NakedShorts

Fortress’s other poo problem

Fortress Investment Group is intimately acquainted with the figurative poo generated by credit market excesses, which may or may not be fully priced into the 95 per cent poopage in its stock price from the top tick recorded on its Feb. 2007 IPO. Now, a subsidiary of RailAmerica, Fortress’s short-line railroad operation, is having its own literal poo issues. 

BAKERSFIELD, Calif. - A California short line shut down last week owing to an unusual problem: Three feet of cow manure had drifted across its main line. Wind gusts of 40 to 60 mph blew the excrement from an adjacent dairy farm across the San Joaquin Valley Railroad’s main line to a depth of three feet.

It was “like a snowdrift, but it was cow manure,” SJV assistant general manager Patrick Kerr told TRAINS News Wire. “In all my years of railroading, I’ve had snowdrifts, I’ve had sand drifts, I’ve had rockslides, but I’ve never had a line shut down by poo.”

While the idea of Wes Edens having to grab a shovel holds a certain appeal, not so much.

Kerr said the manure was dry, so it didn't smell as bad as one might imagine. The owner of the dairy farm, who had the proper equipment for removing the drift, helped clean it up.

Maybe they should get someone with the proper equipment to help clean up that other somewhat stickier manure pile. 

Manure fouls California short line [$$]

Trains News Wire Feb. 23 2009

Money hole is shovel-ready

A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The US government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidMonity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.

Joint Statement by the Treasury, FDIC, OCC, OTS and the Federal Reserve
Feb 23 2008

AIG in talks with US goverment, sees $60 billion loss

by Paritosh Bansal

Reuters Feb. 23 2009

Citi in talks over bigger U.S. stake - report

CNN Money Feb. 23 2009

An illustrated TARP

Doing the rounds...

Wash. Lather. Rinse. Repeat. [Original source].

Thanks, JH.

Great days in securities fraud

Mark-to-market. Mark-to-mystery. Now, Mark-to-Madoff.

The Obama administration is close to deciding on a plan to purchase bad — or non-performing and illiquid — assets from banks, according to industy (sic) sources. The plan could be announced early next week.

The so-called “bad bank” plan, would address the key problem of how to price the assets by using a model-pricing mechanism. The model would take account of the government's ability to hold onto assets, even to maturity, and pay for the (sic) them with cheap funding. 

Result: the government might end up paying more
than current market prices for the securities. 

Another triumph for The Price Discovery Suppression Society. And, no matter what, the crookes will be paid. Again. 

Plan for Banks’ Toxic Debt May Be Unveiled Next Week

by Steve Liesman

CNBC Jan. 27 2009

FDIC May Run ‘Bad Bank’ in U.S. Plan to Remove Toxic Assets 

by Robert Schmidt and Alison Vekshin

Bloomberg Jan. 27 2009

News you can’t use

Timmy G. advocates Turbo Tax Dollar

It would probably save a lot of trouble to just include this line in the Secretary of the Treasury’s oath.

A strong dollar is in America’s national interest

Assuming, of course, that America’s national interest includes making exports less competitive, driving consumers (if any) to Bed Bath & Beyond (and similar) for the latest useless carp (Possible typo — Ed) imports, and making Cap d’Antibes apartments more affordable for the little people.

Geithner Says a ‘Strong Dollar’ is in US National Interest

by Brendan Murray

Bloomberg Jan. 22 2009

 

 

Great days in customers’ yachts

M&T v. Deutsche Bank Edition

It’s finally dawning on market players and investors
that Wall Street’s interest and those of
investors have never been aligned...Investors
are beginning to say to themselves: ‘Hey, there
is someone who will benefit if this doesn’t go well.’

While the preferred outcome here would be humiliating defeat for both sides, the answer to two questions would be interesting:

1. How many people at M&T actually read the “390-page offering document with detailed descriptions of the kinds of bonds that would go into” the dodgy CDO; and
   
2. How many of those actually understood that which they read? 

After Sure-Bet Investment Fails, a Bank Contends It Was Duped

by Vikas Bajaj

The New York Times Jan. 20 2008

NOTE: Editorial brain-fart involving the name of the alleged victim bank corrected.

  

I’m from S&P and I’m here to help

NEW YORK, Jan. 14 /PRNewswire/ — Standard & Poor’s, the leading provider of financial market intelligence, has announced the launch of Valuation Scenario Services for Structured Asset Portfolios, a new service to help investors evaluate the intrinsic value of structured assets and complex securities. 

Having made such a huge success of ratting structured assets and complex securities, this is sure to work out just fine.  

S&P Launches Valuation Scenario Services

PR Newswire Jan. 14 2008

Tug o’ the forelock: Fintag

Cioffi losses recovered in secret deal

Apparently, the trick to getting back money from the Bear Stearns hedge funds that went to the incinerator in mid-2007 was to be a resident of the Commonwealth of Massachusetts, and having secretary of state William F Galvin brew up a secret — whoopth — deal.

During the fall of 2007, Bear Stearns, the parent company, sought to reach what seemed like arbitrary settlements...Those who invested in May or June 2007 and accepted in the offer got all their money back; those who invested between January 2007 and April 2007 and accepted the offer got two-thirds of their money back; and those who invested before January 2007 and accepted the offer received one-third of their money back...

...Galvin’s November 2008 settlement with JPMorgan Chase put $9.3 million back in the pockets of the fortunate Massachusetts investors, giving them 100 cents on the dollar and, in many cases, topping up their original settlements with Bear Stearns...

Investors who may not have fared so well should probably call David Weintraub, the lawyer at JPMorgan Chase who is handling the investor deals. But if the phrase “Go pound sand” comes up, don’t say you weren’t warned. 

Nice job, Bill. Apart from the secrecy bit. But that seems all cleared up now. 

The Bear Stearns Lucky Bastards

by William D. Cohan

The Daily Beast Jan. 14 2008  

Administrative Complaint

In the matter of Bear Stearns Asset Management

Nov. 14 2007

Lying liars call in expert advisors

The malevolent chimps of the American Securitization Forum, fresh from master-minding the global financial pandemic, have called in AAA-ratted exponents of the black arts of spin-meistering, post-hoc fabulism and plain ol’ makin’-stuff-up to headline their annual conference.

Announcing: Karl Rove and James Carville 

This session will offer a dynamic discussion presenting competing views on the impact of the new administration and the Democratic congress on securitization, and the financial markets generally, given the current market and economic turmoil.

The appearance of Rove (especially) and Carville will be helpful in restoring at least some of the conference’s sleaze ratio, which might otherwise have been severely diluted by the absence of John Devaney and his United Capital Group from its sponsors’ ranks. 

Devaney, 38, paid for comedians Jay Leno and David Spade to perform in previous years. This time, he's sponsoring dinner and a show by the Blue Man Group, a theatrical troupe that sprays paint on the audience and vomits fake food. 

The conference’s ‘Lead Sponsor’ list still happily extends to such pinnacles of securitization probity as FitchRatings, Moody’s Investor Services and Standard and Poor’s. Probably expensing their presence on the promotion budget’s RICO line. 

Non-fake vomit after the jump.

Dubai cooling (in more ways than one)

Speaking of rapidly unspooling Ponzi schemes, let’s head, hotfoot, to Dubai, the crane-enveloped entrepôt and money-launderer to a world with rather less money than it thought.

Versace, the renowned fashion house, is to create the world’s first refrigerated beach...next to the new Palazzo Versace hotel...

The beach will have a network of pipes beneath the sand containing a coolant that will absorb heat from the surface...

Obviously, the resort of choice for anybody who forgot to pack their flip-flops. 

Chill out, you beautiful people

by Jonathan Leake

The [London] Sunday Times Dec. 14 2008

Tug o’ the forelock: Raj. 

It’s Schadenfreude Saturday!

Capping the payoff

Having earned been paid $115 million since 1999 for taking lunch and, on a busy day, pontificating, former Treasury secretary Bob Rubin capped his payoff for helping debauche Glass-Steagall, without which intervention Citi might still be a functional financial institution rather than a ward of state. 

Not forgetting, of course:

Inside and outside the bank, Mr. Rubin is blamed by some for pushing Citigroup to rev up risk-taking as the housing and derivatives bubbles expanded — a move that has saddled Citigroup with tens of billions of dollars in write-downs and necessitated a sweeping government bailout of the financial giant...Citigroup’s share price is down 70% since he came on board. 

In the next turn of the revolving door, NakedShorts has the over/under on Hank Paulson joining the board of JP Morgan Chase (or similar) at Sep. 2009. And is taking the under. (Related links after the jump).

Bailing on another Ponzi

The eponymous J. Ezra Merkin resigned as chairman of GMAC LLC, slipping over the gunwales of the Cerberus-GM joint venture under cover of a “board restructuring” triggered by a TARP-funded bailout that, but for the fact that TARP has no rules other than whatever Hank & Neel say they are, seemed to have broken every rule in the book.

Mr Merkin stands at an intersection of two of the largest current business stories — the federal bailout of the auto companies and the Madoff financial scandal. 

In addition to being chairman of GMAC, Mr Merkin is a hedge fund operator who invested more than $1.8 billion of his clients’ money with Mr Madoff. Mr. Merkin’s three private investment funds — Ascot, Ariel and Gabriel — are among the largest of the so-called feeder funds that placed investors’ money with Mr Madoff without their knowledge, according to the investors. Mr Merkin collected millions of dollars in management fees annually for his work.

Among all the allegedly professional money managers hit by the Madoff fraud, Merkin has been the most egregiously self-pitying, whimpering, in his Dec. 11 letter to his Ascot Partners LP hedge fund investors that “As one of the largest investors in our fund, I have also suffered major losses from this catastrophe.” At least with GMAC off his plate, he’ll have plenty of time for the deposition hell that awaits.(Related links after the jump).

Gross miscalculation

Barrons’ is out with the first part of its annual WrongTable (© Alchemy of Trading) this weekend, and the first question indicates pretty much how everybody did. 

Barron’s: Let’s forget about 2008 — and that includes most of your stock picks. With the market down 36% from its highs, the government bailing out everything in sight and a new president coming to town, what is the outlook for 2009?  

And my personal favorite, if not the worst, of the records on display? (Click for a more legible image).

Of course, at the beginning of 2008 Gross had neither established his stranglehold on Fred Reserve policy, nor had Pimco been named among the four entirely unconflicted investment managers — with Goldman Sachs Asset Mgt, BlackRock Inc and Wellington Mgt Co — that will help Fred’s New York branch buy in $500 billion worth of mortgage-backed securities by mid-2009. So Bill’s 2009 picks, which should show up next week, might be worth following. Unless, of course, he needs to unload a little something on the great unwashed. (Related links after the jump).

Ripped from the headlines

No mere Buffett, a 14-course menu

Dear Mr. Buffett

What an Investor Learns 1269 Miles from Wall Street

by Janet Tavakoli

Wiley 2009 $24.95 (list) Hardcover

Chicago derivatives consultant Janet Tavakoli is a rare jewel in the financial markets. Arguably best known for weighty textbooks with such alluring titles as ‘Structured Finance & Collateralized Debt Obligations,’ she has a nice sideline in delivering uniquely pungent commentary on credit-related conundra in venues including her own website, US Securities and Exchange Commission comment filings, and on-the-record in the allegedly grown-up media where “people familiar with the matter” usually lurk.

Most remarkably, she deserves as much acclaim as anybody, and much more than most claimants, for calling both the cliff-edge and the depth of the ravine into which global capital markets have tumbled. 

But another Buffett hagiography? Is anything left to be said about Avuncular of Omaha, the genial great white with a penchant for apparently ignoring his own epithets (especially that one about “financial weapons of mass destruction”)? Just in the last few months we’ve had ‘The Snowball,’ Alice Schroeder’s near 1000-page authorized doorstop; Roger Lowenstein’s ‘Buffett: The Making of an American Capitalist;’ and ‘Pilgrimage to Warren Buffett’s Omaha,’ Jeff Matthews’ dispatches from the Berkshire Hathaway annual meeting. Among plenty of others.  

But this book is much more than mere make-weight for Barnes & Noble’s Buffettophilia section. It is just as much the first of what will doubtless be dozens of books telling the story behind the global dodgy asset securitization scam, which Tavakoli, noting the first breathless Madoff Meltdown headlines, recently characterized as the real “largest Ponzi scheme in the history of the capital markets.” 

It’s great to have an open mind,
but don’t leave it so
open that your brains fall out

A long-time Buffett fan and Berkshire Hathaway shareholder, Tavakoli builds her plot around a fitful correspondence that turned into an afternoon in Omaha where her low expectations — “If Warren had simply avoided overt rudeness, it would have been an upgrade from most finance professionals” she had dealt with — were dashed on the rocks of mutual respect and a shared thesis, in the dog days of late summer 2005, that the world had strapped itself into a handbasket headed straight to financial hell.

UBP sings for its Madoff clients

Private and Confidential –
For the Sole Use of UBP Investors

NakedShorts today received a video of a UBP marketing assistant, closely watched by her supervisor, vocalizing a document entitled ‘Update on the Madoff fraud case: Questions and Answers’ to a group of French-speaking investors. (The full document, featuring such reassuring sentiments as “Investors should rest assured that this affair has not affected the Bank” — “Hey, you mutts, it was your money!” — is available at the link below the video. A translation of the French lyrics is available after the jump). 

More come Monday.

UBP’s Primer on Madoff

by Bess Levin

Dealbreaker Dec 19 2008

More great moments in Excel

Tonya’s still got game.

“It’s not that all of the models are wrong,” said Tanya Styblo Beder, chairman of risk-management adviser SBCC Group in New York. “The problem is that people made simplifying assumptions so the calculations were manageable and then had no warning labels to help the users understand the ramifications of these assumptions.”

Not only that, they took out the ‘Help’ file, and replaced it with a ‘Help Yourself’ bonus pool. Cha-ching!

AIG Writedowns May Rise $30 Billion on European Swaps

by James Sterngold

Bloomberg Dec. 17 2008

On Wall Street, Bonuses, Not Profits, Were Real

By Louise Story

The New York Times Dec. 17 2008

Difference? Mainly, the scale of the fraud

Separated at Birth?
Letters, Private Eye
Dec 12 2008

Second prize, two free tickets

Click for a larger image

(For the elimination of doubt, NakedShorts is not (even under the assumed name above) a BusinessWeek subscriber. He is merely registered with its website, mostly to keep up with what Matt | Goldstein has his teeth into at any given moment). 

Citadel’s redemption new math

On a video conference call, Ken Griffin explains to investors that earlier statements concerning redemptions from Citadel’s two largest hedge funds are inoperative: “I don’t want to talk to you no more you empty-headed animal food trough whopper. I fart in your general direction. Your mother was a hamster and your father smelled of elderberries. Now go away or I shall taunt you a second time.” (Source (@ 1:40)).

[Citadel chief operating officer Gerald] Beeson stressed Friday [Oct. 24] that the firm holds about 30% of the investment capital of its funds in cash and Treasury bonds, which are held at its custodian, Bank of New York Mellon Corp.

Citadel also has access to $8 billion of financing via so-called triparty repurchase agreements that the firm hasn't used, he said. “We will continue to have sufficient capacity to meet our funding needs over the short and medium term.”

That was then. This is now.

...Investors who asked to withdraw money at year end from Kensington and Wellington, with a combined $10 billion in assets, won't be allowed to, the Chicago firm said in a letter on Friday. Otherwise, $1.2 billion would have come out, complicating Citadel’s attempt to resuscitate its performance following its hedge funds’ worst-ever year. 

The move follows repeated assurances from Citadel that redemption requests wouldn’t pose a problem. The firm’s total assets have shrunk to about $13 billion from $20 billion at the start of the year. Mr. Griffin says in the letter that “in today’s highly volatile markets, maintaining financial flexibility must be a priority.”...

So, here’s the math, by math whiz Ken Griffin.

$3 billion (±30% of (remaining) funds in cash and equivalents) 

+ $8 billion (available financing) 

= $11 billion

=  ±10 x $1.2 billion in requested redemptions 

= “Maintaining financial flexibility must be a priority.”

QED. Or, as this math whiz resolves the equation, WTF? If nothing else, it makes that stuff about eating expenses normally extracted from investors look a whole lot less classy than it did as recently as Thursday, when it first hit the wires. 

More links than an investor’s chains, after the vache.

Fortress raises redemptions Drawbridge

A snake in the garden of Edens 

[CORRECTED Dec. 3] Translated from the original filingspeak, it seems that Fortress Investment Group has determined that it needs the money more than investors now seeking to pull $3.5 billion — or, pretty much half the whole pile —  from its Drawbridge hedge funds: 

On December 3, 2008, the advisor to the Drawbridge Global Macro Master Fund Ltd (the “Fund”), Drawbridge Global Macro Fund Ltd, Drawbridge Global Macro Fund LP and Drawbridge Global Alpha Fund V Ltd (each, a “Feeder Fund,” and, together with the Fund, the “Funds”) informed the Funds’ investors that the Funds have received notices of redemptions in relation to both the November 30, 2008 and December 31, 2008 redemption dates for approximately $3.51 billion (“Requested Redemptions”). The amount of Requested Redemptions includes $1.5 billion of redemption notices received through November 1, which amount was previously disclosed during Fortress Investment Group LLC’s (the “Company”) third quarter earnings call on November 13, 2008.

The Boards of Directors and General Partner of the applicable Feeder Funds have...acted unanimously to temporarily suspend pending redemptions from the Fund. This action will result in amounts requested for redemption with respect to the November 30, 2008 and December 31, 2008 redemption dates remaining part of the Company’s AUM for so long as the suspension remains in effect. Taking into account the redemption notices received, the suspension of those redemptions and the anticipated restructuring of the Funds, the Company estimates that the Funds’ AUM as of January 1, 2009 will be approximately $3.65 billion. [Emphasis added]

Or, if it actually gave the money back to the people it belongs to, $150 million. 

Fortress Investment Group LLC
SEC Form 8K Dec. 3 2008

Get yer rubbish CDOs here

Snipped from the ad that filled page 10 of this week’s edition of Hedge Fund Alert:

(Click for larger image)

Taberna? Oh, that Taberna. The one with the familiar fingerprints.

...It was at CSFB that Mr Ricciardi and team first met Daniel Cohen and the Cohen Brothers team. Together, they created what at the time was the first Bank Trust Preferred CDO to be managed by a third party manager...One of the most successful and creative new products created by Cohen Brothers was the REIT trust preferred CDO. This product, known as Taberna, was underwritten by Merrill and managed by a Cohen Bros affiliate...

ZionsDirect Auctions

Hedge Fund Alert

Earlier on NakedShorts

Memo to Henry Waxman

Nov. 11 2008

Wot? No dwarf-tossing?

Party animals kept Sentinel trader buying

It’s been all too long since failed futures cash manager Sentinel Management Group troubled these pixels, but it seems that bankruptcy trustee Fred Grede has not run out of people to sue. This week’s effort involves allegations that FTN Financial Services and a couple of its brokers unloaded highly dubious drekk on Sentinel head trader Charles Mosley by, inter alia, unlawfully showering...

...Mosley with vacations, tickets to sporting events, expensive meals, all-night drinking excursions, limousine rides, plane tickets, golf outings, and the use of condominiums and houses belonging to the brokers...

...These inducements went far beyond typical or acceptable levels of client entertainment measured by the value of the gifts and favors offered, the frequency of the offers, the proximity of the offers to sales, the implicit quid pro quo nature of this entertainment, and the extent of the debauchery involved in many of the events.

Grede regrettably fails to embellish the ‘debauchery’ allegation, but it certainly sounds like the lads had a whole lot of fun. 

• In approximately mid-April 2005...Folan offered Mosley a trip to Memphis, Tennessee, where FTN had its headquarters, and stated that he would try to get tickets for an NBA basketball game...
• On August 10, 2005, Folan offered Mosley tickets to Chicago Bears football games...  
• On August 15, 2005, Folan offered Mosley and his assistant the opportunity to stay at Folan’s vacation home at the Geneva National Golf Club in Lake Geneva, Wisconsin for lunch, dinner, entertainment and golf. This was one of at least three trips Mosley took to stay at Folan’s Lake Geneva home for parties and golf... 
• On September 12, 2005, Folan offered to pay for a trip for Mosley to New York in early November 2005. In October, Folan in fact purchased plane tickets and paid for hotel accommodations for himself and Mosley for the trip...
• On or about November 9, 2005, Folan paid for Mosley’s ticket to a Chicago Bulls basketball game.

You get the general idea. Then, the partying got serious. 

The planned dinner meeting between Folan, de St. Phalle and Mosley took place on March 1, 2006, at Entourage, a restaurant owned by a friend of Folan in Schaumburg, Illinois. At about 3:00 pm, Folan had a limousine pick Mosley up at his office in Northbrook and drive him downtown, where he met Folan at a bar in the Rush Street area for drinks. Then, Folan hired a limousine to take them to Entourage with de St. Phalle and others. After dinner, a limousine transported Mosley and the others back to downtown Chicago for a drinking binge that lasted until about 5:00 the following morning. And finally, Folan hired a limousine to take Mosley home to Vernon Hills.

Sounds like normal course for fixed income securities transactions in Chicagoland to these cynical ears, but several things: