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Insanity Returning at Morgan Stanley, Enabled by Moody's?



July 08, 2009 – Comments (5) | RELATED TICKERS: MCO , MS

You've got to read this Bloomberg article!

"Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings...", according to Bloomberg. Huh? Have we learned NOTHING in the past year?

"...manufacturing AAA out of not AAA,..." which is what a CDO does, has proven to be a financial time bomb, and less than a year after the last bomb bursting, we're at it again. No doubt the engineers of this slime will get paid humongous bonuses, as will the corrupt masters at Moody's for labeling this junk AAA.

Would there really be anybody willing to buy this junk? And why is this still legal?

5 Comments – Post Your Own

#1) On July 08, 2009 at 5:11 PM, portefeuille (98.93) wrote:

why should they not do it. that is how CDOs work.

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#2) On July 08, 2009 at 6:03 PM, Evlampius (< 20) wrote:

There will be a huge demand btw... Government Toxic Assets Relief Program - a program specially designed to get the toxic crap away from banks balance sheets. I think it's a win-win situation.

So whats your point?

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#3) On July 09, 2009 at 2:18 PM, leohaas (30.09) wrote:

Sure it is how CDOs work! I understand that. But what I don't understand is who would take the risk of buying this junk. The fancy math underlying the AAA rating has been proven to be false.

Am I really all by myself here?

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#4) On July 09, 2009 at 2:41 PM, portefeuille (98.93) wrote:

There is no "fancy math" underlying the ratings. The problem were the assumptions made by the rating agencies.

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#5) On July 09, 2009 at 5:51 PM, nottheSEC (80.76) wrote:

If it walks like a duck and talks like a duck it may not be a duck but in this climate we cannot bear a down feather

From aforementioned Wikipedia...A few academics, analysts and investors such as Warren Buffett and the IMF's former chief economist Raghuram Rajan warned that CDOs, other ABSs and other derivatives spread risk and uncertainty about the value of the underlying assets more widely, rather than reduce risk through diversification.


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