GS&Co marketing materials for ABACUS 2007-AC1 – including the term sheet, flip book and offering memorandum for the CDO – all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC (“ACA”), a third-party
with experience analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. (“Paulson”), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO, played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson’s adverse economic interests or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials provided to investors...The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% were on negative watch. By January 29, 2008, 99% of the portfolio had been downgraded. As a result, investors in the ABACUS 2007-AC1 CDO lost over $1 billion. Paulson’s opposite CDS positions yielded a profit of approximately $1 billion for Paulson.By engaging in the misconduct described herein, GS&Co and Tourre directly or indirectly engaged in transactions, acts, practices and a course of business that violated Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a) ("the Securities Act"), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) ("the Exchange Act") and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, civil penalties and other appropriate and necessary equitable relief from both defendants.
The "Money On The Sidelines" Paradox: Difference Between Money Market Outflows And Asset Inflows Hits $100 BillionSubmitted by Tyler Durden on 04/16/2010 - 10:08
The weirdness in fund flows continues: first Lipper/AMG has reported that for the past week equity outflows were a total of ($3.3) billion. We assume this is total domestic and global outflows because we know from ICI that domestic fund flows have been consistently negative for the past several weeks confirming yet again that the only people buying the market are Primary Dealers who are using ZIRP as a free capital to create stock market bubbles in selected stocks in the hope of offloading extremely expensive positions to gullible retail investors. Still, total equity flows YTD are positive and even after this week's outflow, are up for the year by $18 billion. Once again, we are confident the bulk of this number is based on foreign equity flows. Yet the most startling number is the ongoing pillaging in money market funds, which after losing another massive $35.6 billion in the past week are now down a stunning $327 billion for the year, or a 10.2% decline in total assets in just over three months. At this rate of redemption, the total holdings of money market funds will be cut in half by the end of the year. And even as investors have allocated the bulk of their money into bonds, primarily taxable and high grade, there is still nearly a $100 billion disconnect between total MM outflows and various asset inflows. As this money has not been reinvested, and certainly not into equities, and as deposit savings accounts offer about the same yield as MM, meaning it likely has not been funneled into deposit accounts, it has instead most likely been spent on various goods and trinkets. In summary: Bernanke has succeeded in getting Americans to deplete their money market accounts. However, he has failed miserably in getting this money funneled into equities, which has been the plan all along.
"Crude oil prices have now declined in six out of the last seven trading sessions. Having said that, though, we would be quick to point out that yesterday’s final prices were just $1.33/bbl lower than they had been before they started falling. This may well be the most futile effort ever put forward by the bears. We have sold off over this period despite making new recent highs in equities, and that is surprising in light of the activity over the last 14 months. Still, it will only take one strong day to erase all the losses accumulated over the six days lower. It may not look like the best time to buy in this market, but the seasonal tendency reminds us that it is not a good time to sell. At this stage, we have to expect that prices will come back and rally." - Cameron Hanover
The air travel situation in Europe is getting dire. EuroControl updates that while yesterday 8,000 out of 28,000 thousand flights were cancelled, today the outlook is even worse with half of all flights, or about 14-15,000, to be grounded. And as the ash cloud moves eastward, more countries are expected to restrict airspace: EuroControl hopes and Munich, Zurich and Geneva will remain open but it is increasingly risky even they will be shut down. This is likely going to cause havoc for travel plans and for airline companies top and bottom lines. What it will also do is provide a very convenient "one-time charge" excuse at earnings time, when airlines will all blame quarterly weakness on the volcanic eruption.
Greece Will Try To Raise Another €1.5 Billion In Bills Next Week As Ultra Short-Term Funding Market Becomes Last And Only RecourseSubmitted by Tyler Durden on 04/16/2010 - 09:02
Greece will try to raise another €1.5 billion in 13-Week Bills on Tuesday, April 20, the same day that the country sees a major €8.22 billion maturity, according to the Greek Public Debt Management Agency as reported by Market News. Greece is now stuck in the vicious cycle which results from a massively steep near-term, followed by an inverted curve - it needs to raise debt more and more often as nobody will buy anything longer term, and certainly nothing past the 3 Year maturity cliff that marks the end of the EU/IMF's guaranteed commitments. The Bill issuance will replace the Dollar-denominated bond issuance that was supposed to be syndicated by Morgan Stanley and which is now DOA."I am not sure if we are going to issue dollar-denominated bonds after (the US roadshow)...," PDMA Chief Petros Christodoulou was quoted as saying in an interview with Japan's Jiji news agency published Friday. Greece is now effectively a Lehman Brothers, whose busted balance sheet is entirely dependent on the "discount window" of the IMF's benevolence. Should there be a hiccup in ultra-short term debt availability, the country will default overnight.
- The 21st century bank run (FOFOA)
- Bailout #5: Athens makes formal request for talks with Brussels, ECB and IMF (FT)
- As Bailout #1 is brewing elsewhere: Debt worries shift to Portugal, spurred by rising bond rates (NYT)
- GE and Immelt Face SEC review after Paulson's account of talks (Bloomberg) even as the firm rides the steep yield curve to profitability (Bloomberg)
- General electrion 2010: Liberal Democrats surge after Nick Clegg's TV debate performance (Telegraph)
- LBO firms extract dividends as Blackstone sells (Bloomberg)
- Summers on demand: Pay people for not working, and more people will work! (WSJ)
- Asian stock markets were lower Friday with Japanese tech stocks weighed by the strong yen.
- China has raised down-payment requirements for certain home buyers.
- China sold U.S. Treasurys for the fourth consecutive in February; holdings down $11.5B.
- Emerging bond inflows of $10.4B surpass 2005.
- EU Finance Chiefs meet as Greece moves on bailout.
- Fed's Yellen says she's growing more confident economy is on 'right track'.
- Ireland asks church to pay half 1.4B Euro abuse bill.
RANsquawk 16th April Morning Briefing - Stocks, Bonds, FX etc.
The impossible is happening with futures taking a big hit. Can anyone seriously recall when the Fed allowed this to happen last? The question tonight is who over at Liberty 33 is getting sacked (no pun intended) for this gross oversight. Do those people not realize letting the futures drop is treason and punishable by A. Joseph Cohen rereading Leonard Cohen, in roughly the same octave? If we take out what Bob Pisani would call the psychologically important barrier of 1200, watch for the S&P and gold (last seen at 1155) to play a nasty game of convergence. With the largest SPY put open interest at $117, we may just see a 30 point drop in the index if the "boys" don't intervene post haste. After all it is well known ponzis are only allowed to go up.
Kyrgyzstan’s mass anti-government protests last week were essentially the culmination of more than a decade of disillusionment and dissatisfaction that accumulated in the nation’s political, economic and social spheres from the period of Akayev to his successor Kurmanbek Bakiyev, with virtually every Kyrgyz concerned about rising prices and falling standards of living, both issues of little concern and dimly understood in Washington.
Presentation By David Yerushalmi Suing The Fed On Grounds AIG Takeover Was Illegal Money Laundering SchemeSubmitted by Tyler Durden on 04/15/2010 - 17:41
Some time ago, the law office of David Yerushlami, which a week ago filed a lawsuit in the Federal District Court challenging the constitutionality of Obamacare, sued the Fed over its takeover of AIG claiming the entire transaction was illegal and was in essence a money laundering scheme. Below we present the powerpoint presentation prepared by the law firm. Here is how Yerushalmi explains his motive: "The Law Offices of David Yerushalmi, P.C. presents an online PowerPoint presentation fully narrated illustrating rather graphically just how Timothy Geithner, who was then (Sept. 2008) the president of the Federal Reserve Bank of New York, orchestrated the illegal acquisition of 77.9% of AIG's equity and voting rights. As the presentation makes clear, while the FED certainly had authority to loan AIG billions and to take all of the company's assets as collateral, which it did, it had no legal authority to acquire nearly 80% of AIG's shares and voting rights. But this is exactly what it did when it created with great fanfare what is called the AIG Credit Facility Trust." Attached also is a latter by David to SIGTARP Barofsky, discussing the same.
With the stock getting monkeyhammered after hours, here are first flash thoughts on GOOG's quarter from UBS (which has a $700 price target). As soon as they are available, we will present the thoughts of everyone else who has a Buy on the name (pretty much all of Wall Street).