The most important question regarding yesterday's downgrade of Ambac and MBIA is obviously not about munis but about ABS and CDOs. As readers undoubtedly know by now, banks and brokerages routinely purchased monoline insurance on ABS and CDO transactions. In CDO land, the trade was usually done on the senior-most tranche of the CDO, with the monoline writing a credit-default swap on the trade.
So the question is, what are bank's exposure? Are more writedowns in store? Let's talk this through.
If we assume that banks and brokerages have been correctly following accounting rules, they would have been marking-to-market their CDO exposures all along. Right? Alright, let's look at one of Ambac's uglier bonds in their CDO portfolio. Citation High Grade ABS 2006-1A A1. That's CITAT 2006-1A A1 or CUSIP 17289LAA7 for those who want to follow along on their Bloombergs.
This beauty was originally rated AAA/Aaa, but alas, its fallen on some hard times. On June 2 Moody's downgraded this tranche to B1 remaining on negative watch. The overcollateralization test on the A tranche is currently below 100%. Now I don't actually have offering documents on this bond, but this almost certainly means that the par value of the underlying collateral is now less than the outstanding Class A debt. Note that has nothing to do with the market value of anything. In other words, actual realized losses on the collateral have blown through all subordination. Originally the bond had about 14% subordinate to it, so realized losses are at least that large.
Now this Citation deal isn't as ugly as some others. As of March 31, 55% of the collateral is rated at least AA and another 20% is rated A. Now I hear tell ratings don't mean as much as they used to, but still, a large percentage of the collateral is performing OK.
Still, given the failure of the OC test, we can assume that without any support from Ambac, this bond would in deep doo doo. There is no way this bond is getting more than 75% of its principal back. However, had the market viewed Ambac as favorably as Moody's and S&P apparently did until just yesterday, the bond might still be trading near par. But of course, the markets have not assigned much value to Ambac's insurance for several months now. On top of that, we see that straight AAA-rated home equity paper in late 2006 (which generally speaking is better insulated than this CDO against losses) is trading in the mid 70's, and AA paper in the 30's. Could the bid on this thing possibly be more than $50? With or without Ambac insurance?
So now that Ambac has been downgraded, is there really any difference in the value of this bond? Is there really a lot more to be written down?
Of course, the above discussion has an "IF" the size of Ed McMahon's mansion. That is IF owners of this paper have been properly marking-to-market the paper. What I'm afraid may be happening in some cases is that the bond itself has been marked in the right neighborhood, but the CDS price has been marked as if there actually was a AAA counter-party. So a bank would price our Citation deal at $40 or whatever, but price the CDS contract from Ambac as if there was a large gain in it. Now that CDS isn't worthless, if for no other reason than run-off, but its sure not worth what it would be with Goldman Sachs as the counter-party.
An interesting twist on this story, and one that is probably helping to drive LIBOR and swaps spreads higher the last couple days. The AAA CDO/Monoline CDS combo trade was extremely popular with European banks. Perhaps the next round of big writedowns is coming from the Continent.
The question that you raise has been the question all along. That was the entire rationale for banks to provide capital to the monolines. It was really more in their interests then the shareholder's of the monolines. In fact, they would have been better off (or not worse off) not raising capital, voluntarily stopping writing new business, and just see what was left.
ReplyDeleteEven though they are not AAA, they are still investment grade, so we will see what the banks have and what they will do. I suspect that they have had enough time to figure this out. They have either prepared through writedowns or raising capital or not. Also, even if they give the 'insurance' a haircut, they don't have to do it all at once. However, it isn't the relatively clear cut argument that AAA doesn't need any additional analysis or support.
Anyway, I am in the minority that would prefer that the mess get unwound in an orderly fashion rather then a cataclysmic meltdown.
Hmmm, seen a couple of articles lately saying euro exposure may be understated:
ReplyDeletehttp://www.ft.com/cms/s/28f13802-3349-11dd-8a25-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F28f13802-3349-11dd-8a25-0000779fd2ac.html&_i_referer=
Maybe they have better disclosure rules?
Good example, but follow it a little further. Ambac is on tap to maintain payments to the senior Aaa bond if the deal is unable to make those payments. Also, if the deal can't make those payments, it's in default and has to be unwound.
ReplyDeleteThere are a whole bunch of deals that are going through this and the street is flush with bid lists. Depending on the docs, Ambac may get a fair amount of control on these sales, but will need to make up any shortfalls to the bond they wrapped. This is happening and will continue to happen and will severely impair the capital of the monolines.
The S&P 500 is worth what they say it is:
ReplyDeleteS&P: Lorillard to replace Ambac in S&P 500 on June 10
SAN FRANCISCO (Thomson Financial) - Standard & Poor's late Tuesday said that tobacco company Lorillard Inc. will replace Ambac Financial Group Inc. in the S&P 500 on June 10.
Lorillard is being distributed to the public via a two-tier process involving the retirement of the tracking stock Carolina Group, in exchange for which about 62% of Lorillards common stock will be issued, and an offer in which shares Loews Corp. can be exchanged for the remaining shares of Lorillard, S&P said.
As of todays close of trading Ambac's market capitalization was roughly $860 million, ranking 500th in the index.
AI,
ReplyDeleteThe AAA CDO/Monoline CDS combo trade was extremely popular with European banks. Perhaps the next round of big writedowns is coming from the Continent.
My thoughts exactly. Some of these European banks might be great shorts.. (UBS wasn't the only one.)
Are Ambac and MBIA generating any new business these days?
ReplyDeleteNeither MBIA or Ambac are able to write new municipal business, and they aren't trying to write SF business. Now whether or not they could do reinsurance, I don't know. Severely doubt it.
ReplyDeleteNow if they had a stable AA rating and the market belived in the AA rating (both hypothetical right now), its possible they could have a reinsurance business that was worth something. Would have to be much smaller than what they were 2 years ago tho...
Couple of points, AI:
ReplyDelete1) You write that an OC test of < 100% => that there have been realised losses sufficient that the collateral is worth less than the par value of the class A notes. I haven't looked at the docs either, but I don't see how this *necessarily* follows. There are plenty of CDOs out there with market value triggers (OC tests based on market values).
2) There is another way in which banks may have exposure to the mononlines. Say a bank put a CDO together, retained the first 10bp equity and sold off notes based on 0.1%-20% (with "high grade" collateral this isn't impossible, though the numbers are pulled from my arse). That would leave an 80% super senior that, under Basel 1, would carry a hefty capital charge. Many banks got the monolines to write a CDS against that senior piece(via an intermediary bank as Basel 1 doesn't give cap relief on insurance companies directly). Now, as spreads have blown out, that CDS contract is deep in the money. If the monolines get downgraded then that doesn't hurt too much (depending on how zealously they are marking) but if the go tits up as XL is close to, then the MtM on that CDS -> 0.
LFY
Lord knows I haven't seen every possible CDO structure out there, but I don't have any marketing docs that indicate a market-value based OC test other than synthetic deals.
ReplyDeleteOne thing I did neglect to mention is that often there is a ratings-based impairment charge. For example, a pice of collateral originally rated AA would be counted as par for OC purposes. Then if it gets downgraded to BBB (as an example, every deal is different) it might be 90% of par. Then BB might be 70% of par.
Something like that could be triggering the OC too.
I will also say that instances of CDOs liquidating due to poor collateral performance is not automatic, as many have been suggesting. By this I mean, not every deal has such a clause. Again, my impression is that this was more common in synthetic deals. Someone correct me if I'm wrong.
Merideth Whitney, despite all the ribbing she gets, is the only Wall St "analyst" that has had even close to a handle on Wall St writedowns -- and she is now saying Wall St faces further write downs after the monolines got downgraded. Yes, I know the majority of "analysts" say everything is contained and we are through the worst of this, but so far they have been wrong and Whitney has been right.
ReplyDeleteMakes no sense that Wall St is backing the monolines (with credit), and the monolines are backing Wall St (with artificially high credit ratings). If I am standing on your shoulders, and you are standing on my shoulders, how can both of us have our head above water?
Meanwhile, the ECB is warning that many Europe based hedge funds will be forced to have a major fire sale in corporate bonds and related CDS. Once those bonds trade, it will make it very difficult for the rest of the street to pretend like their marks are fair. More right downs on the way.
We are not in the 7-8th inning of this mess.
More accurately: the fat lady hasn't begun to warm up.
What's the next big bank to fail? Everyone is looking at Lehman with a microscope, but Merril and UBS look like they may be more fragile than Lehman.
Lehman reports a $2.8 billion loss, negating most of the "profits" they supposedly made during the biggest credit bull market ever.
ReplyDeleteIn other words, investors would have been far better off just buying 3m T-bills and rolling them each quarter. Total return would have been higher, and risk would have been a tiny fraction... If Wall St didn't make money over the most recent cycle, what does that say about the future?
And what gives with CEO Richard Fuld coming out and saying he is very disappointed? Only a couple weeks ago, this guy was telling us that LEH didn't need to raise capital and everything was fine... So now we are supposed to believe this loss was a sudden "act of God" that Fuld had no way of knowing about two weeks ago?
Come on...
Of topic question: what is going on in the bond market today? Unwind of Friday and then some. I thought most of the ECB comments were already known last week.
ReplyDeleteYour interpretation of the OC test is incorrect. The bond is not "undercollaterized" in the way you describe it. The OC test in question does haircut the collateral depending on the rating. As of the May remit the collateral had taken 5.7mm in losses or ~52 bps. The bonds with losses thus far are 2.097mm of NAA 06-S4 M6, 3mm of BSMF 06-SL1 M4, and 3mm of BSMF 06-SL2 M2. All 2nd lien deals. The ratings implied haircuts are sure to be ridiculous and your conclusion is probably still correct. But the inference that the bond is undercollateralized with the underlying valued at par is wrong.
ReplyDeleteAnon: Your interpretation of the OC test is incorrect. The bond is not "undercollaterized" in the way you describe it. The OC test in question does haircut the collateral depending on the rating.
ReplyDeleteYou folks keep arguing about what kind of fungus you think might be infecting this one tree in front of you.
Maybe you should pay more attention to the people running past you yelling "The whole forest is on fire!"
"Anon: Your interpretation of the OC test is incorrect. The bond is not "undercollaterized" in the way you describe it. The OC test in question does haircut the collateral depending on the rating.
ReplyDeleteYou folks keep arguing about what kind of fungus you think might be infecting this one tree in front of you.
Maybe you should pay more attention to the people running past you yelling "The whole forest is on fire!""
You should first check to make sure which forest is burning and how much is actually on fire. If we agree the underlying collateral is worth 30 cents on the dollar AIs analysis will say this bond is worth 30 cents. The correct analysis says it is worth 35 cents. You can yell the sky is falling while I buy the bond $47,000,000 cheap.
Anon: AIs analysis will say this bond is worth 30 cents. The correct analysis says it is worth 35 cents. You can yell the sky is falling while I buy the bond $47,000,000 cheap.
ReplyDeleteWho says the "correct" analysis is 35 cents? Mostly its people like AI who were telling us last summer that it wasn't a problem at all. The same people who have been calling a bottom every month now since November.
I don't know where the bottom is, but I do know we won't be there until after Wall St CEOs come completely clean on all the skeletons on their closets.
You go ahead and try to catch the falling knives. I'll wait until they are all lying on the ground and you have bled to death.
The sky isn't falling; but its just plain naive to figure that 15 years of excess got cleared up in 10 months.
On a somewhat related topic AI can you comment on bond pricing? How accurate is it? Is it all marked to model? I can get a quote on a stock I own via Google, etc. My understaning is that bonds are priced via a pricing service? How accurate are these prices?
ReplyDeleteAnon (a few back): If we agree the underlying collateral is worth 30 cents on the dollar AIs analysis will say this bond is worth 30 cents. The correct analysis says it is worth 35 cents.
ReplyDeleteIf there was general agreement that the underlying collateral was worth 30 cents or 35 cents or any other number, there wouldnt be so much uncertainty which banks are insolvent and which are not.
Too many analysts assign a delusional level of precision to their model outputs -- that's a big part of how we got into this mess in the first place.
Your guess (and you should understand it is an educated guess at best) of 30 or 35 cents on the dollar is meaningless. A more accurate statement might be 30 cents plus or minus 30 cents. Some of this collateral isn't worth enough to justify foreclosure, while other assets are probably worth 60 cents on the dollar.
And we are all just guessing which is which.
Until the Fed allows true market based price discovery (by not lending against unpriced collateral), EVERYTHING is a guess.
Which is why posts such as this one are a waste of time.
Part of this bubble was the fraud. As Einhorn pointed out today, "Lehman raised capital it said it didn't need to make good for losses it said it didn't have".
ReplyDeleteThere is a naivete to AI's post that I think is consistent with his reliable underestimation of the crisis
Anon, you hit the nail right on the head!!! As you say:
ReplyDeleteWho says the "correct" analysis is 35 cents? Mostly its people like AI who were telling us last summer that it wasn't a problem at all. The same people who have been calling a bottom every month now since November.
I don't know where the bottom is, but I do know we won't be there until after Wall St CEOs come completely clean on all the skeletons on their closets.
You go ahead and try to catch the falling knives. I'll wait until they are all lying on the ground and you have bled to death.
The sky isn't falling; but its just plain naive to figure that 15 years of excess got cleared up in 10 months.
It is quite common and almost always occurs in down times that you see a double dip where speculators too eager to NOT miss the change, jump in too soon and get caught yet again. What we should see is what we have as of late. A deep decline with a pause of sorts (APR & MAY) and then all he%$ breaks loose...
Also, the reference to CEO's coming clean is IMO essential to any correction. Nothing will change until ALOT more of the L3 is marked to L2. With practically zero trust in the financial systems amongst one another, trust must be restored and there is only one way to do that... COME CLEAN!!!
I would really like to hear AI comment on how he thinks the market is going to turn around without REAL accountability on the part of Wall St CEOs.
ReplyDeleteHow many times do we need to read about Stanley ONeal playing golf or Cayne playing bridge while their firms were in collapse?
What ever happened to CEO's being held accountable for LYING to their shareholders?
Dick Fuld said everything was OK only two weeks ago... Either this man clinically stupid (I doubt it) or he had to have at least an incling of what LEH anounced today.
Instead of being held accountable, as anyone from a trader to the janitor would -- he gets a multi-million paycheck.
Its Fuld (and all the other CEOs) jobs to know what is happening in their companies. If they don't know, they don't belong in the CEO office.
We do have a failed market, but its not because of a liquidity concern.
We have a failed market because politically connected CEOs get bailed out or excused regardless of how badly they screw up; meanwhile how many secretaries, admins and janitors at Bear are now sitting penniless? Did the janitor put Bear overlevered into MBS or did Cayne?
We will never have a perfect meritocracy, but this system is a kleptocracy.
Its embarassing when you read that so called "asset managers" put even more money into RBS, Lehman, UBS, Merrill, etc -- without even so much as suggesting a change in management. Hello guys?
As long as the system is rigged to benefit a few insiders, the rest of us are much better served putting our money elsewhere.
And that (not the Fed Funds rate) is why Wall Street is in a shambles.
Shame on AI for suggesting otherwise
Man... you guys are tough. I ran to check the site logs to see if I'd been linked from Calculated Risk... but no it was mlimplode.
ReplyDeleteI appreciate all the posts, and I am sure not hiding from how dead wrong I was last spring/summer.
However I contend there is nothing in that post that suggests I think Wall Street should keep lying to shareholders. I wish people would stick to commenting on the actual substance of posts (or comments).
One of the Anon posters actually had the collateral data. Thanks for that. Thanks for contributing to the substance of the discussion.
On the sell-off today...
ReplyDeleteI think its mostly about Fed speak. They are sounding awful hawkish. Maybe the dollar bugs are finally getting their way.
AI: I wish people would stick to commenting on the actual substance of posts (or comments).
ReplyDeleteThe title of your posts is "Monolines and Bank Write Downs..."
How is saying that CEOs are lying through their teeth about write downs not relevant to your post?
All your models about collateral values and default rates are just gibberish if the data you are putting into them is a lie.
AI continues: So the question is, what are bank's exposure? Are more writedowns in store? Let's talk this through.
What are the bank's exposure? Are more write downs coming?
Well, if CEOs are going to keep lying, that's EXTREMELY relevant to determining what exposure remains. And its absolutely at the crux of determining what other write downs are coming.
Say whatever you want about Einhorn and his shorts. He is getting attention precisely because Fuld misrepresented LEH's position.
So did Cayne, and Stanley ONeal, and Chuck Prince, and Captain Sun-tan (the guy at Countrywide), etc, etc.
The system isn't going to work if these people get paid millions NOT to do their job, and even worse, to misrepresent the status of the firms they are supposed to be running.
You can argue that these guys were not lying, that they didn't know what was going on -- that is tantamount to saying they aren't qualified to be running their firms
Or you can say they did know what was happening, in which case they lied and should be fired and possibly prosecuted under Sarbox.
But for the rest of us, the message is very clear: the system is rigged to benefit a few insiders... Unless and until that changes, we are better off staying on the sidelines or investing somewhere else.
So yes, our feelings on the matter are very clear: we cannot make any reasonable guess as to future write downs or asset quality until the CEOs stop lying.
Most of the bears here are a bunch of hypocrites. Do any of actually ever own a sizeable stake in any bank, insurer, mortgage lender, etc (no, holding an index fund doesn't count)? Do you honestly think that the shareholders of these firms are happy with what is happening? I'll bet half of you claiming the companies are lying, management is committing fraud, etc, probably never even owned a single share in any of these firms.
ReplyDeleteIt seems like most of you just want some easy solution. I guess the next thing you'll be calling for is greater government intervention, as if that's the magical elixir.
Am I wrong in my assumption? Do any of you even own these companies and know what is going on or not? I agree that the compensation schemes are out of whack and there were a whole hoard of conflict of interest. But let the free market sort it out. I don't think the investment banks are going to be the same ever again. I suspect CEOs and other senior executives won't be pulling
in $20million+ per year without longer term performance metrics in the future. I also suspect that proprietary trading (i.e. gambling with the house's money) is going to be scaled back at many firms.
I also feel like some of you are mixing up the credit market with the stock market. Although AccruedInterest was wrong with his opinion of the severity of the credit crisis, the stock market may do poorly while the credit market does ok, and vice versa. I actually think that both will be under pressure, not because of the credit crisis, or because of the so-called fraud being committed, or whatever, but, instead, because of inflation. The market is ignoring the inflation threat, which may become a problem in the future.
All I'm trying to do is look at the situation objectively, making no assumptions about who's lying and who isn't.
ReplyDeleteMy conclusion is that its likely that many banks have been getting away with claiming a AAA counter-party on CDS positions. And therefore haven't written them down as much as they should have.
I further conclude that because the CDO/CDS trade was particularly popular in Europe, that its especially likely that there will be more writedowns there.
So then I get a bunch of comments suggesting I've condoned lying as well as cliaming that everything is fine with banks.
I don't get it. But I guess some of you have already concluded that!
Off topic,
ReplyDeleteAI: I've found your site priceless for trying to understand what's going on with the credit crisis. I've finally gotten my head around the fact that the key to the CDO downgrades is how low down the structure the attachment points lie.
It would be extremely valuable if you could post or link to information on:
Typical attachment points for the different tranches of MBS.
Typical attachment points for the different tranches of CDOs.
And any information on whether there was migration over time of typical attachment points.
I've really appreciated the fact that you are someone who is able to abstract and make generalizations from the mass of detail that deal documents must include.
AI: So then I get a bunch of comments suggesting I've condoned lying as well as cliaming that everything is fine with banks.
ReplyDeleteI don't get it. But I guess some of you have already concluded that!
AI, you spent several weeks and many posts arguing whether this "crisis" was one of illiquidity or insolvency, and I think you argued it was some of both.
The illiquidity part really doesn't hold any water because a borrower who is possibly insolvent and definitely lying DOES NOT DESERVE CREDIT.
I don't think you are much of an investor if you are going to argue otherwise.
Banks wouldn't lend to each other because they knew good and well that everyone was cooking the books. It wasn't liquidity, it was the simple realization on everyone's part that the accounting simply could not be trusted.
If there was reasonable transparency, and the bank's main problem was liquidity, I would think long term investors like Warren Buffet would have bought bank stocks (at 50 cents on the dollar!) as fast as he could get them. There was no transparency, still isnt, which is why Buffet and others are (quite reasonably) staying clear.
If there was transparency, all these rumors about Bear and Lehman and Merril and UBS wouldn't last more than a few minutes. The rumors persist because everyone knows the numbers cannot be trusted.
Bernanke's decision to provide liquidity when no economically motivated player would is simply delaying true price discovery. We won't know who is insolvent and who isn't until we get accurate books-- and that won't happen as long as securities get marked to the CEO's whim.
What is the point in over-analysing what you think might be the over-collateralization in whatever bond? You really don't know what the collateral is worth -- since the real estate isn't selling. We know much of it was over-assessed during the boom, mostly over-optimism with some fraud mixed in. You also don't know what the security is worth, since its not trading. So the over-collateralization is
So what meaningful inference are you thinking to draw from the ratio between a completely made up number and a very vague number? None of your models can be any better / more accurate than the raw numbers used as input.
You are a man with a hammer-- everything to you looks like a nail... but in this case, all your spreadsheets and models are worthless because we cannot trust the numbers we are getting.
Since we cannot trust the accounting, we cannot make much more than a semi-educated guess of system wide losses / write-downs (I keep hearing $1-1.5 trillion, I know you don't like those numbers). But we cannot really do anything more than make blind guesses as to where those losses will hit because the accounting books are cooked.
Wall St CEOs keep saying everything is fine, and then a little while later they announce "one time" write offs in the billions. Please. After the third or fourth "one time" write off, its time to call a spade a spade. And if the CEO cannot guestimate the value of his firm plus or minus several billion (and he has full access to the books) -- how stupid does an investor have to be to figure we can properly tell a 30 cent/dollar security from a 35 cent/dollar (as an earlier poster claimed to be able to do). How are these bloggers able to value the securities so much better than the company that owns them? The company that owns them is making guesses that are off by billions.
We can't properly access the banks, or their probable write downs. We have no idea what is on their books. The CEOs either don't know (in which case they should be fired) or they are lying to us (in which case they should be fired).
Lets all put down are spreadsheets and start writing pink slips for these CEOs and all the people who are being paid 7-8 figures to do something they either aren't doing or aren't even qualified to do
Sivaram Velauthapillai: Most of the bears here are a bunch of hypocrites. Do any of actually ever own a sizeable stake in any bank, insurer, mortgage lender, etc
ReplyDeleteIf we believe the accounting books of most banks / sell side Wall St houses are fiction -- why on Earth would we be long these companies? I am putting my money where my mouth is though: I am short.
The better question you should be asking is why many government pension funds are throwing good money after bad trying to prop up these banks? Preserving jobs is all very well IF the bank is solvent -- but if it isnt, then the pension money would be better used helping unemployed people recover from the job loss... (lets ignore for the moment that the pensions are really supposed to operate for retirees, and not be used for propping up local economy).
If these funds were doing their fiduciary duty, they should insist on proper accounting before investing a penny. CEOs that are making a bad situation worse by lying need to be removed.
These people are the hypocrites. They are perpetuating a lie and screwing over pensioners (present and future) at the same time.
I don't think anyone is being hypocritical here. The people who bought Lehman stock yesterday are trying to make money. David Einhorn is trying to make money by being short. Its a difference of opinion, which is how we make markets.
ReplyDeleteANON: "If we believe the accounting books of most banks / sell side Wall St houses are fiction -- why on Earth would we be long these companies? I am putting my money where my mouth is though: I am short."
ReplyDeleteYou don't have to be long but then you can't speak as if you are the owners of the business.
You are not simply saying these are bad investments (which they may be) but you are accusing of fraud, lies, and deceit being committed by executives and employees of these firms. Last time I checked, the shareholders, who actually own the company, haven't said anything remotely similar to what you are saying. Shareholders will be hurt more than you ever will be (even with your dubious pension excuse (below))...
And what's with all these irrelevant points about pension funds? I mean, you go on and blame the companies for what the pension funds decide to do. I guess if you can't really prove anything without any doubt, invoking the "hapless, innocent, pensioners" is a good last resort. If you have a problem with how pension funds are allocating your money, you take it up with the funds. They are run by highly-paid, professional, investors and it's their decision. I suspect, though, that your accusations of lies (obviously without any proof) won't get you anywhere.
I'm not really sure who you think is NOT lying. I mean, by saying that the accounting is also a fraud, you are implying all the independent auditors are part of this fraud as well. I'm no fan of the accountants since I think they are committing a grave sin with their fair vale accounting (for assets held to maturity) but I would hardly accuse them approving fianncial statements with the knowledge of lies.
I say you are hypocritical because you are acting similarly to most other short-sellers who had claimed to be pointing out the truth. It's no different than, say, William Ackman claiming to save the bond insurers by bankrupting the holding companies, as if that will solve any of the mortgage loss problems. At least you haven't offered to donate your gains to charity like Ackman has--may be that's the next step?
My point is... if you think fraud is being committed, make it known. Show the evidence. You'll actually help all the investors... if you keep saying there is fraud being committed by accountants, or CEOs are lying, without offering any solid evidence, you are simply being hypocritical and could care less about the reality other than making a profit off your short-selling...