Voldermort in a Vice (How the games boyz play cause billion dollar losses)

[alice wellintown]

It may be weeks or even months before we find out exactly what
happened in London. A trader, it seems, was playing in a small market,
a market that, like so many others now, combines new synthetic
instruments (CDS) with an index on old plain vanilla ones, Corporate
Bond, and the other boyz in the game ganged up on him.  The old
instruments, good old fashioned North American corporate bonds, are
plain vanilla, now the kind of investment windows, Trustees for
orphans, and stogy old mutual insurance companies with AAA ratings (I
think only two such companies exist and both are on the list for
possible downgrades) used to hold in their portfolios to boost the
yields on their treasuries (believe it or not, there was a time when
one could invest in UST and take almost no risk, add a 20% position in
AAA rated Corporate Bonds, and beat every thing under the sun). In
fact, this is still the case and, this is the irony in all this, this
has been the case ever since derivatives were created. So why not dump
all the derivatives in the sea and get back to basics? Nothing wrong
with plain vanilla. Right?

As I watch these idiots testify about liquidity and cds complexities
and the like I am amused. I remember the first time someone tried to
convince me that they could turn a BB credit into a AAA one so that it
could go into a portfolio that guaranteed a fixed return and principal
return at maturity. Well, Milken did go to prison. Junk is junk and
you can't wrap it up in an insurance package of UST and call it
diamonds. And, since everyone knows that, the real value of the
diamonds is the treasuries is a bit tough to determine. Well, maybe
they are the rough and not diamonds in it. What's the rough worth?
Well, since we're only playing golf with other people's money, a
stroke or two. And what's par on this hole? Who knows. WHo cares. Not
the boyz with the metal sticks in their hands, not even in a
lightening storm. These guys are so good they only play with One
Irons, and Even God, they say, can't hit a one iron.

http://www.ibtimes.com/articles/340153/20120511/jp-morgan-loss-london-whale.htm