U.S. Reportedly Probing Morgan Stanley's Mortgage Deals

The Wall Street Journal reports that the Justice Department is in the preliminary stage of an investigation into whether Morgan Stanley "misled investors about mortgage-derivatives deals it helped design and sometimes bet against." Instead Abacus, the collateralized-debt obligations that Goldman Sachs is under fire for, in this case, there are the "Dead Presidents" deals, named after Presidents James Buchanan and Andrew Jackson.

The WSJ points out that the prosecutors have an uphill battle, plus, "Morgan Stanley wasn't among the biggest players in the CDO market. Although the firm made money on the Dead President deals, any profit was overshadowed by the $9 billion the firm lost on bullish mortgage bets in 2007, a person familiar with the matter said." Morgan Stanley CEO James Gorman said, "We have not been contacted by the Justice Department about any transactions that were raised in The Wall Street Journal article. We have no knowledge whatsoever about the Justice Department investigation."

Reuters reports that a banking analyst said "trial by innuendo" and suggested that the government leaked the story (well, duh), "Is this how Americans believe their government should act? Are we now in an era when government can slander and destroy reputations by attacking people with press leaks?" And for more Abacus vs. Dead Presidents analysis, check out the WSJ's Deals blog: "Note to future CDO-structurers. Choose benign things like fruits, vegetables, and mountains when naming your deals."

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By Jen Chung in News on May 12, 2010 2:50 PM

Comments [rss]

inoyourider

Fannie and Freddie are the ones buying the shit now that it is worthless.

The theory is that the mortgage industry needs Fannie and Freddie as investors so that the banks have enough money for day to day business.

The reality is that Fannie and Freddie are government sponges for the private banking industry's messes.

drewo

Oh, those evil banks. If only the government can take them over and show 'em how it's done.

Meanwhile the evil government is throwing billions into it's own program, the black hole know as Fannie Mae/Freddie Mac. Why, just last week another $10.6 billion was requested by and given to Fannie, no questions asked. Somehow this story sneaks below the Media's radar. Maybe because it doesn't carry as many photo ops as Senate hearings where bank execs get grilled by our "hard-working" representatives.

Ignoring the Elephant in the Bailout

http://www.nytimes.com/2010/05/09/business/09gret.html

Freddie — already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes — recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position.

The news caused nary a ripple in the placid Washington scene. Perhaps that’s because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don’t notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie’s latest request.