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Presenting The Latest Eurodebt Exposure Masking Scam Courtesy Of Morgan Stanley: Level 1 To Level 2 Transfers

Tyler Durden's picture

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Mon, 11/07/2011 - 18:39 | 1854948 Vlad Tepid
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But total fabricated bullshit is what makes Morgan Stanley Morgan Stanley!

Mon, 11/07/2011 - 18:41 | 1854952 BORT
BORT's picture

Early June, 2008

Mon, 11/07/2011 - 18:42 | 1854953 DoChenRollingBearing
DoChenRollingBearing's picture

Are there any regulations in place that say that the banks have to show what bonds (etc.) they own?  If there is/were such transparency, than MS monkeying around Level 1 -> Level 2 would not matter if we could all see the toxic assets they might own...

Mon, 11/07/2011 - 18:43 | 1854957 NotApplicable
NotApplicable's picture

So, rats fleeing a sinking ship is no longer considered "activity?"

These people are damn lucky that words have no meaning, otherwise, they'd be fucked.

Mon, 11/07/2011 - 18:44 | 1854960 Ned Zeppelin
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These are not the Level I assets you are looking for.

Mon, 11/07/2011 - 18:46 | 1854967 gmrpeabody
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Mon, 11/07/2011 - 19:04 | 1855014 Leopold B. Scotch
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Tue, 11/08/2011 - 00:24 | 1855539 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Comment of the day.

Ned wins a, "Timmah did my taxes, and all I got was this lousy t-shirt!"

Tue, 11/08/2011 - 01:41 | 1855641 Big Slick
Big Slick's picture

"These are not the Level I assets you are looking for."

Morgan Stanley can go about its business.

Mon, 11/07/2011 - 18:44 | 1854961 Lmo Mutton
Lmo Mutton's picture

It's all fun and games till somebody needs a bailout.

Mon, 11/07/2011 - 18:45 | 1854965 jmcadg
jmcadg's picture

Like being caught at school with water bombs. It doesn't take much effort in hiding them in your pockets to make it look like you pissed yourself.

Mon, 11/07/2011 - 18:46 | 1854968 jcaz
jcaz's picture

LOL- that's just classic......   Can't wait to see BAC come up with "Level 37".....

Mon, 11/07/2011 - 18:49 | 1854974 chump666
chump666's picture

Excellent post.

Mon, 11/07/2011 - 19:37 | 1855077 Hansel
Hansel's picture

Yes.  Very well done Tyler.

Mon, 11/07/2011 - 20:34 | 1855179 kaiserhoff
kaiserhoff's picture

Fine post and series of posts on a complex subject.  A little light does make the cockroaches scurry.

Mon, 11/07/2011 - 18:51 | 1854984 Ponzi Unit
Ponzi Unit's picture

3-card Monte played on polished mahogany instead of cardboard boxes.

Mon, 11/07/2011 - 18:52 | 1854990 adyaner
adyaner's picture

Not panic at all, this is petty cash for uncle Ben who will purchase the exposure at 150% par value, to give some buffer to a friendly FED Shareholder...

Mon, 11/07/2011 - 18:53 | 1854991 Smartie37
Smartie37's picture

Looks like White Shoe stepped in Dog Dooooooooooo.......................    

Mon, 11/07/2011 - 19:01 | 1855006 ReallySparky
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Tyler, I sense some frustration in your prose.

Mon, 11/07/2011 - 19:03 | 1855013 apberusdisvet
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When you get to Level 5; does everything miraculously disappear?

Hey boss; we're on Level 4; only one more to go before your 9 zero bonus kicks in.

Mon, 11/07/2011 - 19:31 | 1855063 Unprepared
Unprepared's picture

"Hey! Show us your Level III exposure"

"There has never been a Level III in this firm."

"But where have you been hiding all that toxic stuff?"

"We recycle them"

"But how can you recycle toxic waste? You can only burry it."

"This firm never had a Level III"

"OK. What about Ground Zero then?"

Mon, 11/07/2011 - 19:51 | 1855097 knukles
knukles's picture

Same as: "Defcon Oh fuck me...."

Mon, 11/07/2011 - 20:31 | 1855173 Grinder74
Grinder74's picture

After level 5..."They just went plaid!"

Mon, 11/07/2011 - 19:06 | 1855015 mynhair
mynhair's picture

Geez, it's only $39 billion.  My human burns that in a week.

Do wish he had hair....

Mon, 11/07/2011 - 20:38 | 1855190 kaiserhoff
kaiserhoff's picture

That muskrat toupee looks quite fetching on Donald Trump.

Mon, 11/07/2011 - 19:15 | 1855030 Better_late_tha...
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Did anyone see Cramer dodge the question about silver on Mad Money? Someone asked what would happen if the cftc "gets their act together" with the position limits. He called chicago the "wild west." ha ha

Mon, 11/07/2011 - 20:34 | 1855180 Grinder74
Grinder74's picture

Whorehouse on every corner? Check.

Community Bathhouse (Lake Michigan)? Check.

Rich guy from out East comes to rule the poor settlers? Check.

Every cowpoke has a gun? Oh, wait this is Chicago we're talking about.

Mon, 11/07/2011 - 19:25 | 1855050 Sequitur
Sequitur's picture

Level 2 and level 3 asset classifications: banker bullshit.

Mon, 11/07/2011 - 19:29 | 1855057 DollarDive
DollarDive's picture

Level 1, Level 2, Level 3 - Complete and utter bullshit fabrication.

Rules created to conceal.

Sunshine is the best disinfectant

Let the sunshine in.


Mon, 11/07/2011 - 21:25 | 1855243 delacroix
delacroix's picture

is the tide going out?

Mon, 11/07/2011 - 22:23 | 1855327 topcallingtroll
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Looks like it.

Make sure u have a camera to photo all the skinnydippers.

Mon, 11/07/2011 - 19:31 | 1855062 chump666
chump666's picture

C'mon Berlusconi send a F*ck you to everything that is not Italian...you can do it.  

Europe is decending into chaos....

Mon, 11/07/2011 - 19:33 | 1855070 DollarDive
DollarDive's picture

Our bond markets have become a "SHAM". ;  

All the corporate bonds held in mutual funds and ETF's across America are completely overvalued.  Most bonds are priced off of a pricing grid.  The MF's pay 3rd party "price fixers" to tell them the price of their bonds.  Those prices have no bearing on reality.

Yet the funds use those prices from the "fixers" to determine the NAV of the MF's.

Wait until that market starts to cave.

It will implode on itself instantly when that selling starts to happen.

Mon, 11/07/2011 - 21:07 | 1855230 sgt_doom
sgt_doom's picture

No offense intended, DollarDive, but it's been over 3 years since they discontinued mark-to-market.

Old news, guy......

Mon, 11/07/2011 - 22:27 | 1855331 topcallingtroll
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Thats not what he is talking about.

The appraisers have their "blue book" of bond values to rip off retail and help bond mutual funds look better.

Just like the real bluebook, the true value of some of these thinly traded bonds is a lot less than the published price.

Mon, 11/07/2011 - 19:35 | 1855072 DavidC
DavidC's picture

Priceless! And brilliant.

Thank you.


Mon, 11/07/2011 - 19:38 | 1855079 slewie the pi-rat
slewie the pi-rat's picture

can we get a DEFCON reading on this?

Mon, 11/07/2011 - 19:52 | 1855100 knukles
knukles's picture

Defcon: Oh, fuck me...

Mon, 11/07/2011 - 19:38 | 1855080 comfortablynumb
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To clarify....Level 2 gives them the ability not to use the last quoted price as you would with a Level 1.  They've basically had a (convenient) change in fair value accounting policy, I would love to see where they are marked at and what quotes/internal models they are using to value these bad boys.    

Mon, 11/07/2011 - 23:10 | 1855405 Iam_Silverman
Iam_Silverman's picture

"They've basically had a (convenient) change in fair value accounting policy, I would love to see where they are marked at and what quotes/internal models they are using to value these bad boys.    "

This has to be the most concise and correct interpretation yet.

Thanks for clearing up the difference between Level I and Level II.  Although they are allowed to "Mark to Model", exactly how they model the predicted outcome is the most important theme here.  To model the end result, they need to be able to cherry pick the best return scenario based on a range in time, so changing the level makes sense.

Mon, 11/07/2011 - 23:12 | 1855413 Ponzi Unit
Ponzi Unit's picture

So, Level 4 is unicorn?

Tue, 11/08/2011 - 06:46 | 1855819 CPL
CPL's picture

...riding on moonbeams while shitting skittles.

Mon, 11/07/2011 - 19:53 | 1855101 BetterOffDead
BetterOffDead's picture

The move to level 2 under FAS157 is inconsequential to the valuation, it is only a disclosure. If anything, it only invites more scrutiny as level one assets are generally reserved for exchange traded instruments with very active markets (the allocations between levels is somewhat subjective and differs from bank to bank). Assets in level three invite the most scrutiny as management judgement is almost exclusively relied on. I would be more worried if Euro sov debt was classified as level three when there have clearly been trades in the market place.

Mon, 11/07/2011 - 20:24 | 1855163 comfortablynumb
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You are right, I think Tyler's point was they changed policy for these and no longer use direct quotes from a valuation service (i.e. Bloomberg) leaving the ability to internally model or use some form of valuation other than a direct quote.  Theoretically should still be where market is quoting although who knows anymore. 

Mon, 11/07/2011 - 19:55 | 1855104 infinity8
infinity8's picture

Ok, maybe a stupid question but, when they say "transactions in these securities did not occur with sufficient frequency and volume to constitute an active", are they talking about their transactions or transactions in general? Is there a rule for this type of reclassification?(not that it matters anymore)

Tue, 11/08/2011 - 00:22 | 1855533 infinity8
infinity8's picture

so, nobody knows?

Tue, 11/08/2011 - 02:20 | 1855668 infinity8
infinity8's picture

whatev, comments just above me only serve to make me more confused. . . come on - I'm an honest poster here!

Tue, 11/08/2011 - 02:31 | 1855674 pain_and_soros
pain_and_soros's picture

the quote you bolded left out the word "market" at the end.

They are claiming that there were not enough transactions in the market (it was illiquid or not liquid enough) to be able to establish a reliable "mark" or price to value their bonds/investments...which Tyler showed was a pile of dung.

No hard & fast rule that I am aware of to apply in terms of necessary volume and frequency to be considered "active", but generally, if you could sell your holdings without influencing supply/moving price, then I would say you have an active market & price you can use to value your holdings...



Tue, 11/08/2011 - 02:53 | 1855692 infinity8
infinity8's picture

Thank you! I was just wanting to make sure I understood what level of BS I'm dealing with in this instance.

Tue, 11/08/2011 - 02:59 | 1855697 infinity8
infinity8's picture

so, fast and loose as usual, near as I can tell.

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