meltdown

Some traders and other folks in the securities business look askance at the SEC's case against Goldman Sachs in connection with the Abacus transaction because it seems like sour grapes from a party who wants to re-trade a deal that didn't work out very well.

Interesting article here about strategies that owners are using to restructure existing loans: "What we are finding now is that--because on CMBS loans the companies cannot get any response from the master servicer--the only way of trying to renegotiate is to default because only a special servicer can modify the loan."
 

Michael Lewis on Goldman Sachs: his friend, a European central banker, is astounded at the extent to which Goldman Sachs has enjoyed, and continues to enjoy, disproportionate political influence, and how little that has changed with the change in Presidential administrations.

Just reviewing Matt Taibbi's "The Bailout: How Goldman Sachs Runs Washington" in Rolling Stone on newsstands now; but definitely don't miss Malcolm Gladwell's piece on why "Wall Street needs a few less Waddill Catchingses and a few more Sidney Weinbergs."

We're about to find out. As Ian Ritter notes today in his Counter Culture blog,

Some of the entities that financed some of the General Growth Properties’ malls want those assets taken out of the REIT’s bankruptcy filing ... Metropolitan Life Insurance, for one, takes issue with the inclusion of White Marsh Mall, in Baltimore.

In a fascinating story first printed in Stanford Magazine, former head of the Commodity Futures Trading Commission Brooksley E. Born recounts her 1996 lunch with Alan Greenspan during which he told her

“Well, you probably will always believe there should be laws against fraud, and I don’t think there is any need for a law against fraud,” she recalls. Greenspan, Born says, believed the market would take care of itself.

What would happen if after a plane crashes, we said, "Oh, we don't want to look in the past. We want to be forward looking. Many people might have been, you know, we don't want to pass blame."

"Moral hazard" is shorthand for the idea that if I get rewarded when I take risks that pay off, and if someone else bears the consequences when I take risks that don't pay off, then I'm probably going to take a lot of risks.

Today's Wall Street Journal features an article about the dilemma facing creditors of commercial real estate giants, such as General Growth and Centro Properties, when commercial real estate loans come due and are not repaid: if the creditors act (by putting the borrower into bankruptcy), then some creditors believe that, "there is little to be gained and much to be lost through a bankruptcy," while others "might want to force a liquidation to receive a quicker payout."

Photo by Muriel Gottrop (April 2005) - from wikimedia commons

If you have a somewhat perverse sense of humor, you'll have great fun reading “The End” in the December 2008 issue of Condé Nast Portfolio, by Michael Lewis, whom you may remember as author of Liar’s Poker, "one of the books that define Wall Street during the 1980s." I was intrigued by one passage in which he notes that investors looking to short bonds backed by really bad residential real estate mortgage loans (i.e., those most likely to default) looked for bonds backed by mortgages on real estate located in “what Wall Street people were now calling the sand states: Arizona, California, Florida, and Nevada.”