Turning S**t into Money

[F-One]

Here we go again Saw this article in Bloomberg about Morgan Stanley turning crap CDO's into AAA rated investments for the short attention spanned 'players" in banking and insurance industry.

From the article:

‘Make Magic’     
        The strategy is increasingly being used for commercial mortgage debt. 
        Standard & Poor’s said on June 26 that it may lower the rankings on
        $235.2 billion of bonds backed by loans on properties such as office 
        buildings and shopping malls. Banks have issued about $2 billion of 
        the debt in the last three weeks, according to Barclays Capital. That 
        compares with $5.8 billion of similar offerings in all of 2008, Credit 
        Suisse Group data show.     
        “Somebody does something and it seems to make magic, and the 
         other guy says ‘Hey, let’s do that, too,’” Raynes said.

Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds - Bloomberg.com

 

[Leonidas]

I'm going to go get another cup of coffee and read this again. It's not making much sense given recent events. Didn't we already try this once?

A lot of banks and insurers “cannot buy anything but AAA,” said Sylvain Raynes, a principal at R&R Consulting in New York and co-author of “Elements of Structured Finance,” which is due to be published in November by Oxford University Press. “You’re manufacturing AAA out of not AAA, therefore allowing those people who have AAA written on their forehead to buy.”

 

[freebird5825]

Maybe it's a game of "playing chicken" with the SEC?

I freely admit that I really don't understand this CDO stuff, but it's pretty obvious even to me it makes no sense.

 

[Leonidas]

I freely admit that I really don't understand this CDO stuff, but it's pretty obvious even to me it makes no sense.

There was a good explanation on Netflix I watched sometime back, but can't remember the name at the moment. But here's a good 5 minute explanation.

YouTube - Crisis explainer

The coffee is not working this morning because I'm just not understanding how this is any different than just reconfiguring the CDO a little to make the same assets AAA by MS magical powers. Did they add collateral, or reduce the underperforming assets, or just rejigger the tranches while increasing their take on the deal?

 

[freebird5825]

There was a good explanation on Netflix I watched sometime back, but can't remember the name at the moment. But here's a good 5 minute explanation...

That was excellent. I understand the concept. TY
Using the same analogy of the champagne glasses, "upgrading" the lower quality "glasses" on the bottom rung to look like the better quality ones on the top rung is akin to pulling a glass from the bottom of the stack.
Glass breaking as the pile collapses.
GIGO.