Did Paulson get to pick florida mortgages? Back then the Florida market was falling apart. There was usually 3- 6 month time before the servicers admitted the securities were non performing. Builders and investors knew there were serious problems. Realtors knew nothing was selling. Homeowers knew every other new house was for sale. But CNBC and everyone else thought things were fine.
Looking thru the lawsuit, I think the most relevant portions are: 1) The equity tranche is at the bottom of the capital structure and the first to experience losses associated with deterioration in the performance of the underlying RMBS. Equity investors therefore have an economic interest in the successful performance of a reference RMBS portfolio. (The structure by design is meant for a Long investor.) 2) On January 8, 2007, Tourre attended a meeting with representatives from Paulson and ACA at Paulson's offices in New York City to discuss the proposed transaction. Paulson's economic interest was unclear to ACA, which sought further clarification from GS&Co. Later that day, ACA sent a GS&Co sales representative an email with the subject line "Paulson meeting" that read: "I have no idea how it went - 1 wouldn't say it went poorly, not at all, but I think it didn't help that we didn't know exactly how they [Paulson] want to participate in the space. Can you get us some feedback?" (They clearly requested more information about Paulson's manner of participation.) On January 10, 2007, Tourre emailed ACA a "Transaction Summary" that included a description of Paulson as the "Transaction Sponsor" and referenced a "Contemplated Capital Structure" with a "[0]% - [9]%: pre-committed first loss" as part of the Paulson deal structure. The description of this [0]% - [9]% tranche at the bottom of the capital structure was consistent with the description of an equity tranche and ACA reasonably believed it to be a reference to the equity tranche. In fact, GS&Co never intended to market to anyone a "[0]% - [9]%" first loss equity tranche in this transaction. (Probably the "misled" part - using phrasing that would lead them to believe that he was taking an equity stake, rather than an end-run via default swaps.) Separately there was something about a Fabrice (internal GS?) e-mail that said something along the lines that the subprime mortgage market was rapidly deteriorating so there was not much time left to put the "deal" together. If the SEC has that e-mail, it would clearly show his intention to shaft ACA, given his January 10, 2007 e-mail to ACA's Paulson participation inquiry. Antar's comment that GS is "circling the wagons" around Tourre now makes it a corporate issue., not just Tourre's (and his manager(s)).
Maybe Paulson or Goldman paid off someone at ACA...the good thing about the civil suit taken to trial is that everyone involved will be deposed and all other information subpoenaed. As we go along down the road, more shit will be slung against the wall. There is still a lot more information to be discovered and we all know the "Fabulous Fab" did not pull this off by himself. I can totally imagine that someone high up in ACA was paid off by Paulson.
And since Goldman knew that John Paulson is really God, it was therefore a material omission to not let everyone know that God had preordained the portfolio to fail... even though everyone knew exactly what was in the portfolio. This from the same SEC that handled the Madoff and Stanford ponzi schemes so brilliantly
They apparently have Fabrice Tourre's own comments on the market at the time. http://abovethelaw.com/2010/04/sec-accuses-goldman-sachs-of-hypocrisy-in-civil-suit/ ...portions of an email in French and English sent by Tourre to a friend on January 23, 2007 stated, in English translation where applicable: âMore and more leverage in the system, The whole building is about to collapse anytime nowâ¦Only potential survivor, the fabulous Fab[rice Tourre]â¦standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!â Similarly, an email on February 11, 2007 to Tourre from the head of the GS&Co structured product correlation trading desk stated in part, âthe cdo biz is dead we donât have a lot of time left.â Those are in contrast to the January 10, 2007 e-mail he sent to ACA when they requested clarification on Paulson's involvement. So he was structuring a Long investment for ACA while his (and GS's) evaluation of the long market was terrible. That really isn't centrally what the SEC claim is about (the "misleading" part about Paulson's participation is), but it can't look good for GS's reputation among its clients.
Can't be good for their reputation, that's an understatement. Goldman Sachs is done for. Their business model is based on the relationships with their clients and counterparties. A flood of lawsuits is going to be filed and apart from the potential liabilities those entail, their former clients and counterparties will end their business relations with GS. It would be interesting to see if this sparks an anticipatory deleveraging cycle in the coming week as speculation gains traction that GS may have to liquidate positions in order to increase their capital ratio to meet potential liabilities resulting from lawsuits and client outflow.
Ha, he's got a one-off preferred. He knew about the Wells notice some nine months ago. You can imagine he's sold a risk-reversal with his buddies at DB.