Used Car Salesmen

Yesterday I called the reporting of some trade information for MBS bonds a “baby step” in the right direction, but didn’t try to describe exactly why it was such a small step, or why the sleazoids that hide in the shadows could still do their thing.  Quite rightly, frequent commenter and longtime friend from the business “Conscience of a Conservative” pointed out that one AA private label MBS might be so different from another that the information has truly limited value without knowing the exact bond that traded.

The reason I didn’t get “down into the weeds” in my initial post was that I hadn’t come up with the right metaphor to describe why disclosing trade prices without CUSIP numbers still leaves too much hidden.  I’m sure it doesn’t escape anyone’s notice that the SEC is a captured regulator, or that FINRA obviously won’t bite the hand that owns it directly and signs the paychecks, but that doesn’t get to the specifics.

I have to thank my friend Stephen Jencks for making a comment on Jody’s article that gave me that elusive metaphor that makes it clear to the average Joe why the new “transparency” is so little so late.  Here’s how Stephen neatly summarized the issue:

As a thirty year veteran MBS bond trader and advocate of transparency the omission of the CUSIP is simply another ploy by FINRA, SIFMA and the SEC to buy more time for their constituents.  To the layman, this news is meaningless.  To the professional trader, it’s a continuation of the existing barriers that prevent investors from gauging relative value between individual securities.  The CUSIP is the VIN number of the securities industry.  Only dumb people choose not to run a VIN number before buying a used car.

Stephen Jencks

Dhaka, Bangladesh

I also have to thank Stephen for the reality that he embedded in the used car metaphor — a reality everyone can relate to — that a lot of the salesmen in the bond business have the same qualities as less well paid sales professionals in the used car business.



5 Responses to Used Car Salesmen

  1. George Maniere says:

    This is so dang funny because it is so dang true.

  2. Conscience of a Conservative says:

    Great follow up. I guess I would say FINRA is a trade group masquerading as something else.

    I have to disagree however with your opinion on the hedgies threatening to sue if they didn’t use ABX pricing. The hedge funds bet right in this case and history has shown that the abs & mbs bonds of the famed 05,06,07 vintages were not being properly priced(just look at the actual default/severity experience). Of course CDS pricing does not translate point for point to actual bond pricing but the differences were huge. The hedge funds were basically pointing out that the emperor wore no clothes , made huge bets for sure, but were frustrated over the absurdity of cash pricing. in this particular instance the hedge funds were the truth tellers.

    • hhill51 says:

      Sorry, just can’t let you give them a pass like this. Just how much congratulations does the winner of a game get, when they rigged the game? Without the hidden leverage of the hedge funds’ own activity in the CDS derivative market, the housing and mortgage markets could not have fallen so far, or so fast. Correction became a blowout, but only because of the hidden, and sometimes illegal, activity of a small group of manipulators.

  3. Fred Havell says:

    Any chance you could put me in touch with (ie give him my e-mail address) Mr. Jenks? I was involved with some securitization work in Dhaka ten years ago on a World Bank project, and would be interested to hear about developments.

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