Disturbing Activity from Blackrock

Janet Tavakoli emails:

My comments on the upcoming TARP report will echo my February 4, 2009 comments. TARP’s inspector general Neil Barofsky already anticipates losses. Unfortunately, the losses are right on schedule.

Let’s hope that Barofsky did not rely upon Blackrock for uncovering problems. Blackrock was involved in disturbing activity as a CDO manager. Among other things, Blackrock Financial Management was CDO manager in some horrific 2007 vintage CDOs such as Pacific Pinnacle CDO ($1 billion; closed 1/1/07; Event of Default 2/4/08); Pinnacle Point Funding ($2B closed 6/7/07; acceleration 12/13/07); Tenorite CDO I ($1 B closed 5/11/07; liquidation 2/7/08); or Tourmaline CDO III ($1.5 billion closed 4/5/07; Event of Default 3/31/08).

Blackrock is evaluating Fannie Mae and Freddie Mac. It is also managing Maiden Lane [the stuffee for Bear Stearns’s assets via JPMorgan Chase, and the underlying positions of AIG’s credit default swaps that included Goldman’s trades and Goldman’s CDOs, (via SocGen, Calyon, etc.) along with many problematic Merrill deals] and was awarded no-bid government contracts to manage other TARP-related entities. Blackrock is too close to the problem to be objective, and no bid contracts were inappropriate. Given its track record, it seems to me that, Blackrock has an incentive to cover-up problems.

In the secondary trading market, CDOs such as the Goldman Abacus deal reported on yesterday by Bloomberg’s Jody Shenn are called WTF deals. I call Blackrock’s no-bid awards CYA contracts.

Watch Janet on Bloomberg Television, here.

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). Tavakoli’s book on the causes of the global financial meltdown and how to fix it is: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (Wiley, 2009).