In light of recent developments involving SEC and Goldman Sachs, I reckon it might he extremely helpful for my readers to witness the entire structuring process involving a High Grade Asset-Backed Securities Collateralized Debt Obligations (HG ABS CDO) deal. For the sake of simplicity, let’s assume that our CDO transaction is labeled “Pyramid”, and the three stakeholders involved in this deal are: an investment bank – the “Arranger”, a portfolio manager – the “Collateral Manager” and a series of investors. To make things easier, I would replicate the same numbers from the previous two articles on structuring and securitization. The CDO liability bonds – the “Notes” will be issued by a newly formed Special Purpose Vehicle (SPV) – the “Issuer”, called Pyramid Limited and incorporated in Cayman Islands for tax purpose. Continue reading ‘Weapons Of Mass Destruction (III)’
Monthly Archive for May, 2010
Almost twenty-nine years ago, I had the chance to watch the great football team of Internazionale Milano, and since then it has been my favorite Italian club. In the summer of 2006, the Nerazzurri (black and blue) team broke a seventeen-year Seria A title drought. After forty-five years of European misfortune, Inter has won the UEFA Champions League against the famous German team of Bayern Munich. This victory meant that the Inter coach Jose Mourinho completed the Continental Treble, winning the Champions League (CL), the Italian league (scudetto) and the Italian cup. This accomplishment has never been done by anyone in the 102-year-old club’s history. With no more to prove in Milan, the highly controversial Portuguese coach would very possibly start a new endeavor with another emblematic football club: Real Madrid. At the Bernabeu Stadium, Michel Platini handed the CL cup to Javier Zanetti, the captain who won the trophy in his 700th appearance for the club. Continue reading ‘The Name Of The Game’
According to the Treasury Department, the global demand for US financial assets strengthened in March to a record level, as investors from China to the UK purchased, amongst others, the largest amount of US Treasury bonds since November 2009. Overall, foreign investors were buying equities, notes and bonds in amount of $140.5 billion in March, after a net buying of $47.1 billion in February. It is a clear signal that foreign institutions and investors are returning to the US as the ultimate safe haven. Not surprisingly, China remained the biggest foreign holder of US Treasuries after its holdings rose by $17.7 billion to $895 billion in March. Japan, the second-largest holder, increased its holdings by $16.4 billion to $785 billion in March. Holdings in the UK gained $45.5 billion to $279 billion. Continue reading ‘The Return To Risk Aversion’
The controversial economist John Williams once said “If the federal government were a corporation, the President and senior Treasury officers would be in federal penitentiary.” Paraphrasing his statement, I would say: if governments around the world were business school students they would gloriously fail every single subject and get kicked out of school after their very first semester. I have always been a strong believer in the idea that the socialist system was the biggest failure of the twentieth century. It is all understood that socialism does not create a system built on incentives, becoming a theory inconsistent with human nature and ultimately doomed to fail. The recent financial crisis could be considered a failure of capitalism followed by a failure of the governments’ policies. The process of socializing the private losses from this crisis has shifted the troubled liabilities of the private sector (e.g., large banks, financial institutions and households) onto the books of the sovereign. Continue reading ‘Why Bother To Vote?’
After months of indecision, Europe’s politicians came up with a colossal rescue package for Greece, worth €110 billion, in which the International Monetary Fund (IMF) has a contribution of €30 billion. This is a revised sequel of the original bailout plan envisioned a month ago by the EU-16 finance ministers and IMF who had proposed a giant €45 billion emergency aid mechanism. In January 2010, European Central Bank President Jean-Claude Trichet said that the ECB would not change its collateral framework for the sake of any particular country. Following the events of December 2009 and April 2010, when Standard & Poor’s has downgraded the credit rating of Greece to BBB+ and BB+, respectively, Mr. Trichet changed his mind announcing that ECB would accept Greek bonds as collateral for loans regardless of how they were rated by credit agencies. The most representative viewpoint that I have read these days belongs to a German bar manager who said “The government is not telling us the truth. I think Greece needs more money than they are saying. Some say it’s to save Greece, but others say it’s to save the banks. Meanwhile, Greece is getting more broke.” Continue reading ‘Money vs. Politics’
According to the official data, China’s GDP has tripled since 2000, with annual growth rates ranging from 8 to 13 percent, reaching a level of $4.9 trillion in 2009. While some investors are reluctant to believe those numbers, one thing is for sure: China produced and saved while America consumed and borrowed. In 2009, the Chinese government approved a $586 billion stimulus package, equivalent to 14 percentage points of GDP. Meanwhile, the central bank has been buying dollars to prevent the yuan strengthening and to support the exports, driving foreign-exchange reserves to a world-record $2.4 trillion. Working against a market-driven system, the communist regime has exercised its command-and-control power over the banking system by fixing both the deposit and lending rates. Moreover, many experts believe that the Chinese authorities are mainly responsible for the current real-estate bubble. Continue reading ‘The Chinese Communist Bubble’
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