Debt-stricken Greece appealed to its European partners and the IMF for emergency loans on Friday, yielding to overwhelming market pressure to set in motion the first financial rescue of a member of the euro zone.
Prime Minister George Papandreou requested the 45 billion euro ($60.5 billion) package after a months-long selloff by investors pushed borrowing costs to record levels and undermined Athens’ efforts to cut its 300 billion euro debt pile.
“This is the moment. The time that was not granted to us by the markets will be given to us by the support of the euro zone,” Papandreou said in a statement broadcast live from the remote, tiny Aegean island of Kastellorizo.
It appears that, at the very least, there was internal strife at Moody’s:
In September 2007, a manager at the New York-based ratings company resisted a plan to grade new collateralized debt obligations filled with mortgage bonds by including the assumption that Moody’s rankings on the underlying home-loan securities were no longer accurate, Eric Kolchinsky told the Senate Permanent Subcommittee on Investigations in prepared testimony today.
A more senior manager eventually agreed to allow the new policy, which Kolchinsky, who headed the company’s mortgage-bond CDO group, thought was needed after a meeting earlier that month where its home-loan securities analysts revealed that they planned to downgrade a large number of subprime notes, he said. The change was announced Sept. 21, 2007, and followed a similar shift at Standard & Poor’s announced in July.
“I believed that to assign new ratings based on assumptions which I knew to be wrong would constitute securities fraud,” said Kolchinsky, who said he was demoted as a result of his actions then and later suspended after complaining about “a nearly identical situation” in 2009.
An employee at hedge-fund firm Paulson & Co. said it had a chance to keep betting against subprime mortgages in January 2007 in part because companies including ratings firms had “incentives to keep the game going,” the Securities and Exchange Commission said April 16 in suing Goldman Sachs Group Inc. over a CDO that the agency alleged Paulson helped create.
An 18-month inquiry by the congressional panel, led by Senator Carl Levin, found that ratings companies “used outdated models and inadequate data, were too influenced by investment bankers, allowed chronic resource shortages to undermine ratings, and delayed downgrading investments,” according to a statement yesterday from the Michigan Democrat.
There’s some fascinating revelations about IKB, one of Goldman’s so-called victims:
Yesterday, I reported that IKB Deutsche Industriebank was not the sucker at the table that the SEC depicts in its lawsuit against Goldman. Indeed, its executives were wily and wealthy financiers who employed financial engineering shenanigans to escape the watchful of eye of regulators, shareholders, and auditors.
Now a document exclusively obtained by the Daily Beast demonstrates (view them here) that just a few months before it invested in the derivatives at the center of the SEC’s case, the German bank was touting its prowess as a sophisticated investor in those derivatives
In other words, IKB were not just sophisticated financial professionals. They were—or claimed to be—sophisticated and experienced when it came to exactly the kind of junky CDOs, dubbed Abacus, they bought from Goldman Sachs.
“Securitisation and CDO investments are an integral part of IKB AG’s business model,” the document—a marketing brochure for one of IKB’s off-balance sheet conduits—claims.
The brochure describes a man named Dr. Thomas Wolwer as the “Senior Portfolio Manager,” who has the “responsibility for investing in CDOs both cash and synthetic.” His qualifications include working for Dresdner Kleinwort, where he structured and sold various cash and synthetic CDOs. In short, this guy was as experienced in these black financial arts as you can get.
In short, according to me, this guy was just another sell-side bozo. I will never understand why people listen to track-recordless stockbrokers and institutional salesmen. But they do! Even their managers do! The financial crisis has shown that even people in a very good position to know otherwise somehow equate the ability to keep inventory turning over with regularity with an understanding of what it is.
It’s like hiring the best used-car salesman you can find as chief mechanic! It’s exactly the same thing as the Madoff fiasco … Funds of Funds were talking up their due diligence while stuffing money down the Madoff rat-hole. So-called due diligence is mostly just box-ticking by staff completely unable to do a proper job anyway.
One way or another, the marketting document obtained by The Daily Beast is in the very best tradition of investment sales … experience of everybody on the team is meticulously recorded and there’s not a word about performance.
However, the whole thing has become a political issue:
U.S. Securities and Exchange Commission Chairman Mary Schapiro may face an investigation into whether politics drove the agency’s decision to sue Goldman Sachs Group Inc. for fraud.
Representative Darrell Issa, a California Republican, asked SEC Inspector General H. David Kotz to determine whether the agency’s April 16 lawsuit was timed to bolster the Obama administration’s push to overhaul U.S. financial rules. Schapiro, a political independent, said on April 21 that neither the White House nor Congress have any influence on SEC enforcement actions.
The IMF’s bank tax is not a slam-dunk:
Group of 20 finance ministers and central bank governors pushed a debate over a global bank tax to June, saying more study is needed on how best to ensure banks, rather than taxpayers, pick up the cost of future bailouts.
…
“We call on the IMF for further work on options to ensure domestic financial institutions bear the burden of any extraordinary government interventions where they occur, address their excessive risk-taking and help promote a level playing field, taking into consideration individual countries’ circumstances,” the G20 said in a statement at the conclusion of the meeting.Britain, Germany, France and the United States – among the world’s most powerful nations – all have been supportive of a global bank tax. The decision to order the IMF back to the drawing board suggests that Mr. Flaherty, who was the co-chair of the meeting, was successful in rallying countries such as Australia and Russia to resist the push for a global levy. For weeks, Mr. Flaherty has mounted a vocal stand against the pro-tax lobby, saying it would unfairly punish countries such as Canada that avoided multi-billion dollar bank rescues during the financial crisis.
Statistics Canada reported Friday that Canada’s annual inflation rate slipped by two-tenths of a point to 1.4 per cent, and the closely watched Bank of Canada core rate fell even further – by four-tenths of a point to 1.7 per cent in March.
…
The agency said the big reason for the drops in both annual indexes was that the price-distorting Olympics ceased being a major contributor to inflation with the conclusion of the Winter Games at the end of February.Prices for traveller accommodation soared 16 per cent in February – 64.1 per cent in British Columbia – but in March they dropped back to earth to a more tame 2.8-per-cent increase from March, 2009.
Volume continued heavy in the Canadian preferred share market today, as PerpetualDiscounts lost 6bp while FixedResets put in a gain of 27bp. FixedResets scored a shut-out on the volume table.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 2.61 % | 2.73 % | 53,079 | 20.85 | 1 | 0.0000 % | 2,117.9 |
| FixedFloater | 4.90 % | 2.97 % | 46,073 | 20.43 | 1 | -0.1350 % | 3,267.4 |
| Floater | 1.92 % | 1.66 % | 47,564 | 23.47 | 4 | 0.1585 % | 2,409.1 |
| OpRet | 4.91 % | 4.24 % | 138,609 | 1.07 | 10 | 0.2938 % | 2,301.7 |
| SplitShare | 6.38 % | 6.44 % | 140,787 | 3.59 | 2 | 0.5535 % | 2,137.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2938 % | 2,104.7 |
| Perpetual-Premium | 5.92 % | 4.76 % | 30,789 | 15.87 | 2 | 0.0205 % | 1,822.4 |
| Perpetual-Discount | 6.24 % | 6.28 % | 209,436 | 13.49 | 76 | -0.0634 % | 1,708.5 |
| FixedReset | 5.52 % | 4.36 % | 527,368 | 3.62 | 44 | 0.2726 % | 2,140.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IAG.PR.A | Perpetual-Discount | -2.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-23 Maturity Price : 18.26 Evaluated at bid price : 18.26 Bid-YTW : 6.38 % |
| CIU.PR.A | Perpetual-Discount | -1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-23 Maturity Price : 18.47 Evaluated at bid price : 18.47 Bid-YTW : 6.34 % |
| CU.PR.A | Perpetual-Discount | -1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-23 Maturity Price : 23.39 Evaluated at bid price : 23.68 Bid-YTW : 6.22 % |
| PWF.PR.K | Perpetual-Discount | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-23 Maturity Price : 19.06 Evaluated at bid price : 19.06 Bid-YTW : 6.54 % |
| W.PR.H | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-23 Maturity Price : 21.29 Evaluated at bid price : 21.29 Bid-YTW : 6.52 % |
| BMO.PR.P | FixedReset | 1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-27 Maturity Price : 25.00 Evaluated at bid price : 26.53 Bid-YTW : 4.22 % |
| CM.PR.M | FixedReset | 1.09 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.00 Bid-YTW : 4.46 % |
| CL.PR.B | Perpetual-Discount | 1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-23 Maturity Price : 24.19 Evaluated at bid price : 24.50 Bid-YTW : 6.44 % |
| BAM.PR.J | OpRet | 2.18 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : 5.02 % |
| GWO.PR.L | Perpetual-Discount | 4.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-23 Maturity Price : 22.08 Evaluated at bid price : 22.17 Bid-YTW : 6.45 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.P | FixedReset | 202,800 | Desjardins crossed 200,000 at 26.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.67 Bid-YTW : 4.30 % |
| RY.PR.X | FixedReset | 107,821 | Nesbitt crossed 100,000 at 26.90. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 26.90 Bid-YTW : 4.29 % |
| PWF.PR.M | FixedReset | 75,500 | Nesbitt crossed blocks of 25,000 and 50,000, both at 26.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 26.65 Bid-YTW : 4.13 % |
| RY.PR.N | FixedReset | 71,909 | Nesbitt crossed 50,000 at 26.62. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.65 Bid-YTW : 4.29 % |
| RY.PR.Y | FixedReset | 70,090 | TD crossed 10,000 at 26.57 and 15,000 at 26.70. RBC crossed 10,000 at 26.66. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-12-24 Maturity Price : 25.00 Evaluated at bid price : 26.62 Bid-YTW : 4.49 % |
| BMO.PR.N | FixedReset | 66,350 | Nesbitt bought 25,000 from anonymous at 27.60. National Bank crossed 20,000 at 27.47. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-27 Maturity Price : 25.00 Evaluated at bid price : 27.50 Bid-YTW : 4.05 % |
| There were 63 other index-included issues trading in excess of 10,000 shares. | |||