Merrill’s CDO’s: ‘They Knew What They Were Doing’

Posted on July 31st, 2008 in Daily Mortgage/Housing News - The Real Story, Daily Stock Market / Economic News - The Real Story, Mr Mortgage's Personal Opinions/Research

This story is amazing. In 2007, during the time in which subprime lenders were collapsing and defaults soaring, Merrill was packaging up and selling $30 billion in rotten CDO’s and selling them as fast as they could.

Everyone already knows about the Merrill 5.47 cents on the dollar CDO deal that just went down. In case you missed it her e is the link.

Now, of course, many are coming out saying ‘but but but that was for the worst of the worst CDO’s’ and ‘but but but, 2005 vintages were not as strong as recent vintages’.

That is not the truth. The truth is that Merrill’s marks are very similar to National Australia Banks write-down earlier this week and other banks with similar holdings will likely have to write down their holdings similarly. Meredith Whitney said the same today in her interview on CNBC. It was great.

Now, Janet Tavakoli, CEO of Tavakoli Structured Finance is coming out and telling the truth about Merrill’s deals in a report to her clients yesterday Elinor Comlay at Reuters reports.

She said that ‘of the 30 CDO’s Merrill sold in 2007, every one have performed poorly with either its best-rated portion cut to junk, is in technical default, is being liquidated, or is in danger of being liquidated.

‘The poor performance suggests that Merrill was underwriting deals it knew or should have known were bad’, Tavakoli said.

She also said “investment banks have a huge credibility problem when trying to explain that they didn’t know the gun was loaded” and “it is one thing to have documents that disclose risks…it is quite another to bring deals to market that you knew or should have known were overrated and deeply troubled the day the deal closed”.

I believe this entire Merrill ordeal is a watershed event and not of the same type Cramer was relentlessly pumping today.

Below is a listing of all CDO’s underwritten by Merrill in 2007 and their present status as of 6/10.

This is $30 BILLION of trash in eight months. The problem her e is subprime, Alt-A and even Prime whole loans and MBS (CDO parts) were under heavy pressure, subprime lenders were failing and defaults were surging during this period. I tend to agree with Janet…they knew exactly what they were doing. .-Best Mr Mortgage

click the image to see the full page!

EOD, an event-of-default, means the CDO is in technical default. Investors or other
parties involved in the transaction may then request ‘acceleration’, meaning the
principal and interest becomes due and payable immediately, or liquidation, in which case
the CDO’s collateral is sold.

Toast’ to CDOs for which all the originally “triple A” tranches have been downgraded below investment grade by at least one rating agency.

Source: Reuters Story by Elinor Comlay

9 Responses to “Merrill’s CDO’s: ‘They Knew What They Were Doing’”

  1. Crime pays. The trick is to not get caugh, have a fall guy or straw man to take the blame. Real fine crap. They weren’t quick enough. Anyways the taxpayers will be paying for many many years. I wondered, why only Merrill ? Who is next ?

  2. As I understand it , the tax payers don’t pay a penny in these cases Marc. The primarily foreign investors just lose all their money.

    Request to Mr Mortgage. There is no coverage of the process for mortgages and the associated properties connected with securitised bonds. . Are they being foreclosed. If so who holds them . Are they called REO. Does anyone count them. Are they being sold or are they just sitting there etc.

    All the coverage seems to be of what happens to direct mortgages and properties that go directly to the lending bank..

    In the case of securitised bonds as I understand it, there is no longer any lending bank in the chain; just a service agent and a trustee entity of some kind.


  3. Not suprised…why do i get the whole Japanese lost decade vibe with this mess?

  4. Why should we be surprised? They danced untill the music stopped and the chairs were taken away.
    What is realy bad about this latest develompent is that other ‘dancers’ may be forced to take simillar actions before the end of the next quarter which is the end of September.
    What will we see before the election?
    More importantly, what will we see after the election?
    God help the next president.

  5. Well Miste Cox these were really stupid foreign investors. You are certainly right on these CDO’s tranches Mr. Cox. Stupid foreign investors that still believe in the mystique about the USA financial markets. And these dumb asses keep on coming back for it ! At least for now. That’s what so dramatic. One day foreign investors which an IQ of about 2 when it comes to the USA, will have finally learned something precious, and they will keep their money at home. For good.

  6. This whole country is nothing more than smokey mirrors. I don’t think investors will ever stay away even when they know the truth. I’s a lot like Hollywood and Wall St. Everyone knows the industry is manipulated, but we all still jump in or can’t help but watch.

  7. who bought this crap, my parent’s pension fund? What country will start world war IV over this garbage? Some dummy out there bought this crap and is palming it off on innocents and I want to know who and where………….

  8. The supply of dumb jerks accross the world is infinite Catherine. Don’t worry.

    These gangster will find some dumb jerk to buy. Want to knonw: German banks, French credit unions, British mortgages companies, Canadian banks, Quebec pension plan, Russian banks, Stupid arab dictators, stupid iranian dictators, Chineese banks, Chineese mobster, Japaneese insurance companies, UBS assholes and theirs assholes clients and shareholders. etc….. etc …. etc…….The list goes on and on and on and on. That’s what great with securitization. These scumbags could sell the shit and diffuse the crap EVERYWHERE in every crannie of the world financial system. A global ponzi imperial game.

  9. […] leads Mr. Mortgage to suspect that other banks with similar holdings will have to have more writedowns as […]

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