The Hedge Funds Weren't AAA Bonds, GEEEZE

Elaine Meinel Supkis

As I warned, the stupid CDOs created by hell hounds in hedges are not safer than regular bonds but rather, are plague ships filled with rats and a vampire. We were assured, these instruments would 'spread the risk' and if any element failed, the stronger parts would fix it just fine. This was, of course, the lies of con men seeking to trick people into divesting themselves of their hard-earned savings in funny money schemes. Now it is all falling apart rapidly. And the agents who sold or rated these bonds should be sued for malpractice or arrested for fraud along with the hedge creators.

From Bloomberg:

Moody's Investors Service and Standard & Poor's were duped by the make-up and ``six-inch hooker heels'' of collateralized debt obligations they gave investment-grade ratings, and investors now stand to lose all their money, according to Bill Gross, manager of the world's biggest bond fund.

Subprime mortgage bonds made up about $100 billion of the $375 billion of CDOs sold in the U.S. in 2006, Moody's and Morgan Stanley data show. CDO's are created by bankers and money managers who bundle together securities and divide them into slices with credit ratings as high as AAA.

With defaults on those subprime loans rising, buyers of the BBB pieces of some CDOs stand to lose their entire investment, said Gross, chief investment officer at Pacific Investment Management Co. Gross manages the $103 billion flagship PIMCO Total Return Fund in Newport Beach, California.

These hedge funds are just simply trusts like the ones that proliferated during the 5 years leading up to Black Thursday and the Great Depression. These things were outlawed by the government after they vaporized over 25% of America's savings and caused all the banks to have runs and then collapse. My credit union was formed right after the top three banks in Albany went under in 1932 and state workers couldn't cash their checks anywhere!

After that horror, why would any sane person repeat it? When hedge funds were first 'created' like a Flapper Frankenstein when the Security and Exchange Commission rescinded most of the post-Crash rules, I knew what would happen next. I am not 100 years old but my grandpa warned me about this during my youth. He had me read books about the stock market collapse and he questioned me about all this until I figured it all out. Then my father-in-law who was part of the NY team for figuring out how to deal with the mathematics of the Roosevelt schemes to save the banks right after the Depression started, he taught me TONS of things including, 'Always look at the raw data first! Don't rely on graphs!'

The data surrounding the CDOs is obvious. If you want to hide something nasty but also take advantage of the risks it involves, then hide it inside a bunch of healthy but less risky stuff! For example, if I had a sick cow with Mad Cow Disease and I wanted to sell it, sell it while it is part of a big herd! No one will see it!

If you want to sell a three-legged race horse, sell it at night in the sables filled with four-legged race horses! The high rate of return from, say, 15% of the CDO's volume, in the form of ARMs given to criminals and dead beats in hot housing markets, made the lack luster sectors shine and this attracted buyers of these evil instruments.

A fool and his money are ALWAYS parted! Alas, the SEC is charged with protecting people from exploitation by con artists. But when the entire government is taken over by liars and con artists, we get a mural of messes when the shit hits the fan.

The other day, I compared the hedge funds, often named after deadly, Plutonic, piratical names, to the Pied Piper bringing home the plague rats and running off with the children. This is classic: greed causes people to lose all sense of right and wrong or caution and they get fleeced by the Dark Ones who are, like money, part of the magical system that runs this realm.

From Bloomberg:

Blackstone Group LP's shares dropped below their initial public offering price in the third day of trading amid investor concern that the leveraged buyout boom has peaked and earnings growth will slow.

The stock declined $1.69, or 5.2 percent, to $30.75 at 4:01 p.m. in New York Stock Exchange composite trading after dipping as low as $30.32. The New York-based firm sold 153.3 million shares to the public last week for $31 each, giving Blackstone a valuation based on earnings that was about 50 percent higher than Goldman Sachs Group Inc.'s.

Har. I predicted this would happen. When der Schwartze mensch decided to cash in on his CDO operation, he managed to sell quite a bit the first day...only I suspect his mother or wife were the buyers, hoping to raise hopes and con people into buying his three-headed dogs and three-legged race horses. Only just two days later, it is obvious his stocks ain't all that popular after all. Maybe he should pass some bucks to his gardner and butler and have the buy a bunch of these so he can claim they are hot, hot, hot tamales!

From Big Picture:

"Worldwide sales of CDOs—which are packages of securities backed by bonds, mortgages and other loans—have soared since 2003, reaching $503 billion last year, a fivefold increase in four years. Bankers call the bottom sections of a CDO, the ones most vulnerable to losses from bad debt, the equity tranches. They also refer to them as toxic waste because as more borrowers default on loans, these investments would be the first to take losses. The investments could be wiped out. . .

Because CDO contents are secretive, fund managers can’t easily track the value of the components that go into these bundles.

I watched this $100 billion a year rise with annoyance because Greenspan and then Bernanke could have stopped it easily. Bush and Cheney, ditto. Paulson, of course. He is supposed to be our guardian and not our rip-off artist. The present carny show is about to end. And none too soon. The super-low interest rates in the US coupled with the insane rates in Japan have pretty much finished their cycle and can't peddle this stuff much longer, the tires are flat.

From Jubak's Journal, MSN:

Investment losses at a little $20 billion hedge fund -- and yes, in a $24 trillion bond market, this is a small fish -- and Merrill Lynch's (MER, news, msgs) insistence on an auction of some of that fund's assets could make Wall Street admit that prices for trillions of dollars in assets are fairy tales made up in the backrooms of the investment banks themselves. Most immediately affected is the $2 trillion market for pools of securities backed by mortgages, corporate bonds and leveraged loans called collateralized debt obligations (CDOs), and by extension, the entire $30 trillion market for synthetic derivatives modeled on those pools.

That would require a massive re-pricing of portfolios all across the globe. It would turn some winning portfolios into losers and turn modest losses into debacles. It would force pension funds and insurance companies to make up massive shortfalls in the value of their portfolios. Some hedge-fund managers and Wall Street investment bankers, whose bonuses are determined by profits based on these fictitious prices, might see bonuses disappear completely. They might even -- be still my heart -- have to give back performance-based fees.

The pimps for the 6" heeled hedge fund hookers are the guys who rate bonds. Now they complained, they were fooled! They were too stupid to see the make-up and the cooties crawling in the bushy hair between the legs! They thought these Ladies of the Darkest Night were all blushing virgins waiting for marraige!

Good grief. If they are that blind and stupid, they should all close shop and go work on 23rd Street and Lexington Avenue after midnight. And don't forget your makeup and heels, guys!

Where do these people come from? Why are they doing this? HAHAHA. To get rich. And now we will see part of the truth as the House of American Financial Wizardy collapses like a house of cards in a hurricane. Then my son can follow in grandpa's footsteps and work for the state of NY, figuring out new financial tables for dealing with the mess.

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Comments

[Elaine Meinel Supkis]

I see there are visitors form Gold Tent.com. It is a hub site, I believe, that discusses money stuff and is into investing in gold. Hi, everyone, glad you are here!

A word about gold: they have determined to drop the price, you know. Spain is in a panic, selling off gold to keep in the euro realm (zee germans will kick them out) and Switzerland is selling off gold for very suspicious reasons. They always manipulate the price of gold if they can, you know.

But it does retain value if all else fails. Like in war. Though cigarettes do better in that situation...

[Equestrian Eddie]

You really seem to know what you're talking about. Thanks for the posts, they're really entertaining and yet informative.