The problem for Goldman was not suggesting that they may take the opposite position as you. The problem is that they did not disclose that they were going to put together a portfolio of worthless securities designed to implode instead of having an independent person or company putting the package together. To think of it like blackjack, it would be like the casino instead of randomly shuffling the deck, has decided to arrange the deck before hand so that the player will get the worst possible cards and not informing the player that this will happen and therefore not giving the player the chance to go to a casino that was not doing this. As a player, you know the casino will take the bet against you, and you know the odds, Goldman did not disclose what they were doing and therefore acted against their customers. This is fraud, and yes if I was the bank that took the loan package, I would sue Goldman and ask for a jury trial plus triple damages! If Goldman is lucky, they can pay the SEC without admitting wrong doing type agreement. If Goldman is unlucky, they will end up on a jury trial made up of normal Americans and not Cramer.
worse than that...it is like setting up a poker hand of AcAs (German institution) and 2d2h (paulson) and then aranging the flop to come out Ad 2c 2s......:eek:
NEW YORK (MNI) - The following is the text of a statement issued by Goldman Sachs late Friday: Goldman Sachs Makes Further Comments on SEC Complaint NEW YORK -- April 16, 2010 - The Goldman Sachs Group, Inc. (NYSE: GS) said today: We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact. We want to emphasize the following four critical points which were missing from the SECs complaint. * Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more than $90 million. Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money. * Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side. * ACA, the Largest Investor, Selected The Portfolio. The portfolio of mortgage backed securities in this investment was selected by an independent and experienced portfolio selection agent after a series of discussions, including with Paulson & Co., which were entirely typical of these types of transactions. ACA had the largest exposure to the transaction, investing $951 million. It had an obligation and every incentive to select appropriate securities. * Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor. The SECs complaint accuses the firm of fraud because it didnt disclose to one party of the transaction who was on the other side of that transaction. As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor. Background In 2006, Paulson & Co. indicated its interest in positioning itself for a decline in housing prices. The firm structured a synthetic CDO through which Paulson benefitted from a decline in the value of the underlying securities. Those on the other side of the transaction, IKB and ACA Capital Management, the portfolio selection agent, would benefit from an increase in the value of the securities. ACA had a long established track record as a CDO manager, having 26 separate transactions before the transaction. Goldman Sachs retained a significant residual long risk position in the transaction IKB, ACA and Paulson all provided their input regarding the composition of the underlying securities. ACA ultimately and independently approved the selection of 90 Residential Mortgage Backed Securities, which it stood behind as the portfolio selection agent and the largest investor in the transaction. The offering documents for the transaction included every underlying mortgage security. The offering documents for each of these RMBS in turn disclosed the various categories of information required by the SEC, including detailed information concerning the mortgages held by the trust that issued the RMBS. Any investor losses result from the overall negative performance of the entire sector, not because of which particular securities ended in the reference portfolio or how they were selected. The transaction was not created as a way for Goldman Sachs to short the subprime market. To the contrary, Goldman Sachs's substantial long position in the transaction lost money for the firm.
if GS really lost money on this deal, I doubt they will be prosecuted. They are not charity. Ofcourse, they could lie that they lost...
This is transaction #1. What about transaction #2... size of your CDS position with AIG to protect or net profit from Abacus CDO devaulation? $90million Abacus CDO loss vs $??? Abacus CDS profit (complements of AIG = tx American taxpayer ) + 2 eight figure commision fees? They certainly run a smooth PR operation.
I thought Paulson was smart and got short early. The market was already falling apart in florida by August 2005. big deal if I knew Goldman could set up sick deals for me I could have made a billion and bought Indymac with Federal guarantees as well. There are no financial heros any more... its all and insider game.
I wouldn't draw any conclusions from this that the USG is going to go hard after the fraud. The lawsuit could be designed to fail so as to dissuade the bringing of any more lawsuits. Let's face it, the foxes are still running the henhouse.
There is the key to the city right there. In every company I have ever known or worked at, you could not do ANYTHING without the upper manager's approval. How many times at your work did you try to do something and upper management did not become involved in some way? The truth is that Fab's manager probably knew about it, his manager's manager probably knew about it and people up near the CEO knew about it. You can't do anything in these corporations without someone signing off at the top. Then there is the company's general counsel that looks at everything. Everyone knew about it at Goldman, but Fab will be the scapegoat...for now. I hope they do not consider settlement until all documents are subpoenaed and everyone carefully deposed.
It's funny though, you take a run of the mill investor/trader with no big trades or big home runs to speak of, but since the credit crisis he's turned megatrader courtesy Goldman's need to be discreet. I guess it's what you would call an "inconvenient truth"
In the LA Times, they quote that the SEC does have the smoking gun, which is e-mail evidence from a Goldman employee. It does not matter if Goldman lost $ 90 million since we know for a fact that they had other bets where they bought insurance and made money. The problem is non-disclosure that they stacked the deck with bad loans. The SEC does not charge anyone without proof, and I bet Goldman eventually settles it for a fine and does not admit wrong doing unless they are stupid enough to want a jury trial.