News & Politics

Morning Billfold: Junk Bond Apocalypse Terror, Lehman’s Snitches, Hedge Fund Rockstars


Lehman Brothers weren’t so happy about their whistleblowers. The “rock stars” of hedge funds aren’t exactly proverbial Guitar Heroes. A 2.2 billion euro bonus went out to the “risk takers” of Deutsche Bank. CBS’ March Madness ad money? Buzzer-beater quality stuff. And the new economic doomsday that is the “Junk Bond Avalanche.” Your Tuesday Morning Finance Roundup starts here:

The New York Times rolled out a piece today on something you’ll be hearing about quite a bit: the looming terror of junk bonds. They even invoke 2012 in the lede. Essentially, things called “collateralized loan obligations” that the Wall Street Journal equated to ‘Hail Mary’ passes are enabling investors to purchase repackaged high risk debt with high yield potential. The problem is that it’s all coming to a head: in 2012, a bunch of them mature. Which is when we’re fucked, so much so that the U.S. and other western nations could end up losing their high credit rating. Which might come into play when our Federal government will need to borrow $2 trillion in two years “to bridge the projected budget deficit for that year and to refinance existing debt.” It’s worth noting, though, that the aforementioned Wall Street Journal quote on ‘Hail Marys’ was from when they rolled out the same piece back in January, when they were praised for getting ahead of the matter. [New York Times, Columbia Journalism Review]

The guy from Lehman Brothers who was the whistle-blower on what was called Repo 105, a scam that essentially ended in Lehman’s downfall, was let go today because of “downsizing.” In these difficult economic times, scrupulous employees are obviously costly little punks, and there’re only enough uniforms for the varsity squad this year. Meanwhile, here’s a fun video on how Repo 105 worked. It invokes AC/DC, if that helps. [WSJ, Vimeo]

The fast-trading brahs and brahettes of the Hedge Fund Universe are learning a pretty universal law fairly fast: publicity does not equal positive results. Hedge fund traders with more publicity did worse than their less publicly exposed counterparts. This might be because they’re being featured by the press for past performances, they become victims of their own success and outgrow scrappier opportunities, they believe their own hype, and finally, they were never really that great in the first place. Kind of like Styx, the obsession with which is still beyond me. [Bloomberg]

CBS’ March Madness online ad revenue is up 20% from last year, because watching college basketball from your computer has gone from good to great to awesome: no more blackouts, you can watch it on any website, and the quality gets startlingly better each year. Tragically, they have yet to find a way to fix the problems of Duke basketball fans or the preemptive preservation of Dick Vitale’s head to bring out each year for March broadcasts. They should probably work on that. [AdAge via Business Insider]

Deutsche Bank, the largest bank in German, paid out $2.2B Euros in bonuses for “high-risk” trading. Deutsche didn’t take government money during the credit crisis, and have yet to disclose their overall bonus payouts, but following this, have done nothing but codify the stereotype of Germans as terrifying industrial machinepeople. [Bloomberg]

Citigroup’s padding on employees of a “proprietary trading” division that according to a Citigroup spokesman represents “an extremely small fraction of our revenue and an even smaller commitment of capital.” Proprietary trading is when banks play with their own money instead of making cash by playing with other people’s money. But why add more manpower to something that represents a number so minute? And why do it as the administration prepares to ban it if it represents something so minute? [Bloomberg]

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