Archive - Apr 16, 2010 - Story

If the logic on the gold plunge is that Paulson will be dumping (as we first reported), that means that GGBs, in which Paulson has sizable long cash exposure (with or without the CDS), will be the next to go. And since he can't hedge anymore (remember the whole thing about CDS speculators being branded traitors), he will be forced to sell. Sorry Greece, Goldman just punk'd you once more.

Time for the SEC to take a look at what bets Goldman's prop desk, and material affiliates as well as hedge funds that are close to Goldman's flow traders, were taking on Goldman's stock over the past few days. If indeed Goldman shorted itself, bought SPY puts, bought octuple leveraged negative financial ETFs, or something else of the sort, on material non-public information, it would be time to shut the firm down. 

“These are very serious charges against a key supporter of President Obama’s bill to create a permanent Wall Street bailout fund. Despite President Obama’s rhetoric, his permanent bailout bill gives Goldman Sachs and other big Wall Street banks a permanent, taxpayer-funded safety net by designating them ‘too big to fail.’ Just whose side is President Obama on? - John Boehner

• ABACUS 2007-AC1 is a $2 billion notional synthetic CDO (the “Transaction”) referencing a portfolio (the “Reference Portfolio”) consisting of RMBS obligations.
• ACA Management, LLC (“ACA”) will be acting as Portfolio Selection Agent in this Transaction.
• ACA currently manages 22 outstanding CDOs with underlying portfolios consisting of $15.7 billion of assets
• The 360 WARF target Reference Portfolio selected by ACA consists of 90 Baa2-rated mid-prime and subprime RMBS bonds issued over the past 18 months.
• The CDO tranches amortize principal using a full sequential amortization sequence, avoiding any reduction in the relative subordination of the CDO tranches.
• The CDO tranches will have a projected average life(2) of 3.9 to 4.9 years, which is shorter than the average life of most traditional ABS CDOs executed in the current market environment.
• The CDO tranches do not bear any available funds cap risk and other related interest shortfall risks.
• Goldman Sachs’ market-leading ABACUS program currently has $5.1 billion in outstanding CLNs with strong secondary trading desk support.

Just as the S&P took out recent support levels (if one can find any in a non stop up market), the next support level is 12 points lower. At the same time there is a total carry unwind panic in process, with the JPY surging, and very other pair plunging.

Goldman CDS 42 wider on the day, hits 133. Has about 300 points to go before it surpasses Greece. That said, the vampire squid is suddenly riskier than Russia (130), Brazil (115), Colombia (130), Thailand (115) and Italy (129).
Other fins also broadly wider. We will keep you updated.

“We can have only one justice system in this country for both the rich and powerful and those who are not. I’m not prejudging the merits of this action, but if we don’t treat Wall Street firms that have allegedly defrauded investors of millions of dollars with the same gravity as we treat all others, why would our citizens have faith in the rule of law?"

“To restore the public's faith in our financial markets and the rule of law, we must identify, prosecute, and punish with stiff fines or prison those who broke the law. Their fraudulent conduct has severely damaged our economy, caused devastating and sustained harm to countless hard-working Americans, and contributed to the widespread view that Wall Street does not play by the same rules as Main Street.” - Senator Ted Kaufman

RANsquawk 16th April US Afternoon Briefing - Stocks, Bonds, FX

From the tip box: "guess what site got conveniently blocked @ GS today...that's right, ZH." Thank you Goldman for proving we were right all along. In retaliation, Zero Hedge has blocked the entire Goldman IP universe: 204.4.128.0 - 204.4.191.255.

AIG stock only fin up today on expectations the firm will now have legal precedent to sue Goldman Sachs.

And judging by the action in gold, the market is already anticipating this.

"Mr. Fabrice Tourre is in the office, but off the desk." He may be reached at 44 20 7051 6588

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.

Headline for now: Dow Jones: China To Gradually Adopt Floating Exchange-Rate System Under Management