What the Credit Crash Means - Po as in Ponzi
This is just too funny, it could be a franchise UFOC. From the Naked Shorts,
Weekend reading: A new line in poo...: "
Having today received four copies of this email, which appears to have originated in the UK, NakedShorts proffers light relief from a stressful market week. With sincere appreciation to the regrettably anonymous author. Two things:
- Warning: Limited use of language that may be distasteful to the easily offended. (Although what you’re doing here if you’re easily offended...and the language is nowhere near as offensive of the phenomenon it so accurately satires.)
- Many a true word...
Investment dealers are excited to announce the newest structured finance product—Constant Obligation Leveraged Originated Structured Oscillating Money Bridged Asset Guarantees, or COLOSTOMY BAGS. Designed to accommodate the most sophisticated investment strategies, Colostomy Bags contain the equity tranches of Structured High Interest Taxable derivatives, or SHIT, and are leveraged an infinite amount of times through the innovative use of derivatives.
‘It’s an actively managed, unlimited liability, open-ended investment with no maturity date, which pays LIBOR plus 5000 and has no correlation to traditional investments,’ said a spokesman for the investment dealer who engineered the product. ‘It’s based on a CDO structure, but it's designed to default BEFORE the first coupon payment, which you'll agree has no correlation with stodgy traditional investments and is a perfect fit for portable alpha scams, err, strategies.’
Following the default, more leverage is added to the structure to pay for the coupon each month, and the dealer’s fees, which are set at 80%. ‘We feel the fees are reasonable, given the adrenaline rush you'll get each month attempting to mark these.’
The Colostomy Bags carry a AAAA rating, based on the rating agencies’ opinion that they are even safer than Treasuries. ‘You can't use traditional credit analysis to value these babies, no sir-ree’ said an agency spokesman. ‘Just like Icelandic banks, we give them the highest rating because you just know that the Fed will bail out all the hedgies who buy these things...remember Long-Term Capital? And the best part is, the beauty of this structure is that the loss given default is NEGATIVE, so by extension we feel that the CDS will trade through Treasuries.’
Inhaling deeply on a fatty, he continued ‘We've been tinkering with our model, which served us well for Enron and the Telecoms in '02, and our stress testing shows that the probability of loss in the senior tranche is close to zero.’ The model, constructed of a wishing well, Joseph Jett's trade blotter, and drawings of Unicorns collapsed in a heap. ‘Well, back to the drawing board!’ he cackled.
A real money investor, huddled on the windowsill outside his office, said he remained optimistic about holding the Colostomy Bags but was a bit concerned with the 95% decline in value on the first day they traded. ‘We've taken a bit of a haircut on these but I'm waiting to see the first servicer report, which should arrive in a few months. At first I was annoyed that the dealer who sold them to me refused to make a market in them, but that makes my job easier since I'm not tempted to sell.’
We located a hedge fund manager at a due diligence meeting in the VIP room at Scores. He said he was skeptical of the structure at first but was dared into buying it by a fixed income salesman. ‘He said to me, ‘what's wrong with you, it’s quadruple-A rated, just buy it, what are you, a pussy?’ He also said it was going into ‘an index’, although he didn't say which one. But that was good enough for me.’
(Via NakedShorts.)
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