Friday, April 15, 2011

Check the ABS on those Wall Street Wives

Tracy Alloway posting on FT Alphaville is checking out the Wall Street Wives and their sexy ABS.

Taibbi takes aim at the Talf
here’s what we know: The company was founded in June 2009 with $14.87 million of investment capital, money that likely came from Christy Mack and Susan Karches. The two Wall Street wives then used the $220 million they got from the Fed to buy up a bunch of securities, including a large pool of commercial mortgages managed by Credit Suisse, a company [Christy's husband, former Morgan Stanley CEO] John Mack once headed.

With $220m in-hand the wives were free to do their part in kickstarting the Asset-Backed Securities (ABS). To paraphrase Tim Duy, back in 2008 and 2009 there were no bad assets, just misunderstood ones. The idea of the Talf was to revive demand for, and issuance of, ABS courtesy of Fed-provided funds.

However, as Taibbi notes, a key aspect of Talf is that the Fed doles out the money through what are known as non-recourse loans. So if the ABS bought by Christy and Susan bought turned sour, in theory they could just walk away.

The wives get most of the upside — the taxpayers get most of the downside.

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