A More Innocent Explanation For Betting Against A CDO That You Intentionally Stuffed With Crap Assets http://www.businessinsider.com/theres-a-totally-innocent-explanation-of-the-infamous-magnetar-trade-2010-4/comments en-us Wed, 31 Dec 1969 19:00:00 -0500 Sun, 28 Dec 2014 18:43:18 -0500 Joe Weisenthal http://www.businessinsider.com/c/4bc682957f8b9a9c46af0300 decora Wed, 14 Apr 2010 23:05:57 -0400 http://www.businessinsider.com/c/4bc682957f8b9a9c46af0300 Patrick There are many, many differences between the propublica report and the Mollencamp & Ng WSJ report from 2008. Why do you keep saying there is no difference? http://www.businessinsider.com/c/4bc3949d7f8b9ab9591b0200 Patrick Mon, 12 Apr 2010 17:46:05 -0400 http://www.businessinsider.com/c/4bc3949d7f8b9ab9591b0200 There was basically nothing new in this piece that wasn't in the WSJ over two years ago. That said I agree with every other suggestion/reason you mentioned. In fact I would go even further and suggest that ProPublica/Sandler's have an agenda. Nowhere that I read did they mention that this is an old story. The casual reader would be led to think this is "breaking" news with strong hints of fraud etc feeding current populist progressive feeding frenzies. ProPublica is not my idea of journalism. Fronting as a tax free non-profit, funded by the Sandler's, they pick which stories to research and then give them away to existing news orgs at no charge. There's a fine line here with "planting" stories. Propaganda ministries use the same approach. Coincidence? http://www.businessinsider.com/c/4bc35c0d7f8b9a5c4f7f0100 Teri Mon, 12 Apr 2010 13:44:45 -0400 http://www.businessinsider.com/c/4bc35c0d7f8b9a5c4f7f0100 @Patrick - You're right the magnatar housing trade has been written about before by other msm journalist and bloggers but there had to be some new details you found in the ProPublica story. Both journalist have a keen eye and history of solid investigative journalism. Are you concerned the Propublica editors took their reporting and turned it into a populist spin so that it appealed to a main street invester and the story would get more of a national follow? Or are you saying their is nothing that rings of fraud or decit in how Magnatar set up the trade and they were just taking advantage of a free market opportunity? http://www.businessinsider.com/c/4bc3001f7f8b9a7d40f60700 Dargoola Mon, 12 Apr 2010 07:12:31 -0400 http://www.businessinsider.com/c/4bc3001f7f8b9a7d40f60700 So let's see, the premise here is that ripping off a group of investors who may have included a teachers' pension fund in Wisconsin is much more innocent than ripping off the American taxpayer by provoking a systemic crisis. That's like saying that if you hold up a bank and end up shooting and killing security guards on the job you can't be held responsible because your motive was much more innocent than murder. http://www.businessinsider.com/c/4bc2a8597f8b9ac02d390000 Sam Mon, 12 Apr 2010 00:58:00 -0400 http://www.businessinsider.com/c/4bc2a8597f8b9ac02d390000 So Magnetar's take is we made mistakes on our long equity positions and they were shitty investments but our "hedges" (notice they never mention "credit default swaps" or "short") saved the day. Good one guys esp. the part about some "statistical arbitrage" mumbo-jumbo and no "fundamental" view when the mortage market started collapsing before your very eyes in 06-07. And suck it Weezy. They knew *exactly* what they were doing and didn't get lucky. It wasn't called the Magnetar trade for nothing. http://www.businessinsider.com/c/4bc2931e7f8b9aa769e70000 Patrick Sun, 11 Apr 2010 23:27:26 -0400 http://www.businessinsider.com/c/4bc2931e7f8b9aa769e70000 As to the trades themselves they were very simple. In stock parlance they were basically long high dividend paying stocks while hedging their positions with cheap, deep, deep out of the money puts. Standard operating procedure for many large traders. The dividends paid for the puts. They only made "real" money if the whole system collapsed. Years ago Alec Litowitz was interviewed where he discussed his total belief that the housing market was a bubble of untold proportions. He spent a couple of years figuring out how to short it. He figured it out. http://www.businessinsider.com/c/4bc2902e7f8b9a382aa60000 Patrick Sun, 11 Apr 2010 23:14:54 -0400 http://www.businessinsider.com/c/4bc2902e7f8b9a382aa60000 The ProPublica piece is about extremely old news. The WSJ and several blogs wrote about Alec Litowitz a couple of years ago. These trades are well known. Writing a piece now, acting as if it is some new investigative journalism as they pretend on their " non profit " progressive web site is a bit much. I think the real story is who are the Sandler's shilling for with this phony populist journalism. The Sandlers themselves made a few billion on the housing bubble in California. Some of that money now funds the "non profit" ProPublica--investigative journalism to support progressive ideals as they say. http://www.businessinsider.com/c/4bc26cd57f8b9ac323850500 Cheese Sun, 11 Apr 2010 20:44:05 -0400 http://www.businessinsider.com/c/4bc26cd57f8b9ac323850500 Magnetar specifically knew what it was doing............the "spread" funded the CDS positions......... Regardless............I DO NOT believe that Magnetar "kept the bubble going" On the Squared deal for instance...........They structured the damn portfolio.............and yet.........only "invested" in 1% of the deal? How the hell does that happen? Oh yeah..........but it was the riskiest slice.............the equity tranche.............and if they couldn't find a buyer for that..........well, then the whole deal was dead! Really? Banks were STILL competing with each other for these deals............thats why they let Magnetar "design" them. Take the Squared deal.............JPM has NO EQUITY buyers..............well why not just buy it for our book? They netted $20 mil in fees off that deal............buy the 10 million$ slice that Magnetar would've...........write it off on the SPOT, and still bank $10 mil in fees.............. ARE YOU SERIOUS? We can place 1.09 Billion............but can't find a home for that last 1%? Gimme a break......... http://www.businessinsider.com/c/4bc269737f8b9ae029b50900 Flen Flyys Sun, 11 Apr 2010 20:29:39 -0400 http://www.businessinsider.com/c/4bc269737f8b9ae029b50900 Magnetar wanted to invest in a derivative, but first had to create the underlying. The two would have an inverse payoff, so of course it was in Magnetar's interest to make the underlying as risky as possible. I don't know whether it's common practice for the sponsor to suggest securities to a CDO manager, but in the report, when Magnetar pushed too hard, the manager responded frankly and Magnetar apologized. The manager even said something like they want to create a CDO they're "proud of"! Many parties-- the banks, the CDO managers, rating agencies, and the other investors-- had an interest in seeing the CDO get paid off. These parties either didnt do their jobs, or were stupid. The fact is, Magnetar came up with a brilliant, elegant, and almost self-funding strategy. The ProPublica report had an obvious slant, with thin evidence of any unethical action. All this is just more vilification of short sellers. http://www.businessinsider.com/c/4bc267ac7f8b9aa023f60100 anonymous Sun, 11 Apr 2010 20:22:04 -0400 http://www.businessinsider.com/c/4bc267ac7f8b9aa023f60100 Oops again... I misread something... as far as I know, it wasn't specifically the AAA tranches that Magnetar shorted, just the mezzanine and/or senior. Sorry if that was misleading. http://www.businessinsider.com/c/4bc262487f8b9af320b70d00 anonymous Sun, 11 Apr 2010 19:59:04 -0400 http://www.businessinsider.com/c/4bc262487f8b9af320b70d00 Oops, I should have said Burry shorted the mezzanine tranches, not equity (he bought CDSs on the BBB tranches). But that's irrelevant to the main point anyway. http://www.businessinsider.com/c/4bc261e27f8b9a1723130000 taxloss Sun, 11 Apr 2010 19:57:22 -0400 http://www.businessinsider.com/c/4bc261e27f8b9a1723130000 Nonsense I'm afraid. They were long the equity (the riskiest stuff) and short the Mezz (possibly the senior too). So to make money, their deals had to go very bad - ie wiping out the equity AND the mezz. If they only went a little wrong, they lost money, as their equity lost value but their shorts against the mezz didn't. http://www.businessinsider.com/c/4bc25ffa7f8b9af347cc0c00 bill says Sun, 11 Apr 2010 19:49:14 -0400 http://www.businessinsider.com/c/4bc25ffa7f8b9af347cc0c00 Your casual explanation rings true with me . They stacked the deck , then found some suckers to play . This is the same accusation leveled against Goldman Sachs . How is it that we can tolerate completely amoral institutions in our midst . Gods work ? No ..... Sky Net , perhaps . Do the traders fancy themselves as Terminators . http://www.businessinsider.com/c/4bc25eb97f8b9ae1207e0b00 anonymous Sun, 11 Apr 2010 19:43:53 -0400 http://www.businessinsider.com/c/4bc25eb97f8b9ae1207e0b00 Magnetar shorted the AAA tranches of CDOs. That was extremely aggressive, you just don't do that unless you <i>do</i> see a huge crisis coming. By contrast, Burry merely shorted the equity tranches. Actually, to be more precise, Magnetar went long the equity tranches (toxic waste) and shorted the AAA tranches of CDOs, with the gains on the latter massively outweighing the losses on the former. Why did they do it that way? Well, the argument is made that without Magnetar "sponsoring" the equity tranches (which no one else wanted to touch by that point), those CDOs they participated in could never have been created in the first place and the bubble would have popped a year or two sooner (ie, they allegedly extended and perpetuated the crisis they ended up profiting from). (Burry, on the other hand, had no long position). <a href="http://blogs.reuters.com/felix-salmon/2010/04/09/the-magnetar-trade/">Felix Salmon's take on it is here</a>. http://www.businessinsider.com/c/4bc25dab7f8b9a4328b20900 Mark Sun, 11 Apr 2010 19:39:23 -0400 http://www.businessinsider.com/c/4bc25dab7f8b9a4328b20900 that explanations smells terribly bad. Why would you short a TBTF bank when you know its going to be bailed out? You have to manage the crises for your own benefit, not actually create armageddon. What deuche couldn't figure that out? http://www.businessinsider.com/c/4bc25c7b7f8b9a394d180000 for shizzel my nizzel Sun, 11 Apr 2010 19:34:19 -0400 http://www.businessinsider.com/c/4bc25c7b7f8b9a394d180000 Joe once again displays his serious lack of knowing and understanding anything --- a true effing moron... by the way --- love the shades covering your ass face..................... http://www.businessinsider.com/c/4bc25a147f8b9a6a4ab20300 Lawrence Sun, 11 Apr 2010 19:24:03 -0400 http://www.businessinsider.com/c/4bc25a147f8b9a6a4ab20300 Innocent? CDO's and the entire securitization scam are not innocent. If the whole securitization fad hadn't taken off in the 2000's, the crisis would not have happened. http://www.businessinsider.com/c/4bc257fa7f8b9afe28500100 pale rider Sun, 11 Apr 2010 19:15:06 -0400 http://www.businessinsider.com/c/4bc257fa7f8b9afe28500100 goldman sachs knew.