Former Lehman Traders Look to CRE

Chidem Kurdas

Could it be that commercial real estate presents

Who Will Pay for Bad Mortgages?

Chidem Kurdas

The good news is that the US economy continues to grow despite panic rounds caused by the European debt crisis. The not so good news: housing losses continue to drag the economy while regulators, banks, investors and homeowners battle over who will bear the brunt of the real estate bust.

The problem is how to allocate the losses, said Joseph Tracy, executive vice president at the Federal Reserve Bank of New York,

Advertisement

Long Twilight of Bear Fund

Chidem Kurdas

Credit fund failures in 2007 were the first public sign of disaster at Bear Stearns, some nine months before its bailout by the Feds and sale to JP Morgan.

Collateralized Loans Attractive, Recession Risk

There was a time when people recoiled from collateralized anything, after the real estate crash hit collateralized pools of mortgage-backed securities. Though no comparable disaster befell pools of loans, collateralized  loan obligations were nevertheless affected by fear of toxic assets.

Apollo Senior Debt Fund

Chidem Kurdas

With the flow of leveraged buyout deals not likely to recover any time soon, big private equity firms are increasingly focused on other types of investments. Thus Leon Black’s Apollo is to start a fund to invest primarily in senior secured loans issued by below-investment-grade companies.

This is separate from the $400 million collateralized loan obligation Apollo is reportedly raising with JP Morgan as the marketer.

Lehman Veterans Ride Credit Cycle

Chidem Kurdas

Long/short credit funds were the top performers year-to-date as of July, returning about 7% according to Greenwich. That’s pretty good, considering that the Greenwich Global Hedge Fund Index is up only 1.3% while major equity markets are in the red.

In large part this a classic story of bottom feeding. Snap up paper that got labeled “toxic” in the crisis and became absurdly cheap. Then wait till prices start moving back to reasonable levels—which did not take as long as one might have expected from the severity of the crisis.

A credit fund that’s found favor with certain large investors is One William Street Capital Partners, started by David Sherr, who headed Lehman Brothers’ securitization business but left more than a year before the bank’s collapse in 2008. 

Repo Credit Lesson from Paulson Auditorium

Chidem Kurdas

A broker does a repurchase transaction with a hedge fund. Mortgage-backed securities are the collateral. The fund get short-term financing; the broker holds the securities. This market broke down in 2008 and never recovered to pre-crisis levels. What happened?

Strange Twists in Goldman Sachs Fraud Case

Chidem Kurdas

From the Securities and Exchange Commission’s claim, “Goldman Sachs failed to disclose to investors vital information …. in particular the role that a major hedge fund played in the portfolio selection process,” you might think that John Paulson, the manager of  the hedge fund in question, was Goldman’s secret partner in the subprime mortgage-based collateralized debt obligation called ABACUS 2007-ACl.

In fact, Goldman introduced Paulson & Co. to the main party in the deal, ACA.  Mortgage-backed securities specialist ACA Management picked the underlying securities for the portfolio; its parent, bond insurer ACA Capital, took on the credit risk by insuring the notes.