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 “I looked through a representative sample of the mortgages underlying the collateral in this deal and I think the yield more than justifies the risks”? Was it “my asset-level diligence was light because my macro view is that house prices will go up a lot in the next 18-24 months”? Was it “we have to invest $100mm somewhere and this gets 2bps more yield than other AAA-rated options”? Was it “I don’t know that much about mortgages but I sure am glad we can trust our friends at Morgan Stanley to put us in such a high quality product as this here CDO”? The possibilities are endless and, I think, fascinating: each trade has two sides, and each side has a view, even if that view is sometimes more of a vacant stare.
But the arrow of lawsuits runs only one way so instead we get this:
On March 16, 2007, Morgan Stanley employees working on one of the toxic assets that helped blow up the world economy discussed what to name it. Among the team members’ suggestions: “Subprime Meltdown,” “Hitman,” “Nuclear Holocaust,” “Mike Tyson’s Punchout,” and the simple-yet-direct: “Shitbag.”
The shitbag email chain is part of a collection of internal documents produced in China Development Industrial Bank’s lawsuit against Morgan Stanley over this “Stack 2006-1″ CDO deal that Jesse Eisinger describes today in DealBook and ProPublica. Morgan Stanley has issued the standard “these emails were just a joke and have nothing to do with anything” statement,2 and while normally that is just a meaningless lie that you say after your employees are caught sending around emails saying “this deal is shit, no, I mean it, this deal is composed of actual feces, I am not kidding, come look” – the emails here aren’t that bad. Basically they were like “ugh we gotta name this deal before we print it” and everyone was all “what about Macalester Albermarle Roundtree Paddington Pemberley Structured Finance Limited” and one dope replied with some gallows-humor names. In March 2007. When it was A SUPER DUPER SECRET that subprime mortgages were in trouble:3 Read more »