Comments on: Goldman, Barclays Using Newfangled CDOs to Offload Bad Bank Assets

By: Ginger Yellow

Ginger Yellow — Tue, 07 Jul 2009 08:52:48 +0000

DPCs were pretty much killed by Lehman. With everyone worried about counterparty risk, nobody was willing to accept their CDS any more, even though most of their exposure was corporate and sovereign. I think they're all pretty much in run-off, although they should have enough capital to pay off their liabilities.

By: Hugh

Hugh — Tue, 07 Jul 2009 04:55:28 +0000

Dreck by any other name is still dreck. I'm trying to figure out who would buy this stuff, seeing everything that has happened, without totally and absolutely abrogating their fiduciary responsibilities. I mean "we bought more funny paper to cover this other funny paper" just doesn't seem to cut it as a defense anymore.

I can see Barclays and Goldman hawking this stuff and looking to make money on the fees but this is still pushing the risk and the losses around. Those have to go somewhere but as others have noted the goal of all these schemes is to stick the taxpayer as the ultimate patsy and I don't see how they are going to do that. Sucker the pension funds into this? And when they go bust, dump the losses on the taxpayer that way?

By: Dave Raithel

Dave Raithel — Tue, 07 Jul 2009 03:35:35 +0000

Let me play the rube with a dollar burning a hole in my pocket. I suppose that at some point, or moment, I am supposed to fork over the dollar for some of this. Is this the kind of paper for and about which a proposed Consumer Protection Financial Investment Jackboot on the Neck of Free Marketeerism is to stand?

By: r

Mon, 06 Jul 2009 22:41:58 +0000

i wonder if Goldman's "insurance idea" to wrap the assets is the Derivative Product Company similar to Primus, Athilon?? They were developing it in the past but I think shelved it. DPCs make more sense today compared with SIVs, as they are "continuous capital", vs. SIV model, where they had to roll it every month. DPCs, OTH, are "bankruptcy remote" and get funded at day one. high rating gives let leverage, although not sure what kind of leverage they can achieve today, maybe 10:1 max. These programs were in development at many IBs, but not sure if they work anymore. Although, IMO they make a lot of sense, since the need to "shift risk" and "free-up" capital is huge. Anybody has thoughts?? TIA.

By: Independent Accountant

Independent Accountant — Mon, 06 Jul 2009 21:27:42 +0000

YS:
I read this article. Did I miss something or are these CDOs with a new coat of paint?

By: john bougearel

john bougearel — Mon, 06 Jul 2009 20:10:05 +0000

I'd rather buy a refurbished laptop than a repurposed CDO .

Nail is on the head, "most investors and all regulators will find [these so-called transparent CDO's that they are calling insurance schemes or smart securitization] impenetrable" and incomprehensible.

I love the rationals bankers provide for this maneuver, one, they are not trying to peddle/recycle new toxic waste only the old waste, and its okay because they are now being upfront about the transfer of risk whereas before they well, well they must have been disguising the transfer of risk with the old products, which in turn means by admission they were indeed peddling pigs in a poke to the unsophisticated investors or to those investors to trusting to be bothered with something called DD

Under Goldman's idea, this so-called insurance product sounds eerily like a credit default swap by another name. So, now Goldman and BarCap are acting as the next AIG's?

And I wonder how goldman will wall off these new insurance risks to the firm, as and when it comes to that. How will they have their asses covered and ours the taxpayers exposed?

Yes, Yves, I am still lurking, its kind of nice to drop in a comment again

By: Balmain Bear

Balmain Bear — Mon, 06 Jul 2009 18:25:04 +0000

Why you guys trying to figure this out? It's the same scam.

How can you achieve lower capital reserving without shifting risk? If you don't shift the risk, you are simply cutting the reserving buffer. OK, let's allow it to stand for a minute. According to the BarCap guy it's not for the purposes of arbitrage or leverage. But reducing the capital reserving is increasing the leverage. And it is also an arbitrage play against the reserve requirements. I'm just amazed at this Orwellian double speak.

If you let Spivs run banks, then expect to be fleeced.

By: FTK

FTK — Mon, 06 Jul 2009 17:30:26 +0000

This only works if the ratings agencies play along again. "although Goldman has yet to find a balance between the risks and rewards that would be attractive to investors" means they havent beaten the agencies up enough on how much of the cap structure will be rated AAA. Less reg capital means better looking ratios equals higher stock price. Govt is happy to look the other way and can blame the agencies (no new regs yet on these guys) if anything goes wrong.

By: mike

mike — Mon, 06 Jul 2009 16:25:30 +0000

In some cases, the reremic makes sense. If you hold a once AAA now BB asset and can get some rating agency to claim that some portion is money good, why not benefit from the unexpected new regulatory capital? But many of these transactions make no economic sense … buying up AAA bonds as collateral to reremic into "really good" AAAs and "so so" AAAs is blatantly stupid if AAA has any meaning (these transactions are saying that AAA probably doesnt mean anything anymore).

By: Ginger Yellow

Ginger Yellow — Mon, 06 Jul 2009 15:36:00 +0000

Richard, like I say, I don't know the details of these particular schemes, beyond what was reported in the FT, but when I've heard of similar schemes, it's usually involved getting a third party to take a first or second loss position in the portfolio, while the originator kept the rest of the exposure (which might consist of a rated trance). The capital reduction for the originator would depend mainly on how much of the expected loss remained with them. The FT's piece makes it sound like Barclays is doing something like this, possibly through joint ventures (so, possibly, the bank and the third party jointly set up a fund/company that makes the equity investment).

I could be totally wrong, but that's how it's been done by other firms.