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Treasurers, Watch Out for This Security

The wizards of Wall Street have cooked up a new structured-finance product that could start showing up in money-market fund portfolios.

Vincent Ryan, CFO.com | US
May 6, 2011

Garbage Has to Go Somewhere

Wall Street has hundreds of billions in garbage to repackage into profitable assets. I don't begrudge them for trying another take on these structured products thru the collateralized commercial paper offerings. I do blame the rating agencies for willfully turning a blind eye to them by intentionally not evaluating the core risks. As the story says, "In rating Barclays's offering last November, though, Moody's said it did not 'undertake any assessment of the quality or liquidity of the collateral, nor . . . examine the strength of the repo arrangements or any potential mismatch in terms or rates between the CP issuance and the repo agreements.'" Aren't the quality and liquidity of the collateral sort of important to commercial paper assets? Wouldn't we really care about the strength of the repo arrangements and the terms/rates mismatch? Shame on Moody's for taking fees on this one. And for investors, it's the same game as well: a few more bps and a lot more risk - as long as the world works, the results are good and the bonuses flow. But, if there's trouble in the underlying securities...

Posted by Pete Hastings | May 19, 2011 08:33 am

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