The Credit Bubble's "Final Frontier" – Meet Goldman's FI(A)SCO

Tyler Durden's picture

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

Fixed Income Global Structured Covered Obligation. Say that three times fast.

According to yesterday’s Wall Street Journal, the bailed out financial criminals at Goldman Sachs are set to launch the latest and greatest toxic derivative product directly into the portfolios of willing muppets the world over. It all starts this September, so public pension funds may as well just start taking out stacks of hundreds and torching them at Burning Man while they still have a chance.

Yes, it’s called the “Fixed Income Global Structured Covered Obligation,” and no, you will not have a clue what’s in it. No seriously, you won’t have a clue.

The Wall Street Journal describes the “final frontier in the search for yield:”

Ultra-loose monetary policy has prompted investors to take more risk in exchange for yield. For some, that means buying lower-rated bonds or debt with longer maturities. Another route is to invest in more complex deals. All this creates incentives for financial engineering. In credit derivatives markets, there are signs investors are delving back into esoteric structures.


Citigroup reports a “large increase” in trading of products that slice and dice exposure to defaults in credit-default-swap indexes. The bank says this is mostly driven by hedge funds, but that other investors who may struggle to meet return targets could be drawn in.


Another example: Goldman Sachs has been marketing a new structure: a so-called Fixed Income Global Structured Covered Obligation that may come to market in September. It borrows elements of covered bonds, a structure with a long history in Europe. Investors will have a claim on a pool of dedicated assets and against two guarantors, Goldman and Mitsui Sumitomo Insurance.


But in many ways, the deal isn’t a covered bond. Instead of funding mortgages or public-sector loans, it will provide funding for a portfolio of fixed-income securities sourced from Goldman. The deal is structured via a derivative, a total-return swap entered into by Goldman Sachs Mitsui Marine Derivative Products.


And investors won’t know what exactly is in the pool. They will get a breakdown of the kinds of assets included, but not the exact composition. And what is in the structure can change. Crédit Agricole notes the pool could be predominantly residential-mortgage backed securities at one point, sovereign debt at another and corporate bonds at yet another.

But here’s the best part…

S&P has rated the deal triple-A. 

Not to worry. As Paul Butnik informed us earlier today:


So there’s that.

Of course, this is just the latest iteration of the current credit bubble, which I’ve covered extensively this year. Some additional recent articles on the topic can be found below:

UltraLong Bond Madness – Issuance of Debt with 30 Year+ Maturity Soars 22% in 2014

Credit Bubble Update – Issuance of CLOs Expected to Hit Record in 2014

Junk Borrowers Are Increasingly “Adjusting Earnings” to More Easily Sell Debt

Credit Mania Update – The Chase for CCC-Rated Bonds Is the Credit Bubble Popping?

Carlyle Group Warns on Frothiness and Junk Bond Deals Get Pulled

Guest Post: Is There a Massive High Yield Credit Bubble?

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holdbuysell's picture

This one's going to require extra popcorn.

bag holder's picture

Goldman Sachs Mitsui Marine Derivative Products

TeethVillage88s's picture

Another Mafia Trick.

Goldman's going to make the Mafia look bad.

BobPaulson's picture

I bet half the posters here including myself will own some.

The main muppet fishing tool is pension funds to which many of us belong. People forget their mandatory contribution are vacuumed up monthly by the bottom feeders who pass it on to the pigmen. Muppets are everywhere, and I bet fund managers get commission for paying our pensions as squid tax.

PeeramidIdeologies's picture

Slice, dice, and skim to win! It is an amazingly effiencent system for creating shadow profit WHILE allowing the con men to pad their own pockets for creating yet another SAFE INVESTMENT!! Truly god's work.

max2205's picture

Bullish...the end of the rally can't be'll take years for this shit to fester and then explode


Happy sailing! 

N2OJoe's picture

Take the hit and cash out those retirement accounts, bitchez. Better to have half now than none later!

ObamaDepression's picture

That, or unwittingly owning it in a bond fund.

Have you looked at PIMCO's portfolios? There's not bond listings anymore in their top holdings. Its all interest rate derivative. Even this former broker doesn't understand them.

long-shorty's picture

"Muppets are everywhere, and I bet fund managers get commission for paying our pensions as squid tax."

truer words have never been spoken, friend. well done.

ArkansasAngie's picture

And ... Just think ... US tax payers will be ready to back stop the squid.  NOT.

No more bail outs ... ins ... betweens.


philipat's picture

Look, I'm sure we can trust Goldman not to stuff this thing up with all the crap it is trying to unload..........;-)

That said, I thought all of their crap was already with The Fed??

Greenskeeper_Carl's picture

I'm sure somewhere in the fine print it says something along the lines of "GS reserves the right to bet against these investments" or some such shit. And since it's the squid, they are probably arranging their shorts already. The muppets still line up and buy this shit too. I can't wait to hear about how 'Goldman Sachs swindled my pension' in a year or two. They will be right, because dealing in this manner is dishonest and unethical, but at some point you have to say people kinda have it coming for trusting Goldman after everything that come out. I would blame those charged with managing my pension fund more than GS. Can't really blame the shark for biting you, it's what they do. Best just not to swim with them.

IANAE's picture

Financially engineered products that present as deus ex machina or otherwise simply too good to be true are likely mispriced for the risk accepted by the buyers...think original pricing of '05-'08 vintage subprime MBS.

IMO financially engineered products are only as good as the cash/collateral the seller holds specifically to backstop the numerous assumption violations that will inevitably occur... if they claim there are none, well...

IANAE's picture

would love to see the S&P analysis supporting the triple A rating... 

philipat's picture

And how CAN they actually rate it when they don't know what's in it? Oh, wait........they have experience from rating CDO's??

jonytk's picture

yep, what could possibly go wrong?!

N2OJoe's picture

They're simply taking the obamacare approcach of "We just have to pass it to see what's in it."

rehypothecator's picture

Goldman will never, ever, run out of crap to (short) sell to the muppets.  Never. 

NYPoke's picture

...and extra porn at the SEC.

Jumbotron's picture

Cool.....let the 5 year countdown begin.  At least we know with some certainty now when the next collapse begins.

You should also know there is no rule of law.  We should all just bum rush the system and go full tilt lawless.  They couldn't build enough jails in time for the flood.

Fuck taxes....fuck work...fuck paying for anything.  Max out every card and not pay and get more cards before they wise up and max those out and not pay....

Just completely throw sand into the gearbox.

The rule of law is now completely and obviously dead with this news.  It's an Oligarch's Club.....and you ain't in it.

fonzannoon's picture

Holy shit we are starting the countdown now?

PeeramidIdeologies's picture

Brilliant! As they try to open the slavery spigots aka consumer credit, everyone should just soak it up. Turn that credit into useful renovations, supplies, equipment.

Put the load back on thee

Long repo companies

theonewhowaskazu's picture

This just isn't true. The derivative in question actually makes a lot of sense and you do know whats inside of it. Just because you guys can't understand it doesn't mean that nobody can. In fact, if anything it's less risky than a lot of the things already on the market (which isn't saying much, but still). 

Jumbotron's picture

It is a 100% Metaphysical Fact that if Goldman Sux created's a Scam.

Period.....end of story.

theonewhowaskazu's picture

So by that logic shouldn't the entire article should have been: 

Title: Goldman's new scam.

Content: Goldman created a new instrument.

And skip all the meaningless BS and let people decide for themselves? Because you do know what's in it. Also, being "like CDOs" isn't a crime either, considering your home mortgage is a lot more "like CDOs" from the perspective of the bank, than this product. 

There are 2 types of articles on ZH I've discovered: Ones that are useful & actionable, and others that are news items slanted to rile up viewers of ZH.

Jumbotron's picture

Goldman is an arm of the government and the government is an arm of Goldman.

Just look around a bit on the web and you can see what a merry go round Goldman is for ex-Goldmanites into the halls of politics and even the media (Cramer-CNBC).  And vice versa....politicians leave and go straight to Goldman.

Why ?  Access to inside information.  What for ?  To fleece sheep from their money and get away with it. 

Once again.  No one needs to know what's in it.  It's a scam.  And even if you do know what's in's a scam.

Period....end of story.

El Vaquero's picture

Yeah, because all of those CDOs and MBSs worked out so well for people back in 2008-2009.  And a bank would never, ever take part in a legalized scam.  Never.  Nope.  Can't happen.  



Blues Traveler's picture

Theonewhowaskazu,  Yes, tyler likes to stir up the natives as we are restlesss for truth, transparency and our day but if you don't understand/know how it all works then just stay tuned you will evolve bc ZH will connect the dots w humor. 

In the meantime, go fuck yourself.

gimli's picture

I was wondering why Robin Williams killed himself --- not anymore.

Rainman's picture

They ain't gonna be no Baby Ruths in this pool, bitchez !

cougar_w's picture

I fed these smarmy fuckers to a tiger:

Stick with it, it builds slowly.

Tapeworm's picture

Cougar: Is that right! What a world. In the Abacus deal you pretended to select assets for the tranche to be sold to investors in a CDO, when actually you allowed Hank Paulson -- that guy again boy does he ever get around -- allowed Hank Paulson to select the assets he wanted in it, in particular really nasty shit that would blow up quickly. Then having lit the fuse Hanky Panky took out insurance against the expected explosion. Goldman made money on the deal, Hanky Janky Panky Paulson collected on his insurance, and who knows how many investors had their faces ripped off. Would you care to comment on that?


wrong Paulson, try John.........I gave you a green anyway for plot, so fix it.

CheapBastard's picture

Reminds me of the S&P, Triple AAA+ Lehman MiniBonds.



Kirk2NCC1701's picture

A fool and his money...

There's a suckered born every minute.

Clearly GS is hedging accordingly.

migra's picture

At this point, if anyone is stupid enough to do business with Goldman Sachs,  they deserve to get ripped off.

db51's picture

I don't care what Alphabet Soup Mix they put together you can bet at some point down the road the losses incurred by this Happy Horseshit Swindle will be heaped upon he US Taxpayer....and of course any profits will go straight to either The Hamptons or Cayman Islands.    Imagine the Christmas bonuses on this one.

Bend Over Mother Fuckers, this is gonna leave a mark.

ebworthen's picture

Looks like Goldman is shooting to be the first bailout of the next crash.

fonzannoon's picture

we bail them out ahead of time now. We learned. It's bullish.

tony bonn's picture

i pray to god almighty that he send the angel of death tonight to these foul scum

Notsobadwlad's picture

Yes, they wrote "global" when they meant "American".

Notsobadwlad's picture

I think that it might fly if the so called financial instruments would be backed by the assets of all Goldman current and former partners.

Bill of Rights's picture

Get in now or be priced out forever.

madbraz's picture

Just what the world needs - another idiot banker.

I've seen bankers of all kinds - all arrogant, pompous and worthless.

Worthless. Repeat after me, worthless.


If triple AAA is stamped on it, it must be sirloin instead of hotdogs until Blankfein decides to change the menu.