God,too early in the morning for this stuff.just breathtaking.I hope i can control my laughter when i think about this later today or i'll get more strange looks than usual.
Chuck, I wouldn't be too quick to jump on Fidelity here. They weren't selling this crap to unwary victims, they were just clearing the trades. If the OC Register is to be believed, this doesn't have diddly-fart to do with "mark to market" games played by Fidelity.
A big money market fund can buy "hedge vehicles" like strips, because they have a big position to hedge. I wouldn't necessarily get worked up over a mutual fund owning this stuff. I am getting mightily worked up over some rube in Missouri putting his life's savings in a one-way bet to hell on Brookstreet's advice. As far as I can tell, Fidelity just had to be the one to stop the music and make everyone sit down.
The good times ... of high price almost always engender much fraud. All people are most credulous when they are most happy; and when much money has just been made, when some people are really making it, when most people think they are making it, there is a happy opportunity for ingenious mendacity.
2 years ago, when Brookstreet first started down this road, all of the activiy in retal CMOs came from their Boca office from one specific broker. As time went on this branch office became the engine for the rest of the branches, and Stan Brooks allowed the pollution to spread by endorsing firm wide marketing of this garbage. Obviously Brookstreet's compliance department was non-existant.
NFS (Fidelity) also has an internal compliance department. In addition to authorizing reduction of margin requirements on IOs and inverse floaters to 10%, the red flags should have been raised long ago as firmwide involvement in these margin schemes increased. In my opinion this is where the bulk of the lawsuits will be focused.
On another note, much has been stated that the problem was mark to market related. This is true, but the bulk of the trouble occured with MTM in addition to Fidelity raising margin requirements. While Fidelity's compliance department was weak here, their risk controls were not. They knew the amount of net capital that Brookstreet had available and sought to protect themselves by increasing margin requirements to protect themselves.
In the end I think that its in Fidelity's best interest to just quietly write a check and have the problem go away.
BTW...Fidelity (NFS) raised margin requirements from 10% to 100%
I know of one example where a broker tryed to segregate the CMO garbage into a seperate margin account for the client. Unfortunately when said client was spiked with a $350,000 margin call Brookstreet attached his other account for the debit balance.
There is smart money; there is dumb money; and there's money so moronic it practically cries out for extermination.
Bill Bonner
God,too early in the morning for this stuff.just breathtaking.I hope i can control my laughter when i think about this later today or i'll get more strange looks than usual.
Tanta, it gets better-
Complex bonds confuse Brookstreet investors | brookstreet, interest, cmos - Business - The Orange County Register
"a subsidiary of Fidelity Investments"
Is this the well-known Mutual Fund company, that many people have 401k and pension assets with?
I think I will be transferring some assets to another company that doesn't play in this CMO/CDO/etc market.
Jesus H. Christ on a Bender, they were selling inverse floaters to Joe Bob Retail?
So lemme guess. The sophisticated deep-pocketed hedgies were buying the POs. Your uncle Clem was buying the IOs.
I say we all just go back to bed.
Chuck, I wouldn't be too quick to jump on Fidelity here. They weren't selling this crap to unwary victims, they were just clearing the trades. If the OC Register is to be believed, this doesn't have diddly-fart to do with "mark to market" games played by Fidelity.
A big money market fund can buy "hedge vehicles" like strips, because they have a big position to hedge. I wouldn't necessarily get worked up over a mutual fund owning this stuff. I am getting mightily worked up over some rube in Missouri putting his life's savings in a one-way bet to hell on Brookstreet's advice. As far as I can tell, Fidelity just had to be the one to stop the music and make everyone sit down.
Walter Bagehot:
The good times ... of high price almost always engender much fraud. All people are most credulous when they are most happy; and when much money has just been made, when some people are really making it, when most people think they are making it, there is a happy opportunity for ingenious mendacity.
Tanta-
I would ABSOLUTELY blame fidelity.
2 years ago, when Brookstreet first started down this road, all of the activiy in retal CMOs came from their Boca office from one specific broker. As time went on this branch office became the engine for the rest of the branches, and Stan Brooks allowed the pollution to spread by endorsing firm wide marketing of this garbage. Obviously Brookstreet's compliance department was non-existant.
NFS (Fidelity) also has an internal compliance department. In addition to authorizing reduction of margin requirements on IOs and inverse floaters to 10%, the red flags should have been raised long ago as firmwide involvement in these margin schemes increased. In my opinion this is where the bulk of the lawsuits will be focused.
On another note, much has been stated that the problem was mark to market related. This is true, but the bulk of the trouble occured with MTM in addition to Fidelity raising margin requirements. While Fidelity's compliance department was weak here, their risk controls were not. They knew the amount of net capital that Brookstreet had available and sought to protect themselves by increasing margin requirements to protect themselves.
In the end I think that its in Fidelity's best interest to just quietly write a check and have the problem go away.
BTW...Fidelity (NFS) raised margin requirements from 10% to 100%
I know of one example where a broker tryed to segregate the CMO garbage into a seperate margin account for the client. Unfortunately when said client was spiked with a $350,000 margin call Brookstreet attached his other account for the debit balance.
Nice, huh?