Storming the Citadel

Update: additional text in italics.
Did anyone understand the E*Trade sellout on Thursday? Is the portion of the portfolio backing the infusion actually worth 27¢? Did they decant the worst, typical or only the best portions of the entire asset class? looks more like insider trading than a bailout to me.

Doesn't matter. I'm sitting here doing the math much like the Abu Dhabi 11% yield math of the previous day. Say this E*Trade "portfolio" is some nasty bits of $3b face value in questionable asset backing. That said it must be earning, conservatively, 8% even if chunks are about to default. Okay 8% turns into 30% per annum next month based on the purchase price. That's pretty awesome. Say half of these nasty loans default over the next 6 months. Wow, only 15% return for what would be a worst case scenario. Better. The 15% return is after six months of decreasing returns; 2.7% (30%/yr) next month, 2.2% (27%/yr) two months, 2% ($24%/yr) three months, etc. So after 6 months you've earned like 11% of your principle back and have 50% still intact earning that 15% and valued at a solid $1.5 billion for which you paid $800 million. In 3 yrs your total return looks like a vanilla CDwhile reruning principle and your investment has had 3 years to recover from the low value of $1.5 billion you paid $800 million to buy. Even after 4 yrs returns total returns look pretty poor for such a risky venture and that's assuming all the defaults in the first six months. Clearly they don't expect anything near half to default/lose total value. After doing that extreme math neither do I. And that's the point of the exercise. Citadel robbed E*Trade blind.