tag:blogger.com,1999:blog-7905515.post3913233544631528007..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: Goldman Busted on This OneEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7905515.post-48635076311336303262010-04-18T21:01:42.280-05:002010-04-18T21:01:42.280-05:00"You don't need to do as much due diligen..."You don't need to do as much due diligence when you think the other parties involved have a consistent interest in your portfolio, so a sponsor with long-only interest is rather essential for such complex deals."<br /><br />This is utter crap. As the manager of the CDO, ACA had a fiduciary responsibility to the long buyers of the entity to investigate the creditworthiness of each security and not just "take Paulson's word for it" because of his supposed involvement as a long. Besides, ACA's whole buiness was assessing structured product credit risk (their core business was wrapping these products - just as AMBAC and MBIA were doing) and they had a side business managing CDOs. So who were the experts, ACA or Paulson?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-67864322848523008892010-04-17T10:31:33.481-05:002010-04-17T10:31:33.481-05:00Goldman speaks,
http://www2.goldmansachs.com/our...Goldman speaks, <br /><br />http://www2.goldmansachs.com/our-firm/press/press-releases/current/sec-response.html<br /><br />and says the SEC is full of it.<br /><br />Both Goldman and ACA had long positions in this portfolio--with ACA having the biggest exposure (almost $1 billion)--and thus no incentive to construct a portfolio disadvantageous to the long position. Goldman lost $75 million, net, on its side.<br /><br />IKD, the German bank playing the widow and orphans according to the SEC, also offered its advice to ACA on what to include in the CDO. ACA had worked with IKD many times before, so if they didn't expect IKD to be long--and by default Paulson to be the short party--they could have simply asked either one.<br /><br />This all looks like a political ploy to add fuel to the fire currently in congress to extend regulation of banks and financial firms.Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-47768964883906190792010-04-17T01:24:49.711-05:002010-04-17T01:24:49.711-05:00Digging a little deeper into the SEC complaint, if...Digging a little deeper into the SEC complaint, if I'm understanding it correctly, Goldman introduced Paulson to ACA and Paulson sent them a list of 120+ bonds he'd like to see included.<br /><br />ACA discovered that they'd already purchased 60 or so of them, thus those were fine with them, eventually 55 of them were in the CDO. Also, ACA added enough others to come up with 90. Goldman then marketed that portfolio.<br /><br />Hard to see a lot of 'significance' (the SEC's term) for Paulson there. However, it would be interesting to know if Paulson's 55 were worse than ACA's 35.<br /><br />And, according to the SEC complaint Paulson's hedge fund was known to be betting against MBS as early as 2006. Isn't there some requirement for a firm like ACA, that had a track record of creating these kinds of portfolios, to clean out the wax from their ears and listen to who Paulson was.Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-5035105199019028882010-04-16T20:53:27.822-05:002010-04-16T20:53:27.822-05:00The issue with this one is that it is a synthetic ...The issue with this one is that it is a synthetic CDO, which can only exist when there's a long side and a short side, so anyone investing in a synthetic CDO is well aware that someone else is betting against it, who the other side is irrelevant.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-46428812963165116552010-04-16T20:28:09.459-05:002010-04-16T20:28:09.459-05:00'In this case, the portfolio was constructed b...'In this case, the portfolio was constructed by a short seller so the intentions are pretty clear.' <br /><br />It's more complicated than that. ACA consulted with Paulson about what to include in the CDO, but they rejected more than half of his suggestions. Everybody involved seems to be aninvestment professional. The SEC complaint seems to be pure hindsight.<br /><br />BTW, why isn't Paulson being charged if there was fraud?Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-36299446379994655412010-04-16T15:39:42.466-05:002010-04-16T15:39:42.466-05:00"It's the proportion not the principle......"It's the proportion not the principle...." The Magnetar trade is at least one other example of the "principle" at work. We better find out how many others were done before discounting a conspiracy.Monetariushttps://www.blogger.com/profile/01421999925193793967noreply@blogger.com