Stracia Blog - Comments

Tokyo Todd comments on No Clear Way Out

Tokyo Todd — Thu, 29 Jan 2009 19:52:06 +0000

Maybe because I wasn't alive during FDR this all seems so strange, but I can't get used to these huge numbers being spent on just about anything for any reason at all! There's not a single approach or logic to any of it. Its completely random and only digs the holes deeper. If anyone has any money to invest or spend now, there's absolutely no incentive to do it. In fact every government step has created a deterrant. Not to mention, no one has addressed the scandals nor the government's inability to audit business. -- It all sucks from all sides.

Stracia comments on Cartel Blanche III: The Little Superfund That Couldn’t

Stracia — Mon, 31 Dec 2007 22:03:54 +0000

We answered our own challenge when, the day after this post, an article in The New Yorker mentioned collusion in reference to the superfund. (Baines suspects the reference itself of being a Surowieckipedian collusion, of sorts, if you know what he means; oh nevermind, he says.)

Stracia comments on Cartel Blanche

Stracia — Sun, 16 Dec 2007 18:03:28 +0000

RE "Credit Suisse v. Billing": The Supreme Court determined (i) that certain IPO practices violated securities rather than antitrust law, and (ii) that an antitrust enforcement represented a risk to the securities market. Which goes to our original question: Even if the superfund is a cartel, is that such a bad thing? At this stage of the credit crisis, the answer seems to be no; but for precisely that reason, in our view, sellers remain unwilling to deal with the cartel. Given that the securitized debtholders expected to benefit from the superfund are no more (or less) sophisticated than IPO investors named in the Credit Suisse case, the case is highly relevant and raises the question: Assuming that the superfund were successful, would the Treasury Department's blessing protect the fund from antitrust enforcement? We have always supposed that the answer turns in part on how successful the superfund is -- on whether, unlike in the Credit Suisse case, the superfund could be shown to be a conspiracy in restraint of trade. Of course, as long as the superfund's very structure precludes interest on the part of its supposed beneficiaries, we suppose this point will remain moot (and also interesting).

Stracia comments on Cartel Blanche

Stracia — Sun, 16 Dec 2007 17:22:40 +0000

Martin: Right you are... Not only do the fund sponsors realize the benefits of colluding to set prices, but that very collusion provides an inflated price-basis against which to value their own distressed vehicles. So they win, and win again -- but only if willing sellers come to the table. We imagine that, whatever gains the fund sponsors might see from holding new beaten-down securities long-term (and, less significantly, from their ability-by-fiat to make a market here), even the big three have to hope that the subprime crisis doesn't get so bad that the superfund begins to look attractive to sellers. As you say, the vicar's wife is rolling in her grave, as that would be a bad situation, indeed -- and probably the only kind of situation in which the cartel nature of the superfund would go unchallenged.

Martin comments on Cartel Blanche

Martin — Fri, 30 Nov 2007 13:23:42 +0000

If I understand correctly, the purpose of this fund is to buy securities from distressed SIV's to prevent them having to sell them in the open market. This means that the participants are willing to enable the fund to pay higher prices that these securities would fetch in this open market, or the SIV's would not sell them at those prices. This means that the participant have an incentive to do so, or they would be wasting their own money. The incentive is that, by keeping these assets at these inflated prices, they are able to use those prices as "observed market prices", thus using them for the valuation of their own portfolios. As to the true value of the assets, both in the portfolios of the SIV's and in the portfolios of the participants, I am reminded of the joke about the English vicar's wife when someone explained Darwin's ideas: "My dear, let us hope that it isn't true, but if it is, let us pray that nobody finds out."

Good question comments on Cartel Blanche

Good question — Mon, 19 Nov 2007 19:30:31 +0000

See Credit Suisse v. Billing, 2007