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Thursday, December 25, 2008

Credit Suisse's Christmas miracle

Credit Suisse just managed to come up with the single greatest Christmas gift in history, all while solving the financial crisis and saving capitalism forever. They would be true American heroes if they weren't foreigners.

Most lauded the Swiss bank’s ingenuity in devising a scheme to rid itself of leveraged loans and commercial mortgage backed securities (CMBS) by transferring them into its so-called Partner Asset Facility.

The PAF will form an extra component in the mix of cash and Credit Suisse shares used to reward managing directors and directors – roughly the top 2,000 employees – in the group’s investment bank.

Some $5bn of illiquid assets will be shifted into the PAF, eligible staff will be granted equity in the special vehicle, and share in any upside. According to bank officials, the investment is attractive, as the assets have been marked down heavily and should benefit as markets stabilise.

That's right douchebag! You remember those things, the ones trading at a fraction of their face value, that you structured while you were on your Blackberry arranging to get head from some skank in marketing, that are stuck on your balance sheet because Earth ran out of suckers to buy them, because of capitalism? Hah, you will now be fucking PAID with those.

[above]: still better than CMBSs

This should be a model for compensation everywhere. I want Chris Dodd and Barney Frank drafting the Executive Reach-Around Act (ERAA) of 2009 right fucking now. The accuracy of value-at-risk models will skyrocket when people realize they might get paid with the shit they make. And if we're going to pay bankers in collaterallized debt obligations, we might as well pay auto executives with their own shitty cars, so they can try to sell them and learn about markets.

Of course, detractors are arguing that this is undue punishment for people who weren't intimately involved in crafting these wonderful shitballs, to which my imaginary girlfriend Aline van Duyn at the Financial Times responds:
[T]here have been the predictable complaints from bankers who say they had no role in creating the toxic asset mess but are now left holding the result.

Such an attitude is worrying, and it highlights the fact that there remain large pockets of Wall Street that still do not understand that the entire business has changed. Frankly, there are plenty of people (including policymakers) who are very disturbed that bonuses at large banks are being paid at all, considering the hundreds of billions of dollars that are being forked out by taxpayers as a result of the financial meltdown.

Even those bankers who had nothing to do with securitisation or leveraged lending directly, benefited from the massive increase in profits these businesses generated in the last decade. Indeed, most people, across Main Street and Wall Street, reaped rewards, either through high returns on investments or the ability to borrow cheaply.

The only other argument people can muster against is that it may cause talented people to leave. Threatening to go stand in line at the unemployment office with the tens of thousands of your coworkers already there is not very threatening.

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