Another quick look at CDOs

It's finally come. The SEC is investigating securities fraud stemming from the sub prime loan debacle. Finally some accountability, though perhaps it's too little too late:

"Last week, Cox revealed in an interview that the SEC was looking into the problems at the two Bear hedge funds. Bear said last week that it would provide up to $3.2 billion in financing for one of the funds after the investment bank discovered that the underlying value of the assets was much less than it had believed.

Collateralized debt obligations are extremely illiquid and have no true market price. The sellers value the securities based on models that use ratings from the credit agencies to judge the risk that they will go sour. Buyers have little idea what the underlying assets are, or what they should be valued at."

Ahh, I see. The article continues, mentioning Blackstone:

"In a wide-ranging oversight hearing before the House Financial Services Committee, Cox and the other four SEC commissioners defended the agency on a host of issues ranging from reform of the Sarbanes-Oxley corporate governance law to the approval of a public offering by Blackstone Group LLP".

I have been wondering why the Blackstone Group went public when it did. The market's much closer to the top than it is the bottom. Prior to going public, the company unloaded a whole helluva lot of real estate in the Chicago area as well as the Western region. I suppose they wished to reduce debt, which in turn would make them more attractive for their IPO. A more attractive IPO means a higher bid price, which means they raise more capital which means the principals of the company reap massive benefits. Right? And if this company were heavily invested in the subprime mortgage fiasco, going public would be the best thing for the principals as all that investment money coming in would create upward pressure on the initial price of the stock. Maybe we will see the shortest lifespan ever of a public company, but I don't know.

Yesterday, I wanted to lump Blackstone in with the other four investment firms I previously mentioned. I had a feeling that Blackstone would drop immediately, but then I thought: no, it's a new stock, people will buy no matter the price because it's *NEW*. I guess I should have followed my instincts. Despite being priced below their IPO price, I think the stock will rebound considerably, regardless of market conditions. But I do think this company is suspect. At this point, I do not think a savvy investor would sell or short Blackstone. It is one that I will watch closely and I will give you an update as soon as I've jumped off the fence.