What Could Possibly Go Wrong?
by dday
Morgan Stanley has this amazing plan to take a bunch of toxic crap, call it a different name, put a bow on it and sell as a magic moneymaking product. Innovative!
Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.
Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf Capital Management LP, an investment firm based in Purchase, New York.
Two years after the credit markets began to seize up, costing the world’s biggest financial institutions $1.47 trillion in writedowns and losses, banks are again taking so- called structured finance securities and turning them into new debt investments with top credit ratings. While the Morgan Stanley deal is the first to involve CDOs of loans, banks have been doing the same with commercial mortgage-backed securities in recent weeks.
A lot of banks and insurers “cannot buy anything but AAA,” said Sylvain Raynes, a principal at R&R Consulting in New York and co-author of “Elements of Structured Finance,” which is due to be published in November by Oxford University Press. “You’re manufacturing AAA out of not AAA, therefore allowing those people who have AAA written on their forehead to buy.”
That last paragraph is my favorite part – investors cannot buy anything but AAA, so we’ll call a bunch of garbage AAA and sell it to them! Genius! And if you’re still wondering why that federal buy-up of toxic assets has amounted to nothing, I guess it’s because enough customers have been found for this “New and Improved Shitt With Two T’s.”
It says in the article that Goldman Sachs is preparing a similar sale. Matt Taibbi, you have the floor.
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