On this subject, a few quotes from friends of Bill Fleckenstein that were included in Bill’s market update today:
“How anyone can look at the creation of this fund as anything other than a cynical way of moving an existing pile of crap from one place to another is beyond me. The fact that no one seems to think there is anything wrong with it (and I include the regulators) tells you just how ‘fixed’ the markets’ problems are. The level of terror that must exist in the boardrooms of the banks and regulators that peered into Pandora’s box this summer must be extreme. They set up the conduits to skirt balance-sheet constraints, investors realized they were getting paid no risk premium to buy the paper and fled. The answer? Do it again, in the same way, but call it something different.”
“Meanwhile, in the background, Moody’s is telling us in no uncertain terms that massive downgrades of subprime-laden CDOs are coming. To be sure, the ABX has been telling us for many months what the market thinks about the value of these things [and the top of the stack was pounded again today], but until the actual downgrade comes, an investor isn’t necessarily obliged to sell. The IRS is also investigating accounting for mortgage-backed securities. Thus, the situation has become quite dicey.”
