The Bear
Stearns vs John Paulson saga shows no sign of going away any time soon,
and Bloomberg’s Jody
Shenn has a big article on it today. So far, however, no one has come up
with any evidence of the "market manipulation" which John Paulson
and others are so upset about – and, what’s more, no one seems to be remotely
convinced that it would be either illegal or immoral even if it were shown to
be happening.
One of the big problems is that specifics are very hard to come by, here. Tanta,
over at Calculated Risk, has devoted two very long and recondite blog entries
to this situation (here
and here),
but the lack of information means it’s hard to have an informed opinion on what’s
going on. Insofar as we do have an informed, impartial opinion –
and Tanta’s is about as close as it comes, for the time being – John Paulson
et al do not come out well at all.
Which is why it’s weird to see this, in the Bloomberg piece:
It would be "penny wise and pound foolish" for an issuer to conduct
significant buyouts other than to meet contractual requirements to make up
for misstated loan characteristics or fraud, because investors would shy away
from the company’s future deals, said Peter Cerwin, who runs the portfolio
management group at New York-based Credit-Based Asset Servicing and Securitization,
or C-Bass, an issuer and servicer.
I don’t understand what Cerwin is saying, here. If an issuer conducts significant
buyouts of degraded debt from a pool, investors would love it –
and would probably flock to that issuer’s future deals, if they reckoned such
behavior would be repeated. Remember, it’s not the investors in these deals
who are complaining. Rather, it’s the hedge funds who are betting against
the investors in the deals who are complaining.