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PREVIOUS EPISODES:
NSFW Episode 4: Silver, Welfare Reform, Winter Inflation
NSFW Episode 3: Day Trading, Estate Taxes, Prop 19
NSFW Episode 2: The Euro, Prop Trading, Technology
NSFW Episode 1: QE2, Housing, Commodities

This week's recommended reading:
The Creature from Jekyll Island: A Second Look at the Federal Reserve
and
Do Travel Writers Go to Hell?: A Swashbuckling Tale of High Adventures, Questionable Ethics, and Professional Hedonism

For those who would like to embed this video on their own website (just be sure to link back to WallStreetOasis.com), here is the embed code:

Have a happy and safe Thanksgiving holiday guys! If you like the show, tell a friend!

Comments (31)

  • LIBOR's picture

    Nothing like NSFW to get you through a Sunday morning hangover/white castle coma recovery. Thanks guys.

  • Frieds's picture

    Eddie, drinking Rum while NSFWing? Nice!

    BTW, you're making me scared to travel for Thanksgiving and to Dubai. Best description of TSA Ever! I mean, the Israelis have it right about how they keep security under check. Behavioral profiling works better than the overabundance of scanners.

    Midas, you shit the bed or screw the pooch, or not shit the pooch.

    Best part of my Sunday News Day! NSFW FTW! I think Cyber Monday will be the comparatively big day between the two. Plus, Eddie, Midas, I've got a copy for my long flight across the world in December.

    Happy thanksgiving to you two crazy bastards. May you both enjoy a nice bottle of wine, or Rum, good company, good food and a good couple of days to unwind and relax.

  • Edmundo Braverman's picture

    It just keeps getting better. Now these dicks have strip searched a child who was too shy/freaked out by the enhanced pat-down. The kid didn't even set off the metal detector, he was just selected at random. Keep up the good work, you fuckin' jerkoffs.

  • happypantsmcgee's picture

    Black Friday is a racist name and you should be ashamed of yourself haha love it guys, keep it up

    In light of your post yesterday Ed, you should do a weekly rum recommendation/what you're drinking in the video along with the weekly reading recs. Just a thought.

    If I had asked people what they wanted, they would have said faster horses - Henry Ford

  • Bondarb's picture

    in a financial bankruptcy everybody always grabs collateral and asks questions later. Possession is 9/10ths of the law and so it becomes a free for all. I happened to work at a hedge fund that was exposed in the Refco bankruptcy back in 2005 and we were frantically trying to find a clerk who would be dumb enough to wire us anything because once the firm was fully in its bankrupt shell we might not get the money we had frozen for years. The law gets very hazy during a bankruptcy especially one that occurred amidst total panic like LEH and the general rule is "beg forgiveness not permission".

  • In reply to Bondarb
    Edmundo Braverman's picture

    Bondarb:
    in a financial bankruptcy everybody always grabs collateral and asks questions later. Possession is 9/10ths of the law and so it becomes a free for all. I happened to work at a hedge fund that was exposed in the Refco bankruptcy back in 2005 and we were frantically trying to find a clerk who would be dumb enough to wire us anything because once the firm was fully in its bankrupt shell we might not get the money we had frozen for years. The law gets very hazy during a bankruptcy especially one that occurred amidst total panic like LEH and the general rule is "beg forgiveness not permission".

    Yeah, you're right. The thing that made the BofA grab so egregious is that it sounds like it happened a couple months into the bankruptcy proceedings.

    What a fuck story Refco was, lol.

  • Bondarb's picture

    yes not alot of people talk about the refco bankrupcy anymore but that firm went from "all good" to declaring bankrupcy in literally 2-3 hours. Being involved in that was a huge help to me in 2008 because when other people were like "no way lehman could actually go under" or some other nonsense I had the experience to know that at a trading firm once people no longer are confident enough to trade with you death comes very quickly...like in a matter of hours, not months.

  • Edmundo Braverman's picture

    Bondarb,

    The Refco tale is one for the books. If you've got time some day, you should write up a post about it. From highly successful IPO to bankruptcy in 2 months flat. And those guys were GIANTS.

  • Im with Busey's picture

    Do you think you'd actually be convicted if you beat the shit out of a TSA employee for essentially molesting your son in front of you?

  • In reply to Im with Busey
    happypantsmcgee's picture

    Im with Busey:
    Do you think you'd actually be convicted if you beat the shit out of a TSA employee for essentially molesting your son in front of you?

    Without question, instantly

    If I had asked people what they wanted, they would have said faster horses - Henry Ford

  • In reply to Edmundo Braverman
    happypantsmcgee's picture

    Edmundo Braverman:
    happypantsmcgee:
    Im with Busey:
    Do you think you'd actually be convicted if you beat the shit out of a TSA employee for essentially molesting your son in front of you?

    Without question, instantly

    Not if you faced a jury of your peers.

    Were that possible, I think a lot less people would get charged and convicted of stupid shit. Like you said, we are a nation of sheep and I just don't have faith in the everyday person to standup to the man and not convict someone for doing something like this, no matter how necessary or right it may have been.

    If I had asked people what they wanted, they would have said faster horses - Henry Ford

  • In reply to Edmundo Braverman
    Midas Mulligan Magoo's picture

    Edmundo Braverman:
    happypantsmcgee:
    Im with Busey:
    Do you think you'd actually be convicted if you beat the shit out of a TSA employee for essentially molesting your son in front of you?

    Without question, instantly

    Not if you faced a jury of your peers.

    I doubt you would face a jury of your peers. This highlights both the stupidity and arrogance of the process. "Rendition" anyone?

    Scary stuff.

  • In reply to Bondarb
    Midas Mulligan Magoo's picture

    Bondarb:
    yes not alot of people talk about the refco bankrupcy anymore but that firm went from "all good" to declaring bankrupcy in literally 2-3 hours. Being involved in that was a huge help to me in 2008 because when other people were like "no way lehman could actually go under" or some other nonsense I had the experience to know that at a trading firm once people no longer are confident enough to trade with you death comes very quickly...like in a matter of hours, not months.

    Which do you rate higher on the "signs of the apocalypse" scale, pre-Lehman?

    1)LTCM

    or

    2) Refco

    Know that LTCM was a while ago, but I feel like their whole approach was indicative of where things were headed.

  • Bondarb's picture

    The Refco thing was really unique because they had just done an the initial public offering and had been owned by the PE firm Thomas Lee. So even the day the CEO was being dragged off in handcuffs many people were saying that this was going to be no big deal because Thomas Lee had vetted the books and they hadnt found anything...and they are really smart, right? The day Phil Bennett (the CEO) was arrested up until about 11am the "company line" was that Refco was a highly rated firm, with plenty of assets, and that the CEO had committed an isolated fraud and everybody was shocked by it but the firm was fine. The firm I worked for used Refco as our prime broker and had a very close relationship with the firm and this is what our guys were telling our investors and counterparties. Then at about 11am-ish a couple of counterparties called and said that their credit department just told them to stop trading with us due to our refco exposure and by that afternoon it was a mad scramble to get our assets out of the firm before it went into bankruptcy and "shelled up". We got lucky because when it was all said and done the entity we faced at Refco never ended up declaring bankrupcy, but many funds that had assets at other parts of the firm ended up losing their money or having it tied up in the bankruptcy proceeding for years.

    I think that in many ways it was similar to the Lehman bankrupcy because of all the balance sheet transactions that were criminal and were done to hide excessive/bad debt. The Lehman "repo 105" scandal (or whatever it was called i forget) was very similar to the trades Refco was doing at the end of each quarter to appear to have less leverage and to hide the real state of the firm. It was also similar because it exposed the fact that so-called smart guys like Thomas Lee really were emperors with no clothes...they bought the firm with practically no real due dilligence and then took the firm public all without seeing a giant fraud going on right under their noses. Their was also a rating agency aspect to it because the agencies had a pretty high rating on the firm the day it went under...they totally whiffed just like they did 3 years later with the crash.

    So if I had t pick one I would say Refco was more emblematic of the 2008 bust...LTCM was really just a bunch of guys selling out of the money options and claiming to be geniuses in order to help market the fund and raise money. When vol spiked, they blew up.

  • LIBOR's picture

    Great post about REFCO. Really interesting stuff. Funny how the underwriters, credit rating agencies, PE owners, and the auditors all "missed" this.

  • Frieds's picture

    Bondarb,

    Great stuff on Refco. I have a buddy who was dealing with backlash on the Refco bankruptcy as he was working for someone representing someone who worked for Refco. He was telling me about some of the accusations made against his client and I was just shocked at how deep the fraud went. Scary shit, and it really echos how much of that stuff still happens. They say that Wall Street has a very short memory, and Refco is proof of it.

    Midas,

    Well, if you get your ass up to Manhattan, I'll go out and drink with you and night you want. My boss might not be happy that I come in still drunk, but I'm game.

    As to LCTM, I think it's two completely different cases. LCTM was much more a matter of wrong place/wrong time than it was apocalyptic. LCTM was overlevered and made serious one way bets on how the market was going to move. Not only that, those one way bets were "The other side of the trade", so to speak, in that LCTM took large one way positions. Despite the fact that their arb theory worked in the end, they had to deal with a currency crisis and default crisis (Russian bonds) that froze the markets to begin with. Couple that with massive margin calls, and it was ripe for disaster.

    Between the two, while Refco had a much clearer damage effect, I think LCTM was the worse of two because of Greenspan's approach to lead a "Private Backed Bailout" of LCTM setting the stage for the idea of a supposed Fed Guided/Fed Involved bailout if someone else screwed up as badly as LCTM did. Despite the fact that private companies bought out the book from LCTM, by stepping in, the Fed opened up the casino doors for the betting mechanisms that caused the TARP bailout.

  • Babyj18777's picture

    Eddie, I saw your other thread ranking the rums.

    I'm actually in Bermuda right now, and I gotta tell ya, I had Gosling's with ginger beer and it was just awful.

  • LetsGoSailing's picture

    I just got back from Belize, flew thru Atlanta from and back to New Orleans...when and where is this TSA shit hitting the fan? I've seen it on the news, but I didn't run into it anywhere...

    Another great episode, thanks!

    A good friend will come and bail you out of jail...but a true friend will be sitting next to you saying, "Damn...that was fun!"

  • GOB's picture

    Good video. It was both fucking funny and informative. Great series!

  • Edmundo Braverman's picture

    Bondarb,

    Great stuff, man. We used to clear through Vision, L.P. (late 90's), but a lot of my buddies' firms used Refco as a primer broker and those guys were definitely the 800-pound gorilla in the commodities game. And they were always in trouble. Always. My firm did a lot of shady shit, but Refco was getting hammered by the NFA and CFTC once a week it seemed like.

    Hindsight is always 20/20, but when you looked at their regulatory record it's even more incredible that nobody smelled a rat until the whole thing blew up.

    I think the main difference between Refco and LTCM is that the guys at Refco knew exactly what they were doing, while the guys at LTCM just looked at their screens one day and said, "Uh...What just happened?"

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  • Gekko21's picture

    "Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."