tag:blogger.com,1999:blog-4815867514277794362.post1698634433583859530..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Thinking about the Abacus signJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger43125tag:blogger.com,1999:blog-4815867514277794362.post-43124326259541251562011-11-09T07:23:23.545+11:002011-11-09T07:23:23.545+11:00http://www.rollingstone.com/politics/blogs/taibblo...http://www.rollingstone.com/politics/blogs/taibblog/owss-beef-wall-street-isnt-winning-its-cheating-20111025Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-83683292338924012592011-11-03T06:07:19.645+11:002011-11-03T06:07:19.645+11:00The biggest fallacy with this sign is not whether ...The biggest fallacy with this sign is not whether the exposure was cash or synthetic, but the words "you knew they would fail."<br /><br />That's easy to say in hindsight, but not in 2006 when Abacus and similar deals were created. In those days, CDS on lower-tier BBB-rated subprime RMBS traded at approximately 250 bps. Right now, Spain CDS is at 400 bps and Italy is at 500, which means the market believes there's a greater probability they will fail than subprime RMBS in 2006.<br /><br />Was not disclosing Paulson's role in shorting the assets a material omission? In my opinion, probably. However, there was also a manager (ACA?) whose role it was to "pick" the assets, so I'm not sure it would have made a difference to IKB and other investors.<br /><br />Finally, keep in mind that there were plenty of other similar deals in which a manager actually did diligently select the assets, with no hedge fund involved. Not surprisingly, the AA tranches in those deals were more expensive than the Abacus/Magnetar deals. IKB could have bought those but apparently chose the higher-yielding Abacus tranches. <br /><br />At the end of the day, EVERY deal backed by subprime RMBS blew up, so you perversely argue that IKB actually benefited from investing in Abacus vis-a-vis alternatives because they received a higher coupon for some period of time (not to mention the settlement proceeds!)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-3674595751092397352011-11-01T05:32:24.125+11:002011-11-01T05:32:24.125+11:00There was a time when Goldman was very happy to ac...There was a time when Goldman was very happy to act as agent and not principal. That was when Goldman had a good reputation. As a client back then I found them the gold standard for brokers.<br /><br />Somewhere in the early 90s Goldman realized that some of their clients were much much smarter than them and began to hire to compete with those clients. This lead to Goldman doing Prop trading.<br /><br />There is a big difference between being "long term greedy" in a partnership and being a bonus compensated employee. Same goes for Hedge Funds on 2/20.<br /><br />I think anyone who buys any issue must do their own due diligence. If you don't you're a fool. <br /><br />But a broker who will rip a stupid customer's face off is not being long-term greedy. It is short-sighted and bad for society and the markets. It is possible to kill the golden goose if you poison the well too badly.<br /><br />I have very little use for 95% of brokers these days.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-17429768544253102682011-10-30T10:18:01.114+11:002011-10-30T10:18:01.114+11:00The woman's name is Caitlin Curran. She was a ...The woman's name is Caitlin Curran. She was a journalist and was fired for the photograph. Interesting since the sign itself is in my opinion pure motherhood. People might disagree about whether the sign reflects what really happened at a certain bank but surely there is no argument that the sign is correct as a statement of principle?<br /><br />http://gawker.com/5854118/how-occupy-wall-street-cost-me-my-jobAbsalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-87090954548819470072011-10-28T13:04:33.701+11:002011-10-28T13:04:33.701+11:00Any time we buy a security we know that most and u...Any time we buy a security we know that most and usually an overwhelming majority of other investors do not hold that security. The implication is that for most securities, most of the time, most investors think the security is over-priced.Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-37465442354007273002011-10-28T03:32:22.647+11:002011-10-28T03:32:22.647+11:00Your point about the obtuseness of the sign is wel...Your point about the obtuseness of the sign is well-taken. The investment scene is a battleground of contrary opinions; the warm and fuzzy socialistic idea that we should all get together in solidarity appeals only to people who ignore this diversity of opinion.<br /><br />But I think you are making too much of the distinction between bettors, including derivatives purchasers, who know someone is betting directly against them and ordinary (long) investors. The long investor knows he is buying the security from someone who, at best, no longer finds it an attractive holding, contrary to his own attitude. In buying a share of IBM stock, for example, he knows there are people who are *short IBM*; what difference does it make whether his counterparty *in this particular purchase* is a short or a long (an *ex-long*, that is: someone who is *terminating* a long position)?Philonoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-77518282096465523332011-10-27T21:38:44.752+11:002011-10-27T21:38:44.752+11:00These arent two private individuals or two compani...These arent two private individuals or two companies whose shareholders will pick up the tab.<br /><br />These are two TBTFs, both of which (IKB and Goldman) had to be bailed out by the taxpayers of their respective countries.<br /><br />Ultimately it was German taxpayers who paid for Abacus blowing up.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-37077319182618343152011-10-27T08:30:58.598+11:002011-10-27T08:30:58.598+11:00It would have been easier to say, "Banks used...It would have been easier to say, "Banks used to service their clients, not screw them."Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-30585160001681321862011-10-27T02:01:51.938+11:002011-10-27T02:01:51.938+11:00Yea, but she is quite pretty....Yea, but she is quite pretty....Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-5419499999888461252011-10-27T01:28:21.348+11:002011-10-27T01:28:21.348+11:00John, I think you're missing the point here. ...John, I think you're missing the point here. Of course there is a counterparty to every CDS. However, there is a big difference between these two scenarios: (A) Goldman selects a portfolio of loans that they think are undervalued and goes out and sells protection on them in the open market thereby creating a basket of CDS for IKB to invest in, and (B) a noted short-seller selects a portfolio of loans that they think are trash and buys protection from IKB on those names, with Goldman colluding to conceal their involvement from IKB. IKB signed up for (A) but they got (B). That's a major difference.o. natenoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-43731127934471179792011-10-27T01:04:22.980+11:002011-10-27T01:04:22.980+11:00John, Two days ago I posted an article on my blog ...John, Two days ago I posted an article on my blog - www.emergingmarketsoutlook.com - addressing precisely this issue, including the SEC case that Citigroup last week settled for $285 million. Leaving aside disclaimers about not admitting any wrongdoing, no one parts with that kind of scratch (in Goldman's case, $550m) if they are truly convinced they have done nothing wrong. Yes, IKB and Ambac (the CDS issuer that went bankrupt when the Citi portfolio turned to dust) are grown-up investors who perhaps should know better. But Goldman and Citi are not mere arm's-length traders; they also act as advisors to their clients. One more reasons banks should not be allowed to bet their own capital.Charles Krakoffhttp://www.emergingmarketsoutlook.comnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-79739704458219760862011-10-27T00:45:11.163+11:002011-10-27T00:45:11.163+11:00Now contrast this with what happens when I make a ...<i> Now contrast this with what happens when I make a short sale. I borrow a security from a broker which is identical to any other security with the same cusip number. I sell it in the market. The person on the other side purchased a security and they have no idea whether they purchased it from a long or a short.<br /></i><br /><br />The person on the other side is actually the person who lent you the security. They are the ones left holding a synthetic security and they are the ones who eat the loss if you are unable to fulfill your obligations.James B. Shearerhttps://www.blogger.com/profile/13452342984383895221noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-11539957316856847802011-10-27T00:29:16.170+11:002011-10-27T00:29:16.170+11:00Let's not forget that Paulson was an also-ran ...Let's not forget that Paulson was an also-ran in the merger-arb space when he came to Goldman looking for this deal. The fact that Goldman retained exposure to Abacus speaks volumes to how they viewed his involvement.WellRednoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-66262106916212389882011-10-27T00:25:27.052+11:002011-10-27T00:25:27.052+11:00In my eyes, the biggest question is whether IKB ha...In my eyes, the biggest question is whether IKB had reason to believe that Goldman constructed this security "independently". Caveat emptor certainly applies to all financial transactions, but if CDOs are "normally" structured by the investment bank, to the point that it's unheard of to have one of the counterparties involved in construction (are there any other examples of this?), then Goldman should have disclosed that a counterparty was involved. The identity of the counterparty is irrelevant, but the fact that one was involved may be important if it's not standard practice.<br /><br />Definitely a murky situation, though.pcarroll0813noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-82728473740699180012011-10-27T00:03:32.141+11:002011-10-27T00:03:32.141+11:00If this was the case, and if the (short) bet was s...<i> If this was the case, and if the (short) bet was such a sure thing, then surely the buyer should never have purchased the resulting security. I guess your argument is with them. </i><br /><br />No question the buyer was stupid and/or careless. Fraud victims often are. That doesn't make defrauding them legal.<br /><br />Incidentally I also have a quarrel with the rating agencies which should have gotten in a lot more trouble than they did for rating obvious garbage triple A.<br /><br /><i> ... But in this case, Goldman did find someone to take the other side. ... </i><br /><br />By fraudulently failing to disclose material facts.<br /><br /><i> ... So, evidently it wasn't so obvious to everyone at the time that the short side was such a sure thing. ... </i><br /><br />Because the buyer was not in possession of material facts.James B. Shearerhttps://www.blogger.com/profile/13452342984383895221noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-67321279321621357722011-10-26T23:25:51.754+11:002011-10-26T23:25:51.754+11:00The EU has given you your sign: short selling is n...The EU has given you your sign: short selling is now routinely restricted, is about to be subjected to a Directive of its own in which you will be forced to disclose shorts above 0.2% of market cap and you'll soon be faced with a 10bp charge on all your trades.Dougnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-28919702815120266582011-10-26T22:35:48.968+11:002011-10-26T22:35:48.968+11:00Good points, maybe the money managers at IKB (and ...Good points, maybe the money managers at IKB (and by extension all those who acted in a similar way) should be the ones being named and shamed.<br />Were they at least fired?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-48240893925363945932011-10-26T21:02:55.573+11:002011-10-26T21:02:55.573+11:00John,
Your sign would read "THIS MAN FINDS P...John,<br /><br />Your sign would read "THIS MAN FINDS POTENTIALLY BOGUS STOCK, SELLS IT SHORT, AND THEN BLOGS ABOUT IT TO DEPRESS THE MARKET VALUE".<br /><br />Well you did ask...<br /><br />Personally, I don't actually see any real conflict of interest in this: You are open and transparent about your positions.<br /><br />By contrast Goldman, IIRC, had a pretty obvious conflict of interest between their roles of salesman for the instrument and that of advisor (and the fact that they were being paid for both roles).<br /><br />One question: how is it easier to determine that a derivative that is likely to fail than a stock? I see derivatives as providing an extra level of obfuscation, not clarity.<br /><br />Yes, if someone is selling a simple derivative, the nature of their bet is obvious. But once these are combined into complex instruments and used in baskets, they become a "Great Way to Bury Bad News".Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-18338020085969058602011-10-26T19:58:28.144+11:002011-10-26T19:58:28.144+11:00John,
No one has actually read that sign, because ...John,<br />No one has actually read that sign, because the lady holding it is pretty.<br /><br /><br />That's the first rule of fight club.Andrew Snoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-32367344089370842822011-10-26T19:38:53.459+11:002011-10-26T19:38:53.459+11:00It is psychologically typical and not necessarily ...It is psychologically typical and not necessarily consciously "foul play" to argue general statements (in this case, "the game is wrong/rigged") by specific examples.<br /><br />You can't win that argument by countering said examples, because underlying general statement will produce more and more of that.<br /><br />However, I'd like to focus on a part glanced over above: how the "Wall Street" in "big" meaning is recently a mess of irresponsibility.<br />E.g. as someone already said, there is a name, like GS, and it's implied they won't be, like, pardon my French, straight fucking clients up da rear - while actually, errm... they do, and apparently, they are in the right doing so.<br /><br />Just one of those cases where the implied meaning of things people perceive is not only not what is warranted, but not what is being strived for either. So we've got a-banks that could sell you any unimaginable junk pile the moment you blink (with full knowlege of that being stacked junk pile), rating agencies which rate said junk pile AAA yet in no way answer for that, audit companies with history of monkey business (see no evil) if not outright fraud (many of us still remeber how is was "big 5", right?), consulting companies who's advice can't be relied upon...<br />...<br />And all of'em are apparently responsible for nothing.<br />Got so used to it, too, that when surprise-slapped with actual fiduciary duty many of'em still fail (see recent scandals of fund's employees pension allocations and stuff like that).<br /><br />Now just as Highgamma, I'm not "Lawful Stupid" on the case: by design, some people win and some loose. But the system as a whole definitely needs a better overall responsibility and control level: someone along the line of auditors, raters and underwriters should actually end up responsible for a package labeled "top-quality, organic pork" end up containing a pile of putrefied goo - just the same as it would happen with actual products.<br /><br />Now the question is, where that responsibility should come from: the banks, which make lion's share of profits from it but are gamers themselves, or make-it-look-legit service companies (rating/audit), which are not financially equipped to carry those risks but are the ones who's supposed "neutral pov" enables the whole con?<br /><br />Regards,<br />Dmitry.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-36589742761487491822011-10-26T17:36:56.861+11:002011-10-26T17:36:56.861+11:00To David Merkel - in a "big boy" market ...To David Merkel - in a "big boy" market if a bank made bad decisions there would be no TARP and no Greenspan put to bail them out, the executives would have to return bonuses that were based on fictitious profits, the auditors who had blessed the fictions would lose their CPA licenses and the executives who misled the CPAs would go to prison. If we had a big boy market the Hamptons would be a ghost town, the marinas would be empty and Richard Fuld would be selling apples in the street. <br /><br />Wall Street should be thankful we don't have "big boy" markets. Of course, if we truly had "big boy" markets there would be no retail investors because they would refuse to play.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-47417061384866416732011-10-26T17:25:35.328+11:002011-10-26T17:25:35.328+11:00John - when you sell a stock short the person on t...John - when you sell a stock short the person on the other side knows that whoever the seller is that seller thinks the stock is over-valued.<br /><br />Richard - you acknowledge people were misled and money was stolen and yet none of those people (except Madoff) are in prison. I agree that the politicians were guilty of leaving the front door unlocked but they were not the ones who then snuck in and stole the family silver. <br /><br />BTW - the girl in the photo is cute in an intelligent sort of way.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-10371382903092926902011-10-26T17:16:23.242+11:002011-10-26T17:16:23.242+11:00That is to say financial industry have adopted th...That is to say financial industry have adopted the nerdish conceits of the computer industry circa mid-90s when everything that ever went wrong was the users fault and they, the producers and manager of the product, never did anything wrong.Don Juan De Carloshttps://www.blogger.com/profile/10546975721556151074noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-46977893560025611552011-10-26T17:14:20.925+11:002011-10-26T17:14:20.925+11:00"Collectively, Wall Street didn’t do anything..."Collectively, Wall Street didn’t do anything wrong." If they didn't do anything wrong, they aren't that effective or that important. So why are they being paid tens of millions and "the right streets in Washington" being paid so little?Don Juan De Carloshttps://www.blogger.com/profile/10546975721556151074noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-65253223866333799722011-10-26T16:50:34.668+11:002011-10-26T16:50:34.668+11:00The thing that frustrates me the most is that '...The thing that frustrates me the most is that 'shorting' is not inherently bad. For that matter, either is being long.<br /><br />The bad, evil, criminal, or however you want to label it act is when you take a position and knowingly lie or create a rumor to help move that position in your favor. <br /><br />In the heyday of the late 90s a stock would be mentioned on CNBC and immediately zoom 5 or 10%. There were more then a few people that talked up their dogs/losers just to sell them right after they got off the air.Joshhttps://www.blogger.com/profile/12028228587020987588noreply@blogger.com