Goldman Recommends Credit Default Swaps Against NJ, CA, WI, FL, OH, MI, Others

[slipslidingaway]

http://globaleconomicanalysis.blogspot.com/2008/12/goldman-recommends-credit-default-swaps.html

http://www.bloomberg.com/apps/news?pid=20602007&sid=ac9AV.yzTCNw&refer=govt_bonds

"Goldman Sachs Group Inc., one of the top five U.S. municipal bond underwriters, is angering politicians and public-finance officials in New Jersey, Wisconsin, California and Florida by recommending that investors purchase credit-default swaps to bet against 11 states’ debt..."

[RB TexLa]

1. defiantly on California

[slipslidingaway]

3. From the Bloomberg article...

Where is the quick money for the little people and BTW where are the customer's yachts.

:(

"The practice of betting against such states is “distasteful,” said Frank Hoadley, Wisconsin’s director of capital finance in Madison.

Goldman ranks fifth as a managing underwriter of municipal bonds this year, handling 222 deals totaling $29.7 billion for an 8.2 percent market share. The firm has acted as lead managing underwriter in all the states it recommended betting against, except Hawaii.

Not Surprised

“Are you really surprised?” said J. Ben Watkins, Florida’s director of bond finance. “It’s dealers talking out of both sides of their mouths.”

[RB TexLa]

7. If they did not recommend this they would be doing their clients a disservice.

[slipslidingaway]

9. I believe you are correct, if there is a product to reduce risk

then they should inform their clients.

But at some point we need to take a step back and look at the potential problems...just posted this in a post below.

http://www.safehaven.com/article-9599.htm

"...And you'll be thrilled to know that in the CDS market, many an outstanding corporate bond issue has insurance written against it covering two to three times the total actual bond issue being insured. This is exactly the case with GM/GMAC. Why? Because like so many derivative vehicles these days, it's no longer about creating a specific insurance product, per se, but rather it has become about "trading" and ever expanding array of leveraged financial vehicles..."

[JDPriestly]

13. That practice should be outlawed, especially with regard to government

bonds. Believe it or not, some members of the WWII generation still buy bonds as a way of expressing patriotism.

[w4rma]

2. Those things should be illegal. (nt)

[slipslidingaway]

8. Instead we ignore the underlying problems and hand over

billions of taxpayer money.

:(

http://www.safehaven.com/article-9599.htm

"...And you'll be thrilled to know that in the CDS market, many an outstanding corporate bond issue has insurance written against it covering two to three times the total actual bond issue being insured. This is exactly the case with GM/GMAC. Why? Because like so many derivative vehicles these days, it's no longer about creating a specific insurance product, per se, but rather it has become about "trading" and ever expanding array of leveraged financial vehicles. None other than Fitch puts out periodic reports that cover their interpretation of the character of the CDS market. The latest hit the Street in the summer of 2007. Specifically in the report, Fitch states the following:


"However, while continuing to use CDS as a hedging vehicle, banks increasingly cite 'trading' as the leading rationale for employing credit derivatives. As a result, these aggregate results hide significant variation in the position of individual banks, with many actually reporting positions which show them to be major sellers of protection"


Get the picture? Do you really think the management of these big financial behemoths have their hands around implicit risk in these vehicles any more than they successfully foresaw the mortgage credit debacle that has come to us in the form of CDO's, SIV's, etc.? Umm, maybe I should have characterized that as former management in a few cases. And, of course, "former" managements still to come..."

[pnwmom]

14. "Protection" -- protection money -- what is this sounding like?

Organized financial crime.

[Greyhound]

4. Business as usual, thanks for the cash. Suckers! n/t

[slipslidingaway]

10. Looking forward to the ROI from the TARP money...

:evilgrin:

[Sebastian Doyle]

5. The governor of New Jersey is a former CEO of Goldman Sachs

Does that qualify as "insider trading"? :shrug:

[slipslidingaway]

11. :) n/t

[aquart]

6. Again, why haven't we seen the bills outlawing this crap?

You know, undoing Phil Gramm's best work?

[slipslidingaway]

12. Maybe because there is too much money to be made??? n/t