Believe S&P That No One Believed In Its Ratings

    The judge hearing the Justice Department’s CDO-rating lawsuit against S&P refused to dismiss it yesterday, rejecting S&P’s much-mocked theory that its pre-crisis claims of independence and objectivity and, like, plausible ratings were just “puffery” that no one should have taken seriously. Here is the story, and here is his opinion, and here is a rhetorical […]

    / Jul 17, 2013 at 5:06 PM
  • sinking_cargo_container_ship


    Everyone In The Fabrice Tourre Case Knows Exactly What’s Going On Except The Jury, Judge, And Witnesses

    “I think the jury was lost,” John “Sean” Coffey, a lawyer for Tourre, 34, said during a break this morning in the testimony of Professor Dwight M. Jaffee, called to the stand to describe the collateralized debt obligations at the heart of the case. “It is critical that they understand how a synthetic CDO works.” […]

    / Jul 16, 2013 at 5:32 PM
  • I would not look this jolly if I were testifying before Congress.


    SEC Doesn’t Want Fabrice Tourre Telling A Jury That The Guys He Ripped Off Deserved It

    Fabulous Fab Tourre is on his way to trial in the SEC’s securities-fraud lawsuit over the Abacus synthetic CDO he built at Goldman Sachs for John Paulson, and Andrew Ross Sorkin has a column today about all the things that the SEC doesn’t want him to be allowed to say to the jury. You should […]

    / Jul 9, 2013 at 3:34 PM
  • vigorous AND authoritative


    Lynn Tilton Gets Some Good News

    “There are three universal lies: Margins are weak, but we’ll make it up in volume; the check’s in the mail; and I won’t come in your mouth” is really a thing that Partiarch Partners founder and CEO Lynn Tilton says, but “we’ll double down and make up all our losses” probably deserves a spot on […]

    / Jun 11, 2013 at 5:52 PM

    Goldman Sachs

    From Now On Goldman Will Only Sell A Product To Clients If Some Goldman Partners Understand It

    I can’t find the quote but I recently read someone arguing that you should never worry about anything you see on the news. By definition, the argument goes, horrible things that make the news are newsworthy, and they are newsworthy because they are rare, and so the odds of you dying in a terrorist attack, […]

    / May 24, 2013 at 3:11 PM
  • News

    UBS to SEC: Let’s Make A Deal. Maybe.

    UBS would like to make a mortgage-backed securities case—apparently linked to every other mortgage-backed securities case—go away.

    / Mar 26, 2013 at 10:22 AM


    Controversial New Theory: S&P Got A Few Ratings Wrong

    One day – one day soon – the Justice Department will sue S&P for mis-rating a bunch of CDOs, and when that happens let’s all read the complaint and then meet back here to discuss it, okay? [update!] In the meantime we have S&P’s preemptive denial: A DOJ lawsuit would be entirely without factual or […]

    / Feb 4, 2013 at 5:10 PM
  • Do you worry that a modern-day CDO structurer wouldn't even know what Mike Tyson's Punch Out is? Or exist, for that matter?


    Morgan Stanley Finalizes Its Entry In The “Who Said The Worst Things About Its Own Products?” Competition

    One thing that would probably be fun would be reading the internal emails sent around at the places that bought terrible RMBS CDOs in the end times of 2006-2007. What did they say? Was it “these mortgages are worth twice what Morgan Stanley is selling them for! We are ripping their faces off”?1 Was it […]

    / Jan 23, 2013 at 4:58 PM
  • I would be a sucker for deals named after adorable yet vicious dogs.


    Timberwolf Continues To Stalk Goldman Sachs

    Financial product salespeople, if they know what’s good for them, should be thankful for car dealers. Not used car dealers, either, new car dealers: because of the world’s familiarity with their business model, if you sell a client a product at 100 and then tell them the next day that it’s worth 95, you have […]

    / Oct 22, 2012 at 4:22 PM
  • vikrampanditshades


    Citi Pays $590mm To Settle Lawsuit Over Not Selling Crappy Mortgage Bonds

    Citi settled a CDO case for $590 million today, and if you are following along at home you’ll note that that is more than 2x as much as it settled its last CDO case for. There are a number of reasons for that but a big one is: in this case, Citi is in trouble […]

    / Aug 29, 2012 at 6:31 PM
  • Jed Rakoff is (1) the judge in the case and (2) delightfully smiley.


    Federal Jury Doesn’t Want SEC To Take This The Wrong Way, But It Thinks This Citi CDO Case Is Bullshit

    So remember when Citi did that thing that was all the rage in 2007 where they constructed a synthetic CDO referencing mortgage-backed securities in order to facilitate their own prop bet against those MBS, but then maybe inadequately disclosed to investors that they were in fact naked short those MBS? And then they got sued […]

    / Jul 31, 2012 at 5:29 PM
  • News

    Quis Custodiet Ipsos Egan-Joneses?

    Let’s not stop there with the clichés.* Here’s a great one: “never attribute to malice that which can be adequately explained by stupidity.” In applied form: your model of all the AAA mortgage CDOs that were maybe not so AAA could be “ratings agencies were paid by banks so they were venal and corrupt and sold the banks good ratings on products they knew were bad.” Or it could be “ratings agencies created medium-dumb criteria to make a thing be AAA, and bankers who were smarter than medium-dumb arbed those criteria to make more things be AAA than should have been AAA.” The incentives model has good economic theory behind it, and some suggestive evidence; the stupidity model has that lovely cliché but also some evidence, about which more later.

    But first hilarious contrarian ratings agency Egan-Jones is in trouble:

    / Apr 19, 2012 at 3:53 PM
  • Banks, News

    Today In Swiss Banks With Creepy But Defensible Structured Products

    I don’t really understand it but the TVIX thing is creepy fun. If you haven’t followed it, Credit Suisse issued this exchange-traded note called TVIX that was a 2x levered bet on the VIX. They suspended new issuance about a month ago due to position limits, and people were just so damn excited to own the thing that its price crept up to 189% of its fair value, where “fair value” is a reasonably easily measurable thing based on the formula in the TVIX prospectus. Then last week Credit Suisse announced that they would be creating more units, and the price plummeted to and then through fair value, which is what you’d expect to happen. Except that it started plummeting a few hours before that announcement, which is Suspicious.

    So of course people are sad and so there’s a Bloomberg Brief with sort of sad-funny quotes like:

    “When it started to fall, I bought more because I couldn’t believe how low it was going. I didn’t realize I was playing with a hand grenade.”
    – Michael Gamble [heh! – ed.], 67, who doubled down on his TVIX investment before the price collapsed.

    Investors “all think: ‘Oh, I’ll just buy these things, I’ll be hedged against volatility and everything will be wonderful.’ And now they’ve seen the market goes down and their volatility protection goes down too, and they’re going ‘Hmm, what happened here?’ These people are going to have to pay a really expensive lesson.”
    – Larry McMillan, who manages $30 million as president of McMillan Analysis Corp.

    So, yes, Larry, they are going to pay a really expensive lesson. But what is it? Stephen Lubben has a little thing in DealBook today where he frets:

    / Mar 29, 2012 at 6:27 PM
  • sergio ermotti


    Court Finds That UBS Exploited Clients And Tricked Them Into Overpaying For Toxic Securities, But In A Legal Way

    This is kind of exciting: a bank won a CDO case! Or: something nice happened for UBS! So the story goes like this (from the court opinion): in March 2002, UBS did a synthetic CDO deal called North Street 2002-4 with Landesbank Schleswig-Holstein, a German landesbank, where LSH (now called HSH, due to mergers probably […]

    / Mar 28, 2012 at 12:35 PM
  • jed-rakoff-21


    Appellate Court Willing to Entertain the Possibility that Citi Was Not Committing Fraud

    I’ve had some fun these last few days proposing counterintuitive theories for why Citi might not suck as much as you probably think it does and it’s nice to see others joining in the pastime, even if this sounds a little far-fetched:

    The district court’s logic appears to overlook the possibilities (i) that Citigroup might well not consent to settle on a basis that requires it to admit liability, (ii) that the S.E.C. might fail to win a judgment at trial, and (iii) that Citigroup perhaps did not mislead investors.

    That piece of rank conjecture is from the Second Circuit’s opinion on an appeal* of Judge Rakoff’s rejection of the settlement between the SEC and Citi over some mortgage-backed securities. Here’s DealBook:

    / Mar 15, 2012 at 7:27 PM
  • News

    When The Junior Analyst And The VP Disagree About The Model, Who Is Likely To Be Right?*

    Carrick Mollenkamp is a great reporter who currently owns one of my favorite niches: finding insider moles to bring to light behavior at big financial companies that is ambiguously squicky. Today he’s got one that’s close to my heart, and here it is: a junior analyst at Deutsche Bank disagreed about a technical modeling question […]

    / Jan 19, 2012 at 6:40 PM
  • News

    Europe Needs A Better Blender

    I guess we should talk about Europe and credit ratings. Now France isn’t AAA and Italy isn’t A and Portugal isn’t investment grade and here is something that someone at S&P actually said: Our role is to give timely information to investors and if you give them timely information, if you give it to them […]

    / Jan 17, 2012 at 11:58 AM

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