Perp Walk For Cioffi
Bud Fox was never a Managing Director at Bear, but life imitated art today. Ralph Cioffi did not have high-quality assets, but I sure hope he has a high quality lawyer, and a dog.
June 29, 2007
Bear Stearns told potential investors in a now-stricken hedge fund that it could cope with even higher leverage because it put money into “high quality” assets – many of them hard-to-value structured products based on sub-prime mortgage bonds.
However, Bear also warned investors that taking on higher leverage could increase its volatility and brings with it “an additional risk element” FT
Getting sucked into Wall Street’s vortex can be a lose-lose propisition, and Main Street cannot always appreciate how this can go down. You totally lose perspective.
If Ralph has some friends out there, I sure hope they give him a regular call.
And while the various Cioffi biographies painted a sympathetic picture of a regular joe, the Feds probably read Felix Salmon’s deconstruction of CIoffi’s greatest invention.
But wait, there’s more! Remember the fabled “liquidity puts” which brought Citigroup to its knees? It turns out that they, too, were a Cioffi invention.
The analysis shows Cioffi and his team developed a novel investment product to attract money-market funds--a new class of investor--to the mortgage market. Their innovation, a particularly aggressive form of collateralized debt obligation, or CDO, became the building blocks of the industry’s push to keep growing for longer than it otherwise would have. After the market turned, it became clear the Cioffi money machine contributed to much of the $10 billion-plus in writedowns that Citigroup (C) and Bank of America (BAC) revealed in November.
This actually reflects much more badly on Citi than it does on Cioffi. One can understand how the investors in Cioffi’s hedge funds were burned when those hedge funds collapsed. But the fact that Citi willingly signed on to Cioffi’s schemes - schemes which were ultimately structured for the benefit of Cioffi, not Citi - looks positively amateurish.
Amateur hour on Wall Street lasted nearly 4 years, and at his point I would take bird flu over Ralph’s deadly stew, assuming I could turn back the clock.
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United States District Court Eastern District of New York
Criminal Complaint
Bear Stearns ex-managers arrested
BBC
June 29, 2007
CSI Wall Street: Leverage Killed the Bear
1440 Wall Street
Body Language: Analyzing the Bear Stearns Perp Walks
Deal Journal
October 1996
Promotions At Bear Stearns
NYT
December 20, 2007
Was Ralph Cioffi Singlehandedly Responsible for Everything Which Went Wrong of Late?
Felix Salmon Market Movers
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned
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