Comments on: The lessons of CELF http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21348 Mon, 29 Nov 2010 05:17:00 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21348 At the risk of losing you some sleep at night, Mr Dealmaker, I respectfully disagree.

1) Normally in underwriting the bank is taking a hopefully small risk that between closing the price and actually selling on the securities the market does not change too substantially. It does and has happened that the underwriting banks lose substantial amounts of money even in vanilla equity underwritings. I also disagree that there are terribly many reputational issues with bringing crap to the market, as long as it is crap du jour such as Internet stocks or dare I say it CDOs and CLOs.

2) With the original CLO, I suspect GS bought the loans off some clients packaged them up and sold them to other clients. Yes for a period of time those loans were warehoused but I highly doubt GS bought the loans because they thought qua loans there were a great investment they wanted to take a view on, it was just balance sheet rental for another client or clients. Classic middleman. Just like the pharmacist bought the box of Preparation H, held it for a short time till another client – you – came in and paid a slightly higher price. It was hardly a principal investment by the pharmacist.

3) I also suspect that in buying back the AAA tranche that it was not quite as arms length as you suggest. I suspect GS wanted to call, needed to buy out the AAA tranche and to make sure it seemed pucker got a third-party to run an auction which, within reason, GS would always have won. The third-party and the auction was so GS and the client could wave a piece of paper around saying look it was kosher.

The only vaguely nefarious way this can be viewed is possibly the reality was that GS in 2008 was trying to shrink its balance sheet, offered a meaty coupon to clients with the nod-nod-wink-wink we will call the notes when all this blows over. Of course the journalist in this case didn’t bother chasing up the interesting bit because he is more concerned in the moral outrage that a firm isn’t aiming to provide a service at a loss – something the NYT has been doing well for a while now.

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By: hsvkitty http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21346 Mon, 29 Nov 2010 02:34:45 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21346 So in other words, Epicurean, Goldman was making the deal in its own CELF interest? I was going to make another bad joke to match your ending, but I will keep it clean.

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By: EpicureanDeal http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21345 Mon, 29 Nov 2010 00:59:27 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21345 Goldman can only “claim to be acting in its clients’ best interest” to people who don’t know what’s really going on.

Goldman Sachs had no client in the CELF trades, from start to finish, other than itself.

http://epicureandealmaker.blogspot.com/2 010/11/client-is-not-counterparty.html

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By: west-coasting http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21343 Sun, 28 Nov 2010 21:55:40 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21343 Agreed. Lazy at best (which is what I’d say for this piece by Jesse/Felix). Irresponsible and malicious at worst, which is where a lot of recent NYTimes reporting is going (if I want to read ZeroHedge’s conspiracy ramblings, I can read them there or in the HuffPo, not in America’s newspaper of record).

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21339 Sun, 28 Nov 2010 01:00:22 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21339 hsvkitty, so does lazy churnalism.

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By: TFF http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21335 Sat, 27 Nov 2010 21:35:05 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21335 Agreed 100%, dWj. We’re setting people up to be very badly burnt.

As best I can tell right now, the LEAST risky securities over a ten year horizon are top-quality dividend yielding stocks. This isn’t to say that they are any less risky than usual, just that the normally risk-averse investments are even worse.

Disclaimer: presently allocated ~75% stocks (predominantly blue chip dividend stocks), ~15% TIPS and guaranteed-principal annuities, ~10% cash/CDs with 2 year maturity or less. Conventional bonds are very scary to me at current prices.

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By: dWj http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21334 Sat, 27 Nov 2010 21:22:11 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21334 > Today, there’s a lot of demand for high-yielding loans, or high-yielding anything, really.

Incidentally, does this make other people as nervous as it makes me? I’ve been telling my mother-in-law that if she’s as risk-averse as I think she is, a 1% return — or frankly a 0% return — really isn’t so bad right now, and that the mindset that one is “entitled” (or something) to more is likely to cause pain at some point.

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By: hsvkitty http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21332 Sat, 27 Nov 2010 19:56:27 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21332 west-coasting, lack of trust does that to people…

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By: west-coasting http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21328 Sat, 27 Nov 2010 17:58:27 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21328 @Danny_Black – yes, since they did the transaction this way, Felix/Jesse/NYTimes et al will be outraged that they made money by deploying their balance sheet to unwind the trade. On the flip side, had they refused to buy the AAA tranche, it would be the auction rate securities debacle all over again and we would be hearing about their lack of client commitment and client service. Darned if you of, darned if you don’t in this new world of “journalism” (e.g. irresponsible pageview and click generation by yelping “GOLDMAN SACHS EVIL!” at every possible moment).

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By: alea http://blogs.reuters.com/felix-salmon/2010/11/26/the-lessons-of-celf/comment-page-1/#comment-21325 Sat, 27 Nov 2010 10:58:43 +0000 http://blogs.reuters.com/felix-salmon/?p=6320#comment-21325 Typically clueless piece by Jesse Eisenger.
Control of CLOs (unlike CDOs) routinely pass to equity holders after a short call period. The equity holders then have the option to redeem the CLO (at par):
Typical clause:
“Optional redemption
The issuer may redeem the notes may early at the option of the subordinated noteholders after the end of the noncall period or earlier if certain tax events have occurred. This optional redemption may occur only if the proceeds from liquidating the collateral are sufficient to redeem the rated notes at par, plus accrued interest.”
This has nothing to do with alleged preferences for AAA securities or “non appetite at all for structured products carrying AAA credit ratings” it has to do with moves in credit quality of the underlying loans and simple maths regarding credit spreads.

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