John Paulson Continues His Quixotic Fight Against Bear Stearns

The Bear Stearns vs John Paulson saga shows no sign of going away any time soon, and Bloomberg's Jody Shenn has a big article on it today. So far, however, no one has come up with any evidence of the "market manipulation" which John Paulson and others are so upset about – and, what's more, no one seems to be remotely convinced that it would be either illegal or immoral even if it were shown to be happening.

One of the big problems is that specifics are very hard to come by, here. Tanta, over at Calculated Risk, has devoted two very long and recondite blog entries to this situation (here and here), but the lack of information means it's hard to have an informed opinion on what's going on. Insofar as we do have an informed, impartial opinion – and Tanta's is about as close as it comes, for the time being – John Paulson et al do not come out well at all.

Which is why it's weird to see this, in the Bloomberg piece:

It would be "penny wise and pound foolish" for an issuer to conduct significant buyouts other than to meet contractual requirements to make up for misstated loan characteristics or fraud, because investors would shy away from the company's future deals, said Peter Cerwin, who runs the portfolio management group at New York-based Credit-Based Asset Servicing and Securitization, or C-Bass, an issuer and servicer.

I don't understand what Cerwin is saying, here. If an issuer conducts significant buyouts of degraded debt from a pool, investors would love it – and would probably flock to that issuer's future deals, if they reckoned such behavior would be repeated. Remember, it's not the investors in these deals who are complaining. Rather, it's the hedge funds who are betting against the investors in the deals who are complaining.