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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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Mon, 08/11/2014 - 20:54 | 5079834 holdbuysell
holdbuysell's picture

This one's going to require extra popcorn.

Mon, 08/11/2014 - 20:58 | 5079850 bag holder
bag holder's picture

Goldman Sachs Mitsui Marine Derivative Products

Mon, 08/11/2014 - 21:05 | 5079888 philipat
philipat's picture

As in "Underwater"??

Mon, 08/11/2014 - 21:07 | 5079898 TeethVillage88s
TeethVillage88s's picture

Another Mafia Trick.

Goldman's going to make the Mafia look bad.

Mon, 08/11/2014 - 21:39 | 5080032 BobPaulson
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.

Mon, 08/11/2014 - 22:29 | 5080263 PeeramidIdeologies
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.

Tue, 08/12/2014 - 07:00 | 5080957 max2205
max2205's picture

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

 

Happy sailing! 

Tue, 08/12/2014 - 08:23 | 5081116 N2OJoe
N2OJoe's picture

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

Mon, 08/11/2014 - 22:51 | 5080363 ObamaDepression
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.

Mon, 08/11/2014 - 23:17 | 5080435 long-shorty
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.

Mon, 08/11/2014 - 22:22 | 5080240 ArkansasAngie
ArkansasAngie's picture

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

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

screw'em

Mon, 08/11/2014 - 21:08 | 5079877 philipat
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??

Mon, 08/11/2014 - 22:00 | 5080167 Greenskeeper_Carl
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.

Mon, 08/11/2014 - 22:04 | 5080176 IANAE
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...

Mon, 08/11/2014 - 22:13 | 5080209 IANAE
IANAE's picture

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

Tue, 08/12/2014 - 01:54 | 5080699 philipat
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??

Tue, 08/12/2014 - 02:18 | 5080720 jonytk
jonytk's picture

yep, what could possibly go wrong?!

Tue, 08/12/2014 - 08:26 | 5081127 N2OJoe
N2OJoe's picture

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

Mon, 08/11/2014 - 22:32 | 5080273 rehypothecator
rehypothecator's picture

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

Mon, 08/11/2014 - 21:12 | 5079923 NYPoke
NYPoke's picture

...and extra porn at the SEC.

Mon, 08/11/2014 - 21:17 | 5079947 stocktivity
stocktivity's picture

It's all Bullshit!!!

Mon, 08/11/2014 - 20:56 | 5079841 Jumbotron
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.

Mon, 08/11/2014 - 21:04 | 5079881 fonzannoon
fonzannoon's picture

Holy shit we are starting the countdown now?

Mon, 08/11/2014 - 21:08 | 5079896 Jumbotron
Jumbotron's picture

It's the Final Countdown .

HIT IT, EUROPE !!!

https://www.youtube.com/watch?v=9jK-NcRmVcw

Mon, 08/11/2014 - 21:09 | 5079908 TeethVillage88s
TeethVillage88s's picture

Bring Out Your Dead!

Bring Out Your Dead!

https://www.youtube.com/watch?v=6FvX_Suj11s

Tue, 08/12/2014 - 06:03 | 5080903 Urban Redneck
Urban Redneck's picture

GS has bought SouthPark Bank S&L

https://www.youtube.com/watch?v=-DT7bX-B1Mg

Mon, 08/11/2014 - 22:33 | 5080288 PeeramidIdeologies
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

Mon, 08/11/2014 - 21:02 | 5079849 theonewhowaskazu
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). 

Mon, 08/11/2014 - 21:03 | 5079874 Jumbotron
Jumbotron's picture

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

Period.....end of story.

Mon, 08/11/2014 - 21:09 | 5079900 theonewhowaskazu
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.

Mon, 08/11/2014 - 21:18 | 5079950 Jumbotron
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 it...it's a scam.

Period....end of story.

Mon, 08/11/2014 - 21:41 | 5080066 El Vaquero
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.  

 

Muppet.

Mon, 08/11/2014 - 22:39 | 5080313 Blues Traveler
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.

Mon, 08/11/2014 - 21:04 | 5079875 Jumbotron
Jumbotron's picture

Dupe

Mon, 08/11/2014 - 20:59 | 5079852 gimli
gimli's picture

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

Mon, 08/11/2014 - 21:01 | 5079857 Rainman
Rainman's picture

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

Mon, 08/11/2014 - 21:00 | 5079858 cougar_w
cougar_w's picture

I fed these smarmy fuckers to a tiger:

http://fedtoatiger.blogspot.com/2014/05/goldman-sachs-is-fed-to-tiger.html

Stick with it, it builds slowly.

Tue, 08/12/2014 - 00:22 | 5080545 Tapeworm
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.

Mon, 08/11/2014 - 21:01 | 5079859 CheapBastard
CheapBastard's picture

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

 

BaaaaaaaaaaaaaaaaaaaaWaaaaaaaaaaaaaaaaaaaaaHaaaaaaaaaaaaaaaaaaaaaaaa!

Mon, 08/11/2014 - 21:03 | 5079873 Kirk2NCC1701
Kirk2NCC1701's picture

A fool and his money...

There's a suckered born every minute.

Clearly GS is hedging accordingly.

Mon, 08/11/2014 - 21:04 | 5079882 migra
migra's picture

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

Mon, 08/11/2014 - 21:25 | 5079921 db51
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.

Mon, 08/11/2014 - 21:15 | 5079934 ebworthen
ebworthen's picture

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

Mon, 08/11/2014 - 21:18 | 5079948 fonzannoon
fonzannoon's picture

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

Mon, 08/11/2014 - 21:26 | 5079996 tony bonn
tony bonn's picture

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

Mon, 08/11/2014 - 21:27 | 5080004 Notsobadwlad
Notsobadwlad's picture

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

Mon, 08/11/2014 - 21:30 | 5080005 Notsobadwlad
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.

Mon, 08/11/2014 - 21:32 | 5080027 Bill of Rights
Bill of Rights's picture

Get in now or be priced out forever.

Mon, 08/11/2014 - 21:40 | 5080062 madbraz
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.

Mon, 08/11/2014 - 21:44 | 5080078 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

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

Mon, 08/11/2014 - 21:44 | 5080079 Downtoolong
Downtoolong's picture

The most disgusting aspect of this investment isn’t how ridiculous and favorable to Goldman it is. The real crime is that Goldman has the market power to ram it down the throat of captive institutional investors, no matter what it is. And, of course, that’s exactly why it’s such a preposterous investment, by design.  

No thanks, I’ll stick with my binary call options struck at $20 for CYNK.

Mon, 08/11/2014 - 22:07 | 5080192 Obnoxio
Obnoxio's picture

Hmm, hide the risks in complextity and sell it to the muppets. Nixon may have said something like "generally speaking, you can't trust the bastards. They turn on you. Am I wrong or right? ".

Mon, 08/11/2014 - 22:11 | 5080207 ghostzapper
ghostzapper's picture

So if the Fed has to stick with the Jawbone taper and Belgium Goldman loses a dumpster for it's used condoms and needles.

This lets them package all the toxic horseshit and unload it on the muppets. Triple A motherfuckers ha!!!!

Mon, 08/11/2014 - 23:01 | 5080389 Urban Roman
Urban Roman's picture

No it doesn't, it spells FIGSCO.

Mon, 08/11/2014 - 23:36 | 5080474 Bemused Observer
Bemused Observer's picture

Not with 'Asshats' it doesn't.

Mon, 08/11/2014 - 23:05 | 5080399 bh2
bh2's picture

Fixed Income Asshats Structured Covered Obligation”

Yep, FIASCO muppet-bait.

Mon, 08/11/2014 - 23:35 | 5080471 ToNYC
ToNYC's picture

Fine-tuned tranches, like finger-joints of risk that actually are stronger than the original wood (muppet), double-vector squared hedged to the IMF cost-of-funds index set by the ?Indepndent Bank of Settlements of the World Bank.

Tue, 08/12/2014 - 01:10 | 5080643 Bear
Bear's picture

The derivative with all the derivatives included is called the second derivative and will offer leverage on the leverage

Tue, 08/12/2014 - 01:46 | 5080682 I Write Code
I Write Code's picture

And if I convince my mother to buy shares, do I get a 5% commission?  And if she convinces her bridge club, does she get 5% and I get another 3%?  Kewl.

Tue, 08/12/2014 - 02:42 | 5080780 farmboy
farmboy's picture

Haha, I bet this stuff is already prepared to stuff the portfolio's of the clients of wonderfull Goldman Sachs Asset Management or Private Wealth Management. No conflict of interest here please move on.

Tue, 08/12/2014 - 06:51 | 5080938 RSDallas
RSDallas's picture

Now we know how the crooks will bleed off their bad debt to the minion's.

Tue, 08/12/2014 - 07:01 | 5080960 Last of the Mid...
Last of the Middle Class's picture

Bankers will be selling that rehypothication and recovery bullshit even as someone ties their hands and puts the blindfolds on them in the firing line.

Tue, 08/12/2014 - 10:43 | 5081713 Downtoolong
Downtoolong's picture

Don't worry, I hear John Paulson has been retained to select and manage the assets backing this fund. 

Wed, 08/13/2014 - 02:51 | 5086009 onmail
onmail's picture

The typical Israeli Bankster's move to ruin (err rule ) the world forever.

And you are only a slave.

Beware of SHYLOCK

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