Pro Publica Investigates Magnetar’s Role in Winning Big $ by Betting Against their own CDOs

Listening to NPR on Saturday, April 10, 2010, I heard Ira Glass on This American Life report about Hedge Fund Magnetar’s role in deliberately creating highly risky CDOs (Collateralized Debt Obligations) that were purposely designed to fail, and then Magnetar bet against these same CDOs by purchasing Credit Default Swaps (CDSs) on the same CDOs. MEAOW!

So what does it all mean?

Bottom line: It was an inexpensive way for Hedge Fund Magnetar to take advantage of the lack of proper transparency and regulation in our U.S. and international economic system by directing CDO managers to design a highly risky security and then betting against it with little up front investment, and then bringing home millions of dollars $$$ when the CDO failed.

And, meanwhile, all the bankers and other greedy little Wizards of Wall Street banditos get big pay-offs. In every type of deal, win or lose, many Banks collect sizable fees for every transaction involved along the way of this road to economic hell for many unsuspecting investors  — unless you are investors with Magnetar.

Stop the Fat Cats on Wall Street from Betting Against their own Securities Like Magnetar Did

Stop the Fat Cats on Wall Street from Betting Against their own Securities Like Magnetar Did

Ironically, the head of Magnetar Hedge Fund picked that name “Magnetar” for his hedge fund because he is an astronomy buff. Yet, here is a description of the destructive power of a real magnetic Magnetar in the cosmos:

Nasa: What a Magnetar Might Look Like

A Magnetar is “a type of neutron star with an extremely powerful magnetic field” that gives off high-energy electromagnetic radiation like X-rays and gamma rays. It is like a death star. It sucks things into it that then are literally torn apart. Some magnetars are even more massive than our own Sun.

“The density of a magnetar is such that a thimbleful of its material would weigh over 100 million tons on Earth.”

“The magnetic field of a magnetar would be lethal even at a distance of 1000 km, tearing tissues due to the diamagnetism of water. At a distance halfway to the moon, a magnetar could strip information from all credit cards on Earth.”

See: The Wikipedia: Magnetar

Magnetar: The Anti-Matter Producers of Wall Street

Well, according to the excellent reporting of Pro Publica and This American Life, the intrepid investigative reporters compare the plot of the Broadway Show – The Producers – to the designed-to-fail CDOs created by Magnetar.

As The Producers from the Broadway hit show believe in their song We Can Do It, a flop pays off bigger than a successful Broadway show and they tell you how, step by step.

The Producers: We Can Do It

The parody of We Can Do It produced by talented singers and instrumental musicians in the video link below sing about how Magnetar and other Producer-like bankers and hedge funds on Wall Street created their own formula for raking in the moolah by Betting Against the American Dream:

Music Video: Bet Against the American Dream

The proof is in the billions of dollars reaped by Magnetar and its investors for playing the market both ways. The problem is that their slick betting hurt a lot of people and it does not look like it was innocent.

What can Congress do to insure that Big Banks, Big Hedge Funds, and Big Brokerage Firms can’t do this kind of double-dealing in the future?

Here’s what happened if you compared Magnetar’s actions to a rigged horse race:

Magnetar rigged the horses and then bet that they would fail and collected on their bet because they designed the horses to lose.

Did Magnetar Reap Big Bucks$$ on Wall Street by Rigging CDOs to Fail?

Did Magnetar Reap Big Bucks $$ on Wall Street by Designing CDOs to Fail and then betting against them?

Stopping the Greedy Wall Street Wizards from Creating the Next Economic MeltDown before it’s too late:

  1. Register your concerns about the deceptive practices of Hedge Fund Magnetar and similar financial organizations by calling and/or writing Senator Chris Dodd, Head of the U.S. Senate Banking, Housing, and Urban Affairs Committee.
  2. Urge Congress, the Senate & the President to immediately pass effective legislation including a real Consumer Protection Agency with regulatory and enforcement power to stop deceptive practices of the Hedge Funds like Magnetar.
  3. Demand more accountability and transparency of Hedge Funds, Banks and Brokerage houses.
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