More CDO Games? JPMorgan Ex-Structured Product CDO Head Llodra May Face SEC Suit

The Market Ticker – More CDO Games? (JPM This Time)

Hmmmm, what did the cat drag in today?

U.S. regulators notified a former JPMorgan Chase & Co. (JPM) executive whose unit packaged mortgage- linked investments that he may be sued for his role in selling the securities as the housing crisis worsened in 2007.


The issue apparently revolves around the 2007 “Squared” CDO, which (amusingly similar to the previous Goldman case) allegedly had Magnetar helping select assets for the deal.

Magnetar, of course, is accused of possibly being short parts of the transaction (the presumption is that they were net short, but the story does not say – it says they may have bought some of the most-junior pieces, which one would presume would be the equity tranche.)

Squared was sold in April 2007, with GSC Group serving as the CDO’s manager and JPMorgan underwriting the deal, according to data compiled by Bloomberg. Its collateral consisted partly of other CDOs tied to bonds backed by assets such as mortgages, with the initial holdings including credit-default swaps referencing $968 million of those CDOs, according to an offering document. CDOs backed by other CDOs were commonly referred to as “CDOs squared.” Squared went into default the following January.

You have to love these deals.  Leverage upon leverage, all synthetic.  There’s nothing “real” about any part of them – someone is going to get hosed, because the guy who’s short is responsible to pay the coupon, and the guy who’s long gets the coupon (less the bank’s profit from skimming in the middle, of course.)

The problem with these sorts of deals is that due to their leverage very small differences in performance turn into huge changes in the outcome.  This, in turn, makes fair and full disclosure of how assets were selected, who did the selecting and what their interest in the deal was from the outset critical in trying to analyze whether such a thing is an “investment” (really a gambling construct) you want to get involved in.

Evanston, Illinois-based Magnetar told investors in an April 2010 letter that it didn’t help banks create CDOs that were “built to fail” on a bet that homeowners with bad credit would default on their loans. The firm offered limited input on the creation of CDOs, and made bets that would pay off if they soured as part of a “market neutral” portfolio designed to profit no matter what happened, Magnetar said in the letter.

Oh that’s clever.  A no-lose scenario?  Hmmmm… ok, who got the “had to lose” end of that stick, and did they know they were getting it?  Derivatives are like that – if someone wins, someone else loses.

I guess we’ll find out in the fullness of time.

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2 Responses to “More CDO Games? JPMorgan Ex-Structured Product CDO Head Llodra May Face SEC Suit”
  1. No Kidding…how can any human being with a consious “working” mind ever come up with such a scheme and for what purpose, I will never know?

    The New World Order has nothing to do with corrupting others for the purpose of money as this does not accomplish a happy ending. The New World Order is coming soon and it will be founded on the Truth and over time the Truth will easily defeat any other deceitful seeds that have been planted.

    Those that have lived the unconsionable will be punished by the universal laws and it will not be pretty…tend to your garden of consious undertakings now, truthfully and with love for all living things… because when you cease to exist in the physical you will only have those undertakings that will either represent you favorably or otherwise in the afterlife.

    Seek the Truth always, my friends!

    Miles Sheperd, Author

  2. l vent says:

    Max Keiser reported a couple of weeks ago that the creator of the mortgage derivatives scam was a spawn of satan by the name of Blythe Masters. She was supposedly the mastermind of the mortgage derivatives scam and introduced this scam to none other than J.P. MORGAN CHASE’s CEO Jamie Dimon. The whole sceme/scam is eerily similar to what ENRON did except they did not use peoples homes to create their wealth by gambling on thin air. By THE GSE’s setting HOMEOWNERS up to fail and collaterlizing the FAKE MORTGAGE debt and getting investors, ALL OF US SUCKERS to deceptively buy into and participate in the PONZI SCHEME, the criminal enterpise were then off to the WALL STREET RACES. THEY KNEW THEY WERE CREATING A BUBBLE AND THEY KNEW THEY WOULD CA– USE IT TO BURST WHEN THEY ROBBED THE NYSE OF ALL OF OUR WEALTH. 401K’S, PENSION PLANS, ETC. THEY STOLE IT ALL AND HID IT IN OVERSEAS BANKSTER ACCOUNTS. There is a video on you tube from CNBC on how the ILLUMINATI /NEW WORLD ORDER INTENTIONALLY caused the stock market collapse. THE IMF/NEW WORLD ORDER IS THE BIGGEST SHARE HOLDER IN FANNIE/FREDDIE AND ARE THE BIGGEST INVESTORS IN THESE FRAUDULENT MBS’S. They have hijacked AMERICA, STOLEN OUR WEALTH AND NOW THEY WANT TO STEAL OUR HOMES THAT THEY DO NOT OWN. RESCIND OUR FAKE MORTGAGE LOANS. THESE LOANS NEVER EXISTED BECA– USE OF THE ORIGINATION FRAUD. WE OWN OUR HOMES FREE AND CLEAR BECA– USE OF THE PONZI SCHEME WE THE HOMEOWNERS WERE DECEIVED AND THEN FORCED BY THAT DECEPTION TO PARTICIPATE IN BY THE GSE’S FANNIE AND FREDDIE.

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