Uppity Wisconsin

You may remember - oh a few months back - when there was quite a lot of discussion about how the government was busy bailing out the banks and other lenders, but doing nothing about fixing the inherent problems that got us into this mess in the first place?  How we'd just go through another round of bad mortgages, etc. if we didn't impose new regulation?  And remember how all the banks "learned their lesson" and would suddenly stop being greedy? And how the ratings folks would stop conspiring to make junk investments look gold-plated? Remember that?  Well, in the news this morning ---

Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.

Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf Capital Management LP, an investment firm based in Purchase, New York.

Two years after the credit markets began to seize up, costing the world’s biggest financial institutions $1.47 trillion in writedowns and losses, banks are again taking so- called structured finance securities and turning them into new debt investments with top credit ratings. While the Morgan Stanley deal is the first to involve CDOs of loans, banks have been doing the same with commercial mortgage-backed securities in recent weeks.