Constant Obligation Leveraged Originated Structured Oscillating Money Bridged Asset Guarantees

This bit of humor has been circulating around Wall Street the past few days:

Investment Dealers are excited to announce the newest structured finance product – Constant Obligation Leveraged Originated Structured Oscillating Money Bridged Asset Guarantees, or COLOSTOMY BAGS. Designed to accommodate the most sophisticated investment strategies, Colostomy Bags contain the equity tranches of Structured High Interest Taxable Derivatives, or SHIT, and are leveraged an infinite amount of times through the innovative use of derivatives.

"Its an actively managed, unlimited liability, open ended investment with no maturity date, which pays LIBOR plus 5,000 and has no correlation to traditional investments" said a spokesman for the Investment Dealer who engineered the product. "It’s based on a CDO structure, but it’s designed to default BEFORE the first coupon payment, which you’ll agree has no correlation with stodgy traditional investments and is a perfect fit for portable alpha scams, er, strategies." Following the default, each month more leverage is added to the structure to pay for the coupon and the Dealer’s fees which are set at 80%. "We feel the fees are reasonable, given the adrenaline rush you’ll get each month attempting to mark these."

The Colostomy Bags carry a AAAA rating, based on the rating agencies opinion that they are even safer than Treasuries. "You can’t use traditional credit analysis to value these babies, no sir-ree" said a spokesman for a rating agency. "Just like Icelandic Banks, we give them the highest rating because you just know that the Fed will bail out all the hedgies who buy these things..remember like Long Term Capital? And the best part is, the beauty of this structure is that the loss given default is NEGATIVE, so by extension we feel that the CDS will trade through Treasuries."

Inhaling deeply on a fatty, he continued "We’ve been tinkering with our model, which served us well for Enron and the Telecoms in ’02, and our stress testing shows that the probability of loss in the senior tranche is close to zero." The model, constructed of a wishing well, Joseph Jett’s trading blotter, and drawings of Unicorns then collapsed in a heap. "Well, back to the drawing board!" he cackled.

A real money investor, huddled on the windowsill outside his office, said he remained optimistic about holding the Colostomy Bags but was a bit concerned with the 95% decline in value on the first day they traded. "We’ve taken a bit of a haircut on these but I’m waiting to see the first servicer report, which should arrive in a few months. At first I was annoyed that the dealer who sold them to me refused to make a market in them, but that makes my job easier since I’m not tempted to sell."

We located a hedge fund manager at a due diligence meeting in the VIP room at Score’s. He said he was skeptical of the structure at first but was dared into buying it by a fixed income salesman. "He said to me, ‘what’s wrong with you, its quadruple A rated, just buy it, what are you a pussy?’ He also said it was going into ‘an index’, although he didn’t say which one, but I felt that I had to buy it. And that was good enough for me, bro’."

I have no idea who is the author, but its certainly making the rounds!

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  1. m3 commented on Aug 10


  2. dblwyo commented on Aug 10

    That’s outrageous – how can you possibly publish this kind of sophomoric finance community humor when all those poor traders, bankers, hedgies and peggies are facing the total evaporation of their fungible liquidities…simply trickling away under the door, along with their bonuses, leverage and our market. Shame, shame. How cruel – and that these guys can laugh at themselves in these terrible circumstances facing the complete collapse of Western civilization – at least in 12 square blocks of it. What what Jim Cramer say…excuse me…scream.

  3. Pool Shark commented on Aug 10

    It’s unfair to compare COLOSTOMy BAGS to to existing CDO’s…

    At least the contents of COLOSTOMy BAGS (S.H.I.T.) is a commodity useful as fertilizer; whereas CDO’s are of course totally worthless.

  4. Chief Tomahawk commented on Aug 10

    Hey Br: Just caught Neil Cavuto interviewing The Donald. Trump is pleading for a rate cut of one full point. “I guarantee Alan Greenspan would’ve cut by now.”

  5. Rob Dawg commented on Aug 10

    I’ll remind you sir that certain brands of Special Hedge Investment Trusts command a premium when packaged 5lbs to a 5lb sack and properly marketed. It is only when the supplier trys to put 10lbs of CRedit As Product in the 5lb containment that a smell is even detectable.

  6. Condor Options commented on Aug 10

    Whats Actually Going on Downtown

    What a nice, flat day to end the week! You know that when a day where the Dow only closes down 31 is a reason for celebration, were definitely in a dicey environment. We spent the whole day uptown in various capacities, including a nice lunch…

  7. VJ commented on Aug 10

    Well, the Fed has shown it’s panic by injecting three times with $38 billion. Didn’t they previously claim they were not in the business of propping up the stock market ? Now they have nowhere else to go but a rate cut if it keeps going down.


  8. johntron commented on Aug 10

    Given the news of GS’s Alpha fund down 25%+ this year, there are probably many other funds in the same boat and plenty of colostomy bags and soiled depends oozing around.

    Makes you wonder…..since many of these funds are probably far below their high-water mark, will they just close shop?

    If they do close shop, will it be an orderly liquidation?

    There are probably some astute funds like Citadel that have a wad of cash on hand to acquire assets from liquidating funds in anticipation of this type of contingency.

    Will the late summer/fall be a period of whipsaws as funds liquidate and other funds try to swing for the fences to close out a respectable year?

    that’s what I’m thinking of right now.

  9. deltaverde commented on Aug 10

    “Smart money is buying.”

    Says Biderman, who is still a tool.

  10. SPECTRE of Deflation commented on Aug 10

    Somebody call the FED, and if this new instrument doesn’t work out, they can make the margin call for all the theives in suits just like today. What a complete and total joke this country has become. It’s the pursuit of happiness, but if you are on Wall Street it’s a guarantee.

  11. Sven commented on Aug 10

    They won’t give us a rate cut, so let’s all pretend that we can’t make a market in all this worthless debt. If we ALL DO IT TOGETHER, it will look like the market is seizing up…and Central Cankers from around the world will “inject liquidity” (sounds best when Maria says it) which is almost better since it goes right into stocks so we can get out at a higher level.

    The smart money is still buying because they know there is still plenty of money around. These bagholders are just trying to force the Fed’s hand to make it easier for themselves. Wall Street has always worked by collusion.

    I thought the COLOSTOMY thing was hilarious.

  12. Norman commented on Aug 10

    Funnnnny! But the line, “…but it’s designed to default BEFORE the first coupon payment” rings true to me.

    I have a $1,000 bond from 110 years ago with all the coupons attached but one. That one probably was sent in and when no cash came back (6% coupon) the bond went in the closet.

    FYI: It was the Dunderberg Spiral Railway in Pennsylvania. The etching on the bond shows a rail line with a train spiraling up this mountain to the top. The underwriter was named Morgan all the better to dupe the public.

    So, its been done before.

  13. speedlet commented on Aug 10

    Who is the “smart money”?

    Goldman’s Alpha, perhaps? They’ve always been considered the smart money… until now. Bear Stearns and Sowood were really smart, until they weren’t. And LTCM was the smartest of the smart — all those Nobel Prizes!

    The entire system is designed to convince people to invest along with the “smart money”, which is why the stupid money (read: accredited investors) pay 2+20% of their upside in exchange for 100% of the downside. All the risk, with only 80% of the reward!

    The “smart money” is not a country club in Greenwich with lifetime membership. The smart money is determined by performance, after the fact, and its roster is always changing.

  14. JohnnyB commented on Aug 10

    The smart money is selling. hedgies are de-levaraging and any buying strength is massive short covering.

  15. wunsacon commented on Aug 10

    Norman, maybe add a page (with pic) to Wikipedia. Sounds like a nice meaningful symbol to behold.

  16. Winston Munn commented on Aug 10

    What is the “not-really-dumb-but-not- overly-bright-either-money” doing?

  17. The Nattering Naybob commented on Aug 11


    The complete acronym should be:

    Constant Obligation Leveraged Originated Synthetic Taxfree Oscillating Money Yield Bridged Asset Guaranteed Security

    furthermore… Colostomy Bags contain the equity tranches of:

    Structured High Interest Treasuries, or SHIT.

  18. Ken commented on Aug 11

    As ridiculous as that “press release” is, it resembles ABN AMRO’s CPDOs. I know I am laughing now but some pension fund is recalculating how big their unfunded liability is now.

    Kudos to BR for pounding the table on these subprimes for months now. Everyone one of these hedge fund managers that bought these pathetic securities should be reading “The Black Swan”. No more models based on the Bell Curve and standard deviations!

  19. commented on Aug 12

    A Bit of Wall Street Humor

    Barry Ritholtz: This bit of humor has been circulating around Wall Street the past few days:Investment Dealers are excited to announce the newest structured finance product – Constant Obligation Leveraged Originated Structured Oscillating Money Bridged…

  20. commented on Aug 20

    Is This Thing On?

    Hedge funds heavily invested in subprime assets are like the Titanic – both are sinking and only a few wealthy people got out in time. Get it? Do you GET IT? Hmmm…crickets. Tough crowd. That killed at the Apollo…

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