Thursday, December 24, 2009

Scrooge Updated

Just when you were getting your head wrapped around collateralized debt obligations, you find out that there is such a thing as synthetic collateralized debt obligations. And if you think that will tax your brain, wait until you read this.

Banks Bundled Bad Debt, Bet Against It and Won

”Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance.... “

That’s right, the modern-day Scrooges came up with these crazy ideas, sold them to folks and then bet against them. But wait ! There’s more !

”...Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner. “

Then we hired one of these guys to come work for us. Please tell me this is like FDR’s hiring of Joseph Kennedy to run the SEC -- “set a thief to catch a thief”.

Merry Christmas.

Don Brown
December 24, 2009


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