Guest Post: A Goldman Rebuttal

Tyler Durden's picture

Submitted by Dylan Ratigan

The following includes questions and commentary for Goldman Sachs as the company defends itself against charges of fraud:

Dear Lucas,

Since I haven't been able to get you or anyone from Goldman Sachs to
appear on my show in months, perhaps we can just try corresponding in
writing. Thank you for your press release. I have submitted my follow-up questions in bold:

Press release:
Goldman Sachs Makes Further Comments on SEC Complaint
April 16, 2010

The Goldman Sachs Group, Inc. (NYSE: GS) said today: We are
disappointed that the SEC would bring this action related to a single
transaction in the face of an extensive record which establishes that
the accusations are unfounded in law and fact. We want to emphasize the
following four critical points which were missing from the SEC's

-- Goldman Sachs Lost Money On The Transaction.
Goldman Sachs, itself, lost more than $90 million. Our fee was $15
million. We were subject to losses and we did not structure a portfolio
that was designed to lose money.

But what about the other "transactions"...
You know, the one where you may have potentially shorted this exact
transaction with AIG for a lot more than $90 million? You remember AIG,
right? It's where the taxpayers paid you 100 cents on the dollar for a company that you helped blow up.

-- Extensive Disclosure Was Provided. IKB,
a large German Bank and sophisticated CDO market participant and ACA
Capital Management, the two investors, were provided extensive
information about the underlying mortgage securities. The risk
associated with the securities was known to these investors, who were
among the most sophisticated mortgage investors in the world. These
investors also understood that a synthetic CDO transaction necessarily
included both a long and short side.

There must be a big difference between "extensive
disclosure" and "complete disclosure," because if you provided
"complete disclosure," you probably would have mentioned to your
customers that the entire product was funded and selected by someone who was betting on it to fail. You know, kind of like you did for your coworkers at Goldman Sachs, but forgot to do for your customers!

-- ACA, the Largest Investor, Selected The Portfolio.
The portfolio of mortgage backed securities in this investment was
selected by an independent and experienced portfolio selection agent
after a series of discussions, including with Paulson & Co., which
were entirely typical of these types of transactions. ACA had the
largest exposure to the transaction, investing $951 million. It had an
obligation and every incentive to select appropriate securities.

Not to mention their incentive to be Goldman and Paulson's unwitting patsy...

-- Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor.
The SEC's complaint accuses the firm of fraud because it didn't
disclose to one party of the transaction who was on the other side of
that transaction. As normal business practice, market makers do not
disclose the identities of a buyer to a seller and vice versa. Goldman
Sachs never represented to ACA that Paulson was going to be a long

True, but Goldman also never represented to ACA that Paulson
was planning on shorting the same product that Paulson & Co.
created in the first place!

Background: In 2006, Paulson & Co. indicated its
interest in positioning itself for a decline in housing prices. The
firm structured a synthetic CDO through which Paulson benefited from a
decline in the value of the underlying securities. Those on the other
side of the transaction, IKB and ACA Capital Management, the portfolio
selection agent, would benefit from an increase in the value of the
securities. ACA had a long established track record as a CDO manager,
having 26 separate transactions before the transaction. Goldman Sachs
retained a significant residual long risk position in the transaction.

IKB, ACA and Paulson all provided their input regarding the composition
of the underlying securities. ACA ultimately and independently approved
the selection of 90 Residential Mortgage Backed Securities, which it
stood behind as the portfolio selection agent and the largest investor
in the transaction.

The offering documents for the transaction included every underlying
mortgage security. The offering documents for each of these RMBS in
turn disclosed the various categories of information required by the
SEC, including detailed information concerning the mortgages held by
the trust that issued the RMBS.

Any investor losses result from the overall negative performance of
the entire sector, not because of which particular securities ended in
the reference portfolio or how they were selected.

The transaction was not created as a way for Goldman Sachs to short
the subprime market. To the contrary, Goldman Sachs's substantial long
position in the transaction lost money for the firm.

No, it was created as a way for Paulson & Co. (and maybe
you), to short your customers... you know, the same customers that you
apparently forgot to mention that little fact to...

The Goldman Sachs Group, Inc. is a leading global
investment banking, securities and investment management firm that
provides a wide range of financial services to a substantial and
diversified client base that includes corporations, financial
institutions, governments and high-net-worth individuals. Founded in
1869, the firm is headquartered in New York and maintains offices in
London, Frankfurt, Tokyo, Hong Kong and other major financial centers
around the world.

And you're welcome for that. Sincerely, the U.S. taxpayers.

Media Contact:
Lucas van Praag
Tel: 212-902-5400

Investor Contact:
Dane Holmes
Tel: 212-902-0300

Thanks Lucas, hope we can chat again soon. Maybe next time
about exactly how a then-28-year-old Goldman Sachs junior executive did
this with no apparent supervision?



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tip e. canoe's picture

tyler's (no) trademark snark seems to be rubbing off nicely.

Howard_Beale's picture

Oh, Dylan and Tyler have been near equally snarky for some time, athough Tyler will remain Headline of the Year writer for years to come.

Thanks for sharing Dylan. And thanks for posting this Tyler.

Eally Ucked's picture

Don't you think Howard that you are kissing everybody too much?

spekulatn's picture

Respectfully disagree. TD, Marla, and Co are in a whole nother level.

tip e. canoe's picture

but they say that imitation is the sincerest form of flattery

velobabe's picture

damn your hot‡


chinthe called it: IKB Deutsche Industriebank AG German Bank.


why do i get junked? mean

Pure Evil's picture

Being junked is the equivalent of having your name printed in the phone book. Remember the movie starring Steve Martin, "The Jerk"?

What we really need is something I saw on another web page that had thumbs up and thumbs down votes.

If you received a specific percentage of more thumbs down than thumbs up you really got junked and your comment was made to disappear. Although there was a link that allowed you to view the junked comment if you wished.

So, buck up my boy you're finally somebody now. Some ineffectual moron actually took the time to take offense to your comment.


1. not effectual; without satisfactory or decisive effect: an ineffectual remedy. 2. unavailing; futile: His efforts to sell the house were ineffectual. 3. powerless; impotent. (I think this is the proper definition.)
velobabe's picture

So, buck up my boy

not a boy, am a girl. and a sensitive one, at that†

but thanks for the pep talk.

we definitely need more satisfaction in our lives, especially at this junkture!

squid_pro_quo's picture

possible troll: you are not a girl. This is teh Internets, where men are men, women are men, and children are FBI agents.

Problem Is's picture


And FBI agents are surfing pedophile porn to keep corporations free from copyright infringement, truth justice and the Amerikan way!

Actually women are fat balding Russian men after your credit card number to meet the above skinny Ukrainian blond in the picture...

Budd Fox's picture

"These investors also understood that a synthetic CDO transaction necessarily included both a long and short side"

False, utterly false, misleading and a plain lie. This transaction was among the first and few purposely created for someone to take a short side. It is even mentioned in "The Greatest Trade" Paulson's Italian analyst, that was one of the few to see the MBS crash and burning well in advance, and was lamenting than not even through the CDS markets was possible to get to the short side in big sizes. Goldman did this to cash fees BOTH sides...but if the DID NOT, SPECIFICALLY WARNED the counterparty who took the long side that there will even be a short side...THEY HAVE TO BURN IN HELL!!

Jail the up in the echelons as you can go!! A CRIMINAL investigation is perfectly warranted!!!

rubearish10's picture

Cuomo has to be licking his chops on this one, hey? Wouldn't it be sweet if NY AG swoops in with that criminal charge next week?? Talk about ripe and ready for the KILL!!

tip e. canoe's picture

"sweet if NY AG swoops in with that criminal charge next week?"

not so sweet for NY residents who will have to live under him as the next governor.

rubearish10's picture

Maybe worth it if GS has to liquidate....Hey, I remember Abrams, Lindsay and Koch for the city. That was hell on wheels!

tip e. canoe's picture

i know amigo, i just have a particular distaste for the new sheriff in town  and who knows, maybe clif high will discover the 'word' that reveals what's really behind Mr. HUD's slimy smile just in time for his inauguration. ;~)

tip e. canoe's picture

junk?  perhaps, we'll find out soon enough, won't we?  either way, tell Dandy Andy if he includes cannabis legalization in his platform, he's got my vote (not that i trust him to keep his promise).

Alienated Serf's picture

fellow squidville resident, you know the city and state prison industrial complex requires large quantities of small time pot dealers/smokers to be profitable.  i'm sure the unions will make sure that never happens.  our state SUCKS.

tip e. canoe's picture

i know i know serf.  but again, when you're broke, something's gotta give.   speaking of unions, i heard recently from a vendor that the teamsters wanted to charge her $300/hr to work on the weekends at the Javitts at a trade show.    yes that's right, $300 an hour.  wonder how much of that time is spent in a hidden corner takin spliff breaks, cuz most of those guys move as slow as turtles.

Alienated Serf's picture

oh, no doubt about that.  the javitts center has been a pit of mob/union corruption for years.  lots of investigations, no progress.  of course the teamsters have nothing on the rigging biz, so many bribes and crane collapses. good times.


Problem Is's picture

"Cuomo has to be licking his chops on this one, hey"

Cuomo already said GS into a microphone three times while clicking his heels together to receive campaign bribes in return for going away...

I think Cuomo has to sit this round out by the "Schmucky Schumer Madoff Campaign Bribe Taking" rule...

it's proper etiquette you know...

Carl Spackler's picture

Bud, while I agree with you on the pursuit of criminal charges, I believe the initial pursuit of civil charges and the lower burden of proof was a brilliant stroke by the Obama Crime Syndicate. 


Get a little thing to stick, and the dam bursts open and becomes uncontainable.

GS has a LOT of enemies on the Street, and what goes around comes around.


Checkmate, Lloyd.

SteveNYC's picture

Yes, this is like the moment in a boxing match where you open a small cut on your oponents eyelid. At the moment, the blood is just a trickle, but if you have the guts to get in and out, and the accuracy, along with the will to take out your opponent, you will continue to bang away at that little cut until it becomes a gash.

If the ref does not say "no mas" then you'll surely hit that fucker until the eyelid comes off. We need some predators of this nature to (legally) go after the squid, it's very slightly injured, but the injury if targeted could kill it.

rubearish10's picture

Well, if anyone reads these token rebuttals the right way, GS should trade even lower on Monday since GS traded up on these very remarks after the close yesterday.

doublethink's picture

AP BERLIN — The German government may consider taking legal action in a case in which Goldman Sachs & Co. is accused of defrauding investors, a newspaper reported Saturday.

Read more:
DosZap's picture


Unlikely any criminal charges will be brought.

Does this mean we can rob 7-11's?.

rubearish10's picture

Based on what....? Actually, I think SEC and Cuomo have this all planned out. SEC first files civil suit as a federal agency "for the people" and Cuomo gets the collar on the criminal side. 

tip e. canoe's picture

if your hypothesis is correct, then this article on Rick Lazio (Cuomo's potential opponent in the NYLuvGuv race) may help shed some more light on the why it goes down in the way that it does:

rubearish10's picture

This could really get interesting (for lack of a better word), fucking exciting!

lawton's picture

People should be brought up on criminal charges for this and other actions also by the big banks not just GS. Cuomo is the only chance of that happening but I dont think he will quite pull the trigger on anything but Civil charges which is a joke with all that took place.

rawsienna's picture

ACA largest shareholder was Bear. The firm was set up to be a patsy for the street. Why would ACA not put Paulson in comp to get the assets at best price? It is because they were being paid to be the streets bitch.  Seems to me if Paulson knew its "deal" was beiing marketed with false reps, they are a party to the fraud?

jm's picture

I think some Italian loan-words need to be imported to adequately describe this arrangement. 

Dialect of Sicily, of course.

SWRichmond's picture

Yeah when I saw that ACA Capital was in on this one I laughed my ass off.  As I recall, Bear owned 38% of ACA.

Orly's picture

Of course.  It was all one big circle-jerk.

'Round and 'round it goes.  Where it stops, nobody knows.

Unscarred's picture

Tyler, Marla...  Travis...  Bueller...

What happened to the "Zero Hedge Premium" concept?  Don't tell me it got Sached.

boooyaaaah's picture

As usually happens the small fry --  28 going on 31---- before they are fried usually turn states evidence

And then the whole enchilada

The whole pandoras box

The hole can of worms

Comes un-done


Mentaliusanything's picture

Is it possible GS could, if proven guilty, lose their Licence to operate as a bucket shop.

Certainly it leaves a large gap in this can of worms for others to peak. Then would come Litigation after litigation until there is little left of the carcass. Certainly AIG and the other insurance patsies will have the first bite and just as certain this was not an isolated case (This is THE Question prosecutors will ask hoping for a yes and then lifting the curtain for the World to see the dirty laundry)   

Then its on to the others, JMP comes to mind.... Yes this fuse is attached to a very big Bunker Buster 

Amsterdammer's picture

A view from Europe:


Liar's statement from Liar's investment bank:

Even CNBC doesn't buy it, they will ne left with

Fox-News and have opened a new funnel for


Thanks you ZH for covering all the angles on this story, hat tip, I feel as proud as when reading

the Pro-publica seven-months investigation

on the Magnetar Trade.

Very fortunately the mainstream media passed

on  this press-release. It would now be

greatly time that the British FSA started to

investigate GSI London, the Squid's offices

in London, an investigation that should have

been started after the disclosure of the "Titlos"

transaction with Greece, a well-known European

think tamk LEAP-GEAB having hinted that GS had

been also instrumental in helping  another European country

to cook its debts books...

And I have the strong suspricion it is the British debt

which is at stake.Let's see if this gives

Adair Turner and the FSA the balls to start an investigation

that may well wipe out Toryism off the map, in the memory

that the country is "run" by a former Finance minister.

and that, very surprisingly, all U.S ratings agencies

are reserving their review of the rating of the

UK's sovereign debt till after the elections (

unheard of this side of the pond ), while it

it widely blatant that none of the 2 (3) candidates

has the slightest proposal for cutting the

expenses and thus the all-time high deficit

A_MacLaren's picture

Speaking of E2020 LEAP, Interesting report / forecast that has been put out in the most recent GEAB public announcement.

Global systemic crisis / USA-UK - The explosive duo of the second half of 2010: Summer 2010 - The Bank of England battle / Winter 2010 - The Fed at risk of bankruptcy Public announcement GEAB N°44 (April 16, 2010) 16/04/2010


So then, LEAP/E2020 asks two simple questions:

. who will be able/want to help the United Kingdom after the 6th May when its political chaos will inevitably expose the advanced meltdown of all its budget, economic and financial parameters?
. who will be able/want to back the United States once the British fuse has started burning, causing panic in the sovereign debt market in which the United States is, by far, the largest issuer?
Not so different a question that what Sprott asked, and the Cinese MOF have asked. Who has so much money to buy all this debt?
M31Capital's picture

They love stressing the sophistication of the people they are ripping off.

Temporalist's picture

I completely agree.  And those same people should then be sophisticated enough to realize there is blood in the water and either be greedy and prey on the wounded or want to save their own asses/losses any way possible including throwing anyone under the bus. 

non-anon's picture

Since 1869, GS has had some time to hone their "skills".

Yossarian's picture

I am surprised that ZH is so outraged by this.  I know they want GS blood and so do I, but I don't think this is that damning.  Who cares- is this different than what anyone else was doing?  Did they misrepresent the underlying collateral? Did anyone here know who John Paulson was pre-crisis?  So the counter-party wasn't a natural hedger- did he have the only working Chrystal Ball in the world?  He didn't KNOW anything was going to fail- he took a bet and wanted the highest yielding, most risky assets included in the bet.  Maybe it crosses the bounds of legality but I am not "outraged."  This is merely a smokescreen to distract us from the big issues.  

Implicit simplicit's picture

This is all timing. The real issue is obtaning control over this uncontolled cowboy market. The obvious conflict of interest lies with GS policing themselves in a market that should be on an exchange, or not exist at all. Thus the timing of the SEC lawsuit with the Obama anouncemnt of tighter controls over these ungegulated markets will allow this issue to linger on. The lawyers will have a field day. 

rawsienna's picture

the fraud was in the presentation - claiming the assets were selected by a "indpendent" CDO manager.

Fish Gone Bad's picture

This might just turn into a tobacco-type of circus with everyone piling on.  The tobacco companies knew they were making a product that hurt people.  There was all kinds of evidence, memos, and company research.  Now substitute MBS for tobacco.  This could end up being a real political windfall.  States could collect damages against the fraudsters, and everyone (historically) will be able to point a finger at the "bad guys" who caused the greatest financial disaster ever.

The Merchant of Venice's picture

What is the big issue?

It's too late for GS to fail.  With bank holding status they can kill the whole system.  They'll get slapped on the wrist.  They'll take a monster fine.  Some will lose their licenses.  GS will live on.

Bernanke and Geithner need to go to jail.  First objective is to get them out of the President's protectorate.

What is the quickest route to making Bernanke and Geithner public citizens again?  In their current seats no prosecutor can touch them.

Double down's picture

"Stupidity" trumps reason at the damnedest of times.