The finance industry is another language to most people. Stuff like Goldman helping Greece cook their books for EU entry or reforming wall street doesn't generate a response in proximity or relevance. Now if it's about Palin or her Teabaggers, my oh my, they are crazy.
http://blogs.reuters.com/felix-salmon/files/2010/04/30036962-Abacus-2007-Ac1-Flipbook-20070226.pdf Deal doc/marketing for the Abacus deals. For the real tasty morsels, scroll to page 55, the list of the underlying bonds. Anybody with access to an analytics tool could plug those cusips. Those without can still browse Edgar for the underlying deals those bonds belong to. You know what would be the first thing you would find (if it wasn't blatantly obvious to begin with)? You'd see that basically every one of those bonds are most subordinate or next to most subordinate bonds in the deals. Heck, the rating agencies didn't even rate half of them, meaning they knew they couldn't get Moody's, Fitch and S&P to give them an investment grade (or just about) so they didn't even bother. And if past history is any indication, for sub-prime deals (even many primes), the first loss/most subordinate tranches typically get wiped out. I could have told you that with just one look. 30 seconds worth of work... And seriously, these are not sub-prime CMO's, not Re-REMIC's, not even cash or hybrid CDO's. These are synthetic CDO's, which by definition means somebody is taking the other side of the bet. If you didn't know that you probably should have been investing in them. And guess what, IKB just got outsmarted by a more savvy investor. No doubt some would come and say that IF the investors knew Paulson was involved in the picking process, funny how they say that now. Who was Paulson before the trade? He was a mid-level basically almost unknown hedge fund manager before the trade. Knowing Paulson was on the other side of the trade would have done nothing. And disclosing Paulson's position would mean disclosing client trade strategy. Not to mention not doing a trade you previously was going to do because you didn't know Paulson was involved is just plain embarrassing. Is there better evidence you: a) Didn't do your homework b) Didn't know what you were doing c) Both of the above. If I were an investor in one such company, I'd sue. The timing of the lawsuit is also very interesting. The report cards don't look good, time tap the populist anger before the Mid-Term. Btw, clearly stated on page 9:
Interesting common knowledge in the industry. How do you turn a (group of) 30 year mortgage, one of the most illiquid assets out there and package them into securities (liquid assets) and still have certain class of investors earn better returns on the mortgage? Simple. Every deal has a dope that makes the whole deal work. If you are involved in a deal, look around. If you can't find the dope, you're the dope.
We actually call these "big-boy" clauses/letters. These types of clauses, espeically if they are very boilerplate, like the one you quoted, are generally not enough to provide a blanket excuse to violate rule 10b-5.
synthetic CDOs, which essentially are credit default swaps, probably should be banned unless you own the underlying assets. Unless you need it for insurance, there really is no reason for people betting on things they don't know , don't own and don't understand. And if the dealer you are betting against is GS, you are in a world of hurt. The scary thing is it only takes a few idiots to potentially cause a lot of damage, like AIG's swap desk.
They knew what they were doing, GS were on the right side of the bets, even when the losers didn't have enough money to pay up, you could argue they knew enough to bet the government will cover.
Be that as it may Sammy, at which point does the lack of due diligence on the part of the investor become just that, as supposed to somebody else's fault? Another way to phrase the question, when is it the investors' own damn fault? Shall we continue to have it such that if I earn money, it's all me, but if I lose money, it's all someone else's fault then? I take it you also don't refute my other points. In a financial meltdown, everybody go belly up. You could have been a bystander in say, a mom and pop store, being nowhere involved in the action and could have gone belly up when credit and demand dried up.
I would like to say that everyone here is too cynical and the SEC may show more teeth in this case than you expect. I'd like to say that.
GS were the bank that did the IPO of a portal in Europe when I was working there. They somehow set the valuation at a ridiculous € 5.5 billion, when we had revenues of € 40 mio. and losses of € 80 mio. I was running the legal department of the company at the time and had to deal with a few of them, they were the most arrogant pricks you can imagine. They know a thing or two about ripping people off. Of course, the stock price went from € 24 per share (IPO price) all the way down to € 0.09. Many small investors lost all their money.
You have to ask yourself if the client would carry on with the trade had GS told them what they COULD do on the other end. Now what they WILL do, but just what they COULD do. CDD is one line of protection. It is not in any way, shape or form a dissolver of liability on its own in a case of this magnitude. Acting in good faith is what's being questioned here.
Colbert (with Andrew Sorkin) and Stewart both weighed in: <table style='font:11px arial; color:#333; background-color:#f5f5f5' cellpadding='0' cellspacing='0' width='360' height='353'><tbody><tr style='background-color:#e5e5e5' valign='middle'><td style='padding:2px 1px 0px 5px;'><a target='_blank' style='color:#333; text-decoration:none; font-weight:bold;' href='http://www.thedailyshow.com'>The Daily Show With Jon Stewart</a></td><td style='padding:2px 5px 0px 5px; text-align:right; font-weight:bold;'>Mon - Thurs 11p / 10c</td></tr><tr style='height:14px;' valign='middle'><td style='padding:2px 1px 0px 5px;' colspan='2'<a target='_blank' style='color:#333; text-decoration:none; font-weight:bold;' href='http://www.thedailyshow.com/watch/mon-april-19-2010/these-f--king-guys---goldman-sachs'>These F@#king Guys - Goldman Sachs<a></td></tr><tr style='height:14px; background-color:#353535' valign='middle'><td colspan='2' style='padding:2px 5px 0px 5px; width:360px; overflow:hidden; text-align:right'><a target='_blank' style='color:#96deff; text-decoration:none; font-weight:bold;' href='http://www.thedailyshow.com/'>www.thedailyshow.com</a></td></tr><tr valign='middle'><td style='padding:0px;' colspan='2'><embed style='display:block' src='http://media.mtvnservices.com/mgid:cms:item:comedycentral.com:271680' width='360' height='301' type='application/x-shockwave-flash' wmode='window' allowFullscreen='true' flashvars='autoPlay=false' allowscriptaccess='always' allownetworking='all' bgcolor='#000000'></embed></td></tr><tr style='height:18px;' valign='middle'><td style='padding:0px;' colspan='2'><table style='margin:0px; text-align:center' cellpadding='0' cellspacing='0' width='100%' height='100%'><tr valign='middle'><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.thedailyshow.com/full-episodes/'>Daily Show Full Episodes</a></td><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.indecisionforever.com'>Political Humor</a></td><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.thedailyshow.com/videos/tag/Tea+Party'>Tea Party</a></td></tr></table></td></tr></tbody></table> <table style='font:11px arial; color:#333; background-color:#f5f5f5' cellpadding='0' cellspacing='0' width='360' height='353'><tbody><tr style='background-color:#e5e5e5' valign='middle'><td style='padding:2px 1px 0px 5px;'><a target='_blank' style='color:#333; text-decoration:none; font-weight:bold;' href='http://www.colbertnation.com'>The Colbert Report</a></td><td style='padding:2px 5px 0px 5px; text-align:right; font-weight:bold;'>Mon - Thurs 11:30pm / 10:30c</td></tr><tr style='height:14px;' valign='middle'><td style='padding:2px 1px 0px 5px;' colspan='2'<a target='_blank' style='color:#333; text-decoration:none; font-weight:bold;' href='http://www.colbertnation.com/the-colbert-report-videos/281735/april-19-2010/goldman-sachs-fraud-case---andrew-ross-sorkin'>Goldman Sachs Fraud Case - Andrew Ross Sorkin<a></td></tr><tr style='height:14px; background-color:#353535' valign='middle'><td colspan='2' style='padding:2px 5px 0px 5px; width:360px; overflow:hidden; text-align:right'><a target='_blank' style='color:#96deff; text-decoration:none; font-weight:bold;' href='http://www.colbertnation.com/'>www.colbertnation.com</a></td></tr><tr valign='middle'><td style='padding:0px;' colspan='2'><embed style='display:block' src='http://media.mtvnservices.com/mgid:cms:item:comedycentral.com:281735' width='360' height='301' type='application/x-shockwave-flash' wmode='window' allowFullscreen='true' flashvars='autoPlay=false' allowscriptaccess='always' allownetworking='all' bgcolor='#000000'></embed></td></tr><tr style='height:18px;' valign='middle'><td style='padding:0px;' colspan='2'><table style='margin:0px; text-align:center' cellpadding='0' cellspacing='0' width='100%' height='100%'><tr valign='middle'><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.colbertnation.com/full-episodes/'>Colbert Report Full Episodes</a></td><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.indecisionforever.com'>Political Humor</a></td><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.colbertnation.com/video/tag/Fox+News'>Fox News</a></td></tr></table></td></tr></tbody></table>
Indeed they were. per drudge this morning, perhaps Obama, a la GM, should payback the ~$1M he "borrowed" from GS to get elected?
I understand that sating basso is very important - but do you realize the implications of the principle you are implicitly establishing here? Every candidate now that ever accepts campaign donation from a person who works for a company that is accused of a 10b-5 violation in a civil case would have to return it. Do you realize how many people that would cover? Pretty much anybody who has ever worked for a public company ever.
<table style='font:11px arial; color:#333; background-color:#f5f5f5' cellpadding='0' cellspacing='0' width='360' height='353'><tbody><tr style='background-color:#e5e5e5' valign='middle'><td style='padding:2px 1px 0px 5px;'><a target='_blank' style='color:#333; text-decoration:none; font-weight:bold;' href='http://www.thedailyshow.com'>The Daily Show With Jon Stewart</a></td><td style='padding:2px 5px 0px 5px; text-align:right; font-weight:bold;'>Mon - Thurs 11p / 10c</td></tr><tr style='height:14px;' valign='middle'><td style='padding:2px 1px 0px 5px;' colspan='2'<a target='_blank' style='color:#333; text-decoration:none; font-weight:bold;' href='http://www.thedailyshow.com/watch/mon-april-19-2010/these-f--king-guys---goldman-sachs'>These F@#king Guys - Goldman Sachs<a></td></tr><tr style='height:14px; background-color:#353535' valign='middle'><td colspan='2' style='padding:2px 5px 0px 5px; width:360px; overflow:hidden; text-align:right'><a target='_blank' style='color:#96deff; text-decoration:none; font-weight:bold;' href='http://www.thedailyshow.com/'>www.thedailyshow.com</a></td></tr><tr valign='middle'><td style='padding:0px;' colspan='2'><embed style='display:block' src='http://media.mtvnservices.com/mgid:cms:item:comedycentral.com:271680' width='360' height='301' type='application/x-shockwave-flash' wmode='window' allowFullscreen='true' flashvars='autoPlay=false' allowscriptaccess='always' allownetworking='all' bgcolor='#000000'></embed></td></tr><tr style='height:18px;' valign='middle'><td style='padding:0px;' colspan='2'><table style='margin:0px; text-align:center' cellpadding='0' cellspacing='0' width='100%' height='100%'><tr valign='middle'><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.thedailyshow.com/full-episodes/'>Daily Show Full Episodes</a></td><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.indecisionforever.com'>Political Humor</a></td><td style='padding:3px; width:33%;'><a target='_blank' style='font:10px arial; color:#333; text-decoration:none;' href='http://www.thedailyshow.com/videos/tag/Tea+Party'>Tea Party</a></td></tr></table></td></tr></tbody></table> I thought it was hilarious. THESE F@#KING GUYS, lol
Why ban it? Would I buy a synthetic CDO? Absolutely. As with these things, the key is always what you paid for it. If I'm only speculating, looking to earn a couple of bucks in interest paying pennies on the dollar and of course, when the financial market isn't collapsing, you bet. The government needs to stop protecting dumb investors and force them to actually own up once. Sam mentioned the boiler plate disclaimer in another post. You know why it is boiler plate? Because it is absolutely true. They has a conflict of interest. They will betting on the other side. Is Goldman Sachs a teet to be sucked on? No. They are traders and investment bankers. Nasty ones. Very good ones at that. They are the guys you'd love to have in your corner, as long as you know they are also trading on their own. Ever wonder why it is a commonly held belief that it takes a specific type of personality to be an investment banker? The thing is, at anytime there is a finite amount of financial resources, growing very slowly. If you want to earn a higher and especially, disproportionate percent of return, you have to take it from somebody else. Not literally of course, but if someone won, it means somebody else lost, even if there isn't fraud. And that's the bottom line. But the beauty of the whole thing is? Goldman may have structured a deal, you don't have to buy it. I was reading an article this morning title something like "no more buyer beware: SEC getting tough with Wall Street" and nearly snorted out my coffee. What a joke. Has the SEC ever not sided with the losers, even if no fraud was committed? No, the typical regulatorial response, instead of educating dumb investors and letting them take the hit for being dumbasses, is to fine the side that plays the game better. Well the problem is, the dumbass investor is gonna keep making dumbass mistakes instead of smarten up. I will bet I know how those investors lost money. There's probably a junk bond trader at IKB, who doesn't understand how CMO's work. He didn't understand how CDO's work. He also didn't understand how synthetic CDO's work. He saw a deal out there with attractive coupons with not to shabby ratings on a few of the underlying bonds and decided to buy it. And paid way too much for it. Like I said, it took me less than 30 seconds to realize I won't long the deal, in 2007. If he knew what he was doing, he would too. To IKB's credit, at least they had the good sense to keep their mouths shut, though granted that is easier to do with the SEC, BaFin and politicians in more than one country going to war for you. Bottom line. If you want to earn money, do your own work/research. If you want mama, find another line of work.
