11 replies to this topic

[SemiBizz]

15:45 - Nothing like trying to trade "stable" markets. Frankly I think bulls and bears alike are victims today of a land office size swindle by the brokers... That is what I suspect. All this price volatility and volume cannot be ignored... We all know the bastages are in trouble, but this is very desperate and criminal... sorry for the rant.

[JAP]

15:45 - Nothing like trying to trade "stable" markets. Frankly I think bulls and bears alike are victims today of a land office size swindle by the brokers... That is what I suspect. All this price volatility and volume cannot be ignored... We all know the bastages are in trouble, but this is very desperate and criminal... sorry for the rant.

I hope someone here can explain to me WTF took place today.

Other than PPT intervention, I can't think of any other reasons for what happened today.

[SemiBizz]

Somebody sent me this today... Could explain a lot. Be sure and read the actual letter at the link on the bottom of the article...



Deal Breaker

[Wombat]

I only heard part of the explanation because I was out of the room, but apparently there was a rumor that GS was going to pre-announce or announce something bad after the close - according to CNBC who didn't identify GS by name until GS said the rumor wasn't true. Then we rallied right back. I guess all the financials got shorted on the rumor and then covered or bought in the last 20 minutes.

[Venatici]

I only heard part of the explanation because I was out of the room, but apparently there was a rumor that GS was going to pre-announce or announce something bad after the close - according to CNBC who didn't identify GS by name until GS said the rumor wasn't true. Then we rallied right back. I guess all the financials got shorted on the rumor and then covered or bought in the last 20 minutes.

Right, like the wrong button...

[SemiBizz]

I only heard part of the explanation because I was out of the room, but apparently there was a rumor that GS was going to pre-announce or announce something bad after the close - according to CNBC who didn't identify GS by name until GS said the rumor wasn't true. Then we rallied right back. I guess all the financials got shorted on the rumor and then covered or bought in the last 20 minutes.

And who can get a rumor to the street quicker than a broker? NOBODY CAN.

[skyymaster]

I skimmed the letter and basically, felt like I was going to puke. Sounds like it is time to think diversifying slowly into stronger currencies.

[SemiBizz]

Here's a partial text:

The Greatest "Bait and Switch" of ALL TIME

I recently spent some time with a senior executive in the structured product marketing group (Collateralized Debt Obligations, Collateralized Loan Obligations, Etc.) of one of the largest brokerage firms in the world. I was in Roses, Spain attending a wedding for a good friend of mine who thought it would be an appropriate time to put the two of us together (given our shared interests in the structured credit markets). This individual proceeded to tell me how and why the Subprime Mezzanine CDO business existed. Subprime Mezzanine CDOs are 10-20X levered vehicles that contain only the BBB and BBB- tranches of Subprime debt. He told me that the "real money" (US insurance companies, pension funds, etc) accounts had stopped purchasing mezzanine tranches of US Subprime debt in late 2003 and that they needed a mechanism that could enable them to "mark up" these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!! He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of Subprime debt. Interestingly enough, these buyers (mainland Chinese Banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, UK banks) possess the "excess" pools of liquidity around

the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the US in USD, 2) petrodollar recyclers. These two pools of excess capital are US dollar denominated and have had a virtually insatiable demand for US dollar denominated debt…until now. They have had orders on the various desks of Wall St. to buy any US debt rated "AAA" by the rating agencies in the US. How do BBB and BBB-tranches become AAA? Through the alchemy of Mezzanine-CDOs. With the help of the ratings agencies the Mezzanine CDO managers collect a series of BBB and BBB- tranches and repackage them with a cascading cash waterfall so that the top tiers are paid out first on all the tranches – thus allowing them to be rated AAA. Well, when you lever ONLY mezzanine tranches of Subprime RMBS 10-20X, POOF…you magically have 80% of the structure rated "AAA" by the ratings agencies, despite the underlying collateral being a collection of BBB and BBB- rated assets... This will go down as one of the biggest financial illusions the world has EVER seen. These institutions have these investments marked at PAR or 100 cents on the dollar for the most part. Now that the underlying collateral has begun to be downgraded, it is only a matter of time (weeks, days, or maybe just hours) before the ratings agencies (or what is left of them) downgrade the actual tranches of these various CDO structures. When they are downgraded, these foreign buyers will most likely have to sell them due to the fact that they are only permitted to own "super-senior" risk in the US. I predict that these tranches of mezzanine CDOs will fetch bids of around 10 cents on the dollar. The ensuing HORROR SHOW will be worth the price of admission and some popcorn. Consequently, when I hear people like Kudlow on CNBC tell their viewers that the Subprime problem is "contained", I can hardly bear to watch.

[nimblebear]

Here's a partial text:

The Greatest "Bait and Switch" of ALL TIME

I recently spent some time with a senior executive in the structured product marketing group (Collateralized Debt Obligations, Collateralized Loan Obligations, Etc.) of one of the largest brokerage firms in the world. I was in Roses, Spain attending a wedding for a good friend of mine who thought it would be an appropriate time to put the two of us together (given our shared interests in the structured credit markets). This individual proceeded to tell me how and why the Subprime Mezzanine CDO business existed. Subprime Mezzanine CDOs are 10-20X levered vehicles that contain only the BBB and BBB- tranches of Subprime debt. He told me that the "real money" (US insurance companies, pension funds, etc) accounts had stopped purchasing mezzanine tranches of US Subprime debt in late 2003 and that they needed a mechanism that could enable them to "mark up" these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!! He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of Subprime debt. Interestingly enough, these buyers (mainland Chinese Banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, UK banks) possess the "excess" pools of liquidity around

the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the US in USD, 2) petrodollar recyclers. These two pools of excess capital are US dollar denominated and have had a virtually insatiable demand for US dollar denominated debt…until now. They have had orders on the various desks of Wall St. to buy any US debt rated "AAA" by the rating agencies in the US. How do BBB and BBB-tranches become AAA? Through the alchemy of Mezzanine-CDOs. With the help of the ratings agencies the Mezzanine CDO managers collect a series of BBB and BBB- tranches and repackage them with a cascading cash waterfall so that the top tiers are paid out first on all the tranches – thus allowing them to be rated AAA. Well, when you lever ONLY mezzanine tranches of Subprime RMBS 10-20X, POOF…you magically have 80% of the structure rated "AAA" by the ratings agencies, despite the underlying collateral being a collection of BBB and BBB- rated assets... This will go down as one of the biggest financial illusions the world has EVER seen. These institutions have these investments marked at PAR or 100 cents on the dollar for the most part. Now that the underlying collateral has begun to be downgraded, it is only a matter of time (weeks, days, or maybe just hours) before the ratings agencies (or what is left of them) downgrade the actual tranches of these various CDO structures. When they are downgraded, these foreign buyers will most likely have to sell them due to the fact that they are only permitted to own "super-senior" risk in the US. I predict that these tranches of mezzanine CDOs will fetch bids of around 10 cents on the dollar. The ensuing HORROR SHOW will be worth the price of admission and some popcorn. Consequently, when I hear people like Kudlow on CNBC tell their viewers that the Subprime problem is "contained", I can hardly bear to watch.

How come NONE of this surprises me ? The home price decline is not talked about much outside of CA. Looks like CA is in terrible shape. Its only 1/5th of US GDP.

The ratings game is/was a complete sham. and A shame !

Cramer wants to save the brokers ? he should be hung out to dry with the rest of them. Amazing what greed, and money will do to people. Ne regard for anything, other than themselves.

[Cirrus]

Are you kidding me?? You don't think the Chinese KNEW what they were buying with their hundreds of billions of $?? They KNEW this was a dog and pony show with the CDOs. It's part of the game--prop up the US consumer with cheap money so BRIC/emerging economies can integrate into the first world economy via rapid growth and exports. It will continue until the FCBs grow tired of allowing the US Fed to run the show.