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h/t Teddy KGB
gotta be weird talking about your business, which is your name, in a third-party context like that.
TwoJacks dislikes this letter
When one understands that Goldman is doing God's work, then it makes since that Satan would try to interfere. No?
Every sythetic CDO by defintion has a long and short side.
Every sythetic CDO by defintion has a long and short side.
This is the problem. Financial engineering is casino capitalism. Why would you create debt products with any assumption that would fail? Get in the time machine and show this to a bank regulator from the 1950's and they'd stare at you like you were dumbass.
When John Paulson comes to play...John Paulson has his game face on. When you throw the ball to John Paulson...John Paulson catches that ball. This is what John Paulson does. Don't hate.
Basically says WERE INNOCENT but if you want to make money, we will find a way to do it, legal or otherwise.
This is a comforting letter.
Paulson was just a way lucky, all-in, wrong way hunch player. What a guy !!
I sure would like to be next to him at the craps tables. Wonder where he plays.
It's a big conference table, made of real mahogany.
A pretty simple explanation:
Does anyone disagree with this?
He did a pretty good job there. He should have mentioned though that in the Abacus deal Goldman actually lost about 90 million, but that is probably immaterial.
Also, he should have expanded and talked about how the CDSs were structured on this particular synthetic deal. Not all CDOs are built like this, this probably the worst of the worst in the financial world.
But he got the main gist. Paulson came to Goldman and Goldman obliged knowing, conflict of interest, bingo. Nice video.
The missing thing is that Paulson deliverd dog food or whatever it was.
Actually, Paulson did nothing wrong. They were perceptive and gamed the market. It was Goldman that peddled the CDO crap knowing full well it was comprised of junk, but sold it as AAA premium paper. The idea that ACA verified it or that Paulson was disclosed as the true counter-party risk is BS. This is why SEC is going after Goldman, not Paulson. It makes sense.
Paulson et al (as I recall Congress had two others testify with one being the marijuana loving Hungarian who broke the British Pound and whose name I can't remember) did their homework, got their "marks" and took these clowns to the cleaners. Of course Pualson then turned right around and bought the banks that Goldman "brought to their knees" and went from merely making a fortune to become a bank himself. If this sounds "lucky" as the senile Greenspan claimed well I guess the best response is his trusty sidekick Paulo Pelligrinni is hangin' with his honey in the Carribbean and a hundred million in the bank. And that's according to Paulo's girlfriend who told this to the WSJ on Monday.
Why was Paulson even suggesting what securities to put in the CDOs? Why was he consulted on this?
Paulson did not structure or originate the ABACUS transaction (second paragraph):
"While Paulson suggested securities to be included in the reference portfolio as the protection buyer, ACA, as collateral agent for ABACUS 2007-AC1, represented the long side and had full and final authority for selecting the reference collateral."
As far as I am concerned Paulson just admitted that the short side and the long side sat down and consentually created a product that both sides knew was a "winner." Can we be expected to believe that the sludge in this vehicle would pass the sniff test of ZHers, much less market savy pros? /Max Hit on BS detector/
If my surmize is on target Paulson should never have published this letter. Nice going.
"Oh what a tangled web we weave, when first we practice to deceive."
What were the alternative CDS that could have been used in this CDO? That is, suppose we re-engineered the process from scratch, but used a randomly selected group of swaps to pile into ABACUS. These things were typically created with so little equity that a 3-6% change in value completely wiped them out. Would such a randomly constructed portfolio have performed any different? If we could say definitively that it would have performed significantly better, then there might be merit to the case. If a randomly constructed CDO would have performed the same or worse, I fail to see how investors were directly harmed by any actions (or inactions) taken by Goldman, Paulson, etc. It would be the security itself that is the problem, not how it was constructed or any backroom deals.
It's not like this tiny sliver of the subprime market blew up and Paulson & Co., through all their due diligence and hard research managed to identify that exact sliver and recommend them for ABACUS. The entire subprime market was a shithole by then, and large portions of it were due to collapse.
It's amazing this guy even has to defend himself but, alas, the witch-hunt must proceed. If banks are pouring billions into synthetic products because they are bullish on the underlying than whats wrong with someone taking the other side? So what if it was intentionally filled with garbage? The buyers saw what they were getting. Likewise the SnP 500 is intentionally filled with crap and (almost) no one bitches about that.
Where was the outrage when the short side of these transactions were under water before the crash?
Paulson is a speculator, like a number of us on ZH. He made a bet against the mortgage market when it was extremely unpopular and he got paid. Good for him.
When someone goes short an SnP contract they are basically doing the same thing; they are taking a synthetic position against someone else's long based on the underlying SnP basket. There is no exchanging of the underlying, even at expiration!
If these transactions were designed to fail than the banks and funds that bought them should be questioned on their fiduciary responsibility to their shareholders/investors. They were betting on a strong mortgage/housing market and they were wrong and possibly irresponsible. They should lose and suffer the popular disapprobation.
It takes a buyer and a seller to complete a transaction. Paulson didn't hold a gun to peoples' heads and force them to go long.
If some bum on the street tries to sell me a claim on magic fairy dust, I buy it, and then realize it wont make me invisible (i.e. its worthless) I only have myself to blame.
Paulson is the man. He made a trade that should go down as one of the greatest ever. He deserves every penny he got; anyone who trades for a living can respect that.
20-20 hindsight is always better than foresight. Anyone with the ability to to see the crap on and off every balance sheet would be short everything right now. He was right and rolled the dice - the other side was wrong - tough luck. It's a system that has been built to be gamed - all of you know that. It's a ponzi casino - BUT the seniors and pension fund guys should be kept out so they don't hurt themselves (because they will).
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