We wondered if Ken Lewis bothered to read the Material Adverse Change clause for the Merrill Merger very carefully. Either he did, and managed to pull off a fantastic bluff over Paulson’s head, or he paid as little attention as anyone else. We took a look at the details yesterday in: What Was Lewis Really Up To?
We aren’t the only ones to notice, it seems. The always interesting Credit Writedowns caught the story today: BofA’s MAC clause was as porous as swiss cheese quipping:
The latest news is stunning: Bank of America’s MAC clause could probably never have been invoked because it had a specific exclusion for the deteriorating prices of legacy assets on Merrill’s books.
As a regulator, what do you do when you have absorbed massive amounts of encumbered or otherwise distressed former CDO assets from a bunch of blown out former financial institutions? Well, if anyone here is old enough to remember the Resolution Trust Corporation, you already know. You make another CDO out of it, but this time you change the name, put the word “trust” in it, and offer up to 80% of seller financing. It’s a leveraged CDO. Oh, and you keep an equity tranche for yourself. Sound familiar now?
In essence, that’s what the RTC did with the sludge left over after the Savings and Loan Crisis. It’s already been tried in this particular crisis too (do we have an official name for it yet?) Lehman, among others, put together a private partnership, sold toxic assets into it and gave the buyer seller financing just a few months ago. (See how well that worked?)
Of course, the argument is that the incentives are better positioned to effectively liquidate the assets which you really don’t want the Fed et al hanging on to that long. But CDOing a CDO just rubs me the wrong way. So, when it comes out that Paulson is shopping around a similar idea, well….
I wonder what the partnerships will have for credit ratings.
To fuck you again! Just kidding. We have no idea if that’s the master plan, but would it be so crazy to assume that John “Forclosure is Your Friend” Paulson is starting a fund to provide capital to financial firms hurt by mortgage writedowns in order to get them back on their feet just before telling people he’s been “hearing things” about liquidity issues but, more importantly, overly friendly interactions between whoever’s running the big ones at the time and petting zoo residents, and shorting the entire sector, all the while working on a passion project entitled “Convince Moz to Start a New Lender”? We submit it would not.
Paulson & Co. Plans Fund to Provide Capital to Banks [Bloomberg]
Ben Bernanke and Hank Paulson are currently testifying before the House about current economic conditions. Besides staring at Hank’s sports watch while a congressman complains about the scarcity of student loans, we’ve also been enjoying Bernanke’s back and forth with the representatives.
One congressman challenged Bernanke directly, attacking the federally-sponsored buyout of Bear Stearns and widening of the discount window as an unjustified use of taxpayers dollars and needling Bernanke about the mistakes made by the Fed in 1929. Another demanded that he wait for Congressional approval before organizing another buyout.
Read more »
Hey, so I was doing this story, you know, for my job with the Post? Yeah, yeah, I know. Anyhow, check it. Believe it or not, this guy John Paulson, he is this guy who made a lot of money by shorting sub-prime. I mean a lot. Like enough to buy Bear Stearns. Or enough to buy Delta Airlines. Like, with change. No, really. He did it by shorting stock. You know, when instead of buy low, sell high, you sell high and buy low. Cool huh? Yeah, and he made like a billion percent! And this one time, Congress was going to try and raise the tax on all these hedge fund guys like Paulson. But that didn’t work. Anyhow, all these rich hedge fund guys, they get all this money and homeowners can’t even buy eggs and sugar. But that’s capitalism, you know? Sometimes you get the bull, sometimes the bull gets you. Is that how it goes? You know what I mean.
No, I can’t talk for long. I have to go do a story on Britney Spears’ manager’s bank accounts. No, I know but it’s better than all these student loan stories and local debt stories they have had me doing. What? Oh, I don’t know. They have had me doing these business articles since last year. Yeah, I don’t know, I miss Columbia.
No, yeah, I gotta go to. My editor wants some coffee. See ya!
1 Man, 1 Year: $3.7 Billion Payout [Washington Post]