The Bubble Has Been Fully Restored: Goldman Is Selling A Synthetic CDO

Earlier this week, Bloomberg ran a story that carried the headline “Goldman Sachs Hawks CDOs Tainted By Credit Crisis Under New Name.” Here’s an excerpt:  “The 2008 financial crisis gave a few credit products a bad reputation. Like collateralized debt obligations, known as CDOs. Or credit-default swaps. But now, a marriage of the two terms (using leverage, of course) is making a comeback — it’s just being called something else. Goldman Sachs Group Inc. is joining other banks in peddling something they’re referring to as a ‘bespoke tranche opportunity’… The deals are ‘attractive for credit-savvy investors in the post-QE credit picker’s market,’ according to a January U.S. credit derivatives outlook by Citigroup Inc., The transactions offer the potential for higher returns than buying a typical corporate bond, especially if an investor focuses on first-loss slices or uses borrowed money.” This is the latest installment in a series of articles […] Read More

Federal Regulator Details Crazy Risk-Taking By Banks, Blames Fed

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter Banks are again taking big risks, the same risks that helped trigger the financial crisis, and they’re understating these risks. It wasn’t an edgy blogger but a bank regulator of the Federal Government – the Office of the Comptroller of the Currency – that issued this warning. And it explicitly blamed the Fed’s monetary policy. The report fingered the stock market’s “fear index,” the VIX, which measures near-term volatility of S&P 500 index options; and it fingered the bond market’s “fear index,” the Merrill Option Volatility Estimate (MOVE), which measures volatility of Treasury options. They have been flirting with, or hit all-time lows. VIX levels below 20, “and especially below 15” – it’s now below 12 – “suggest complacency in the stock market, which often has led to sustained increases in risk appetite and subsequent market instability.” Complacency is at about the same level as […] Read More

Starting Monday, Billions In ETNs Are No Longer Marginable Collateral

When is marginable collateral not marginable collateral? When it is an ETN, or Exchange Trade Note: the cousin of the Exchange Traded Fund (ETF). The very mutated, and unabashedly evil cousin of the ETF that is. At least such is the view of US brokerage Interactive Brokers (and certainly not of the ECB where as is widely known blocks of feta cheese and olive oil are perfectly acceptable forms of collateral). First, what exactly is an ETN? Here is the IB definition: ETNs are not equity shares but rather a form of unsecured debt whereby the issuing institution promises to pay a return linked to a market index or other benchmark. As ETNs generally do not buy or hold assets like an Exchange Traded Fund (ETF), their returns are realized through holdings of derivative contracts such as options, futures and swaps. While ETNs trade on exchanges in a manner […] Read More