7 ms·

1. Sell doomed products to stupid clients 2. Short those products 3. Profit X 2 ! 3a. If fail, have taxpayer pay for it

deleted 16y ago
[deleted]
warfangle 16y ago
If I read it correctly, it's not that they sold doomed products to stupid clients. It's that they represented the products as awesome, when they knew they were structured specifically to be doomed.
- drunkpotato 16y ago
  Correct.
- jamiequint 16y ago
  Its the job of Goldman's investment bank to broker product not take one side or the other. It didn't matter to Goldman if they were "doomed" or not (in fact when Goldman structured them Goldman may have even thought Paulson & Co were the fools) they were trying to find pairs of parties willing to take bets against each other and make a commission.
  - dsplittgerber 16y ago
    In the process of structuring and pairing willing parties they just forgot to mention one party had privileged information about what the product actually was. That is not what a supposedly neutral broker does.
    - jamiequint 16y ago
      Sorry, you're wrong. Both parties had access to the mortgages in the pool. Paulson & Co. just had a more accurate analysis of what they were actually worth because they had done in depth macroeconomic research on the residential mortgage market.
      - dsplittgerber 16y ago
        Please read the complaint (relevant part starts on p.9). This has nothing to do with Paulson's superior research. This is Paulson telling ACA which RMBS to put into the portfolio, ACA signing off on it, and GS telling investors that ACA selected the portfolio, which it did not. GS structured this whole deal from the beginning because Paulson wanted to short specific RMBS portfolios; ACA was just engaged in order to have a "brand-name" signing off on it.
        jamiequint 16y ago
        warfangle was talking about the representation of the products. Yes, they misrepresented who put them together, but they were completely up front about the underlying assets. In fact you can see in the pitch deck (http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-20070226 http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-...) on slides 56 and 57 a list of the assets the CDO was based off of.
        anigbrowl 16y ago
        This is true, but it must be balanced against: a) the ~32 slides (almost 50%) explaining why ACA was such a reliable and reputable sponsor of the issue, and b) the fact that ACA's participation was secured with the help of blatantly false statements from GS VP Fabrice Tourre about Paulson's intended positions in those assets (which were represented to ACA as long when they were actually short). ACA thought that Paulson & Co. were going to buy the equity (riskiest) tranche, and that they, ACA, were only taking on the risk of the mezzanine tranches. GS knew that not only did Paulson not intend to buy in, they intended to bet against the CDO.
      - jamiequint 16y ago
        @dsplittgerber (won't let me directly reply) I'm not sure that who picked the bonds necessarily qualifies as "privileged information". The underlying assets were the same so if they were analyzed properly why would it matter who picked them?
    - billybob 16y ago
      "Sure, sure, we'll take your horse bets. You think the horse will win, this guy thinks the horse will lose. Place your bets and we keep the fees. Oh, you lost? Too bad. Yeah, we forgot to tell you that the other guy knew your horse was poisoned. Yeah. He poisoned it himself. We saw him do it - we helped him, really. Oh well. Security guards? Oh, they work for the other guy. He pays 'em. Tough luck for ya, though, kid, real tough luck. You win some, you lose some, eh?"
      - cellis 16y ago
        Is that from a movie? Because if not , you really need to start being a screenwriter!
    - flipbrad 16y ago
      I'll bet the principle of 'buyer beware' wins out. This is about giving Goldman a PR hit, not a judicial one. It'll settle.
  - jakarta 16y ago
    "The scandal here is not that Goldman was short the subprime market at the same time as marketing the Abacus deal. The scandal is that Goldman sold the contents of Abacus as being handpicked by managers at ACA when in fact it was handpicked by Paulson; and that it told Abacus that Paulson had a long position in the deal when in fact he was entirely short." http://blogs.reuters.com/felix-salmon/2010/04/16/goldmans-abacus-lies/ http://blogs.reuters.com/felix-salmon/2010/04/16/goldmans-ab...
    - ig1 16y ago
      This. I've undergone FSA mandated financial crime training while working for several financial institutions and lying about positions held in order to make a sale is the only thing that's clearly illegal here. There's a very thin line between what's legal and what's illegal, and the reason banks have compliance departments is to check over things which are borderline. In a lot of cases not only can the bank be fined but the individuals involved can also face jail time. But with borderline issues typically if they're done in good faith (full honestly, going through compliance departments) the regulatory bodies don't get too involved because they don't want to scare people away from the large number of legitimate activities which are beneficial to the system but are borderline. However in the case where someone lied outright (presumably without the knowledge of their compliance department) that's a much clearer cut-case for prosecution. It's deception for the purpose of making money, and saying "I didn't know it was illegal" doesn't wash, because it obviously is.
  - dandelany 16y ago
    Incorrect. Goldman didn't just broker this product, they helped construct it. During this process, they allowed Paulson and Co. to add RMBS's to the product that they knew Paulson was short on. It is not their job to take one side or the other, but it is absolutely their job to represent the true nature of the product they are selling. And the fact that the product was constructed specifically so that its creators would profit hugely from its demise is incredibly important material information. > Goldman may have even thought Paulson & Co were the fools Wrong. The entire point of this case is that GS knew two facts: Paulson & Co. helped construct the fund, and they also held a short position. GS is smart enough to know that someone who shorts their own product is not a fool, they're a con man. Or as Goldman probably saw it, a shrewd businessman.
  - prosa 16y ago
    If you actually read the complaint, you will find that Goldman Sachs was intent on using ACA's brand as a critical means through which to sell the CDOs to their clients, and kept ACA in the game by misrepresenting Paulson's position. Had ACA known, they would have been far less likely to be willing to enter into the deal. Goldman: “One thing that we need to make sure ACA understands is that we want their name on this transaction. This is a transaction for which they are acting as portfolio selection agent, this will be important that we can use ACA’s branding to help distribute the bonds.” ACA: “I certainly hope I didn’t come across too antagonistic on the call with Fabrice [Tourre] last week but the structure looks difficult from a debt investor perspective. I can understand Paulson’s equity perspective but for us to put our name on something, we have to be sure it enhances our reputation.”
jamiequint 16y ago
This isn't an accurate depiction of what happened. The banks that failed did so because they were the ones holding on to the doomed products. In fact, the banks that shorted the products in volume were the ones that survived and didn't need bailouts (GS being one of them).
- startuprules 16y ago
  "In fact, the banks that shorted the products in volume were the ones that survived and didn't need bailouts (GS being one of them)." So you're saying 1.) GS never needed bailed out 2.) GS was a bank before and after the crisis. Goldman Sachs takes $12B Bailout, Hands out $14B Bonuses http://www.dailymail.co.uk/news/worldnews/article-1081624/Goldman-Sachs-ready-hand-7BILLION-salary-bonus-package--6bn-bail-out.html http://www.dailymail.co.uk/news/worldnews/article-1081624/Go...
  - jamiequint 16y ago
    Yes, they were forced to take bailout money: http://www.businessinsider.com/uncovered-tarp-docs-reveal-how-paulson-forced-banks-to-take-the-cash-2009-5 http://www.businessinsider.com/uncovered-tarp-docs-reveal-ho... and paid it back as soon as they could.
    - deleted 16y ago
      [deleted]
    - dpapathanasiou 16y ago
      "Goldman Sachs released its 2009 annual report today. In its shareholder letter, Goldman says it repaid TARP money, but did not mention the massive new taxpayer subsidies it continues to enjoy." http://www.huffingtonpost.com/janet-tavakoli/goldman-sachs-spinning-go_b_528144.html http://www.huffingtonpost.com/janet-tavakoli/goldman-sachs-s...
    - jamiequint 16y ago
      @startuprule (won't let me reply directly to you). That article talks about counterparty risk, has nothing to do with whether GS themselves needed a bailout. In fact it speaks to the fact that they probably didn't see this crisis coming, as the biggest trading partner of AIG they would have known their counterparty exposure and tried to reduce it ahead of time.
dpapathanasiou 16y ago
3a. If fail, have taxpayer pay for it That's the most disturbing part of all this: profits are kept private, but losses are socialized. It's the equivalent of "heads, I win; tails, you lose".
- prosa 16y ago
  That is true in many aspects of the crisis, sadly. However, in this case, there is no public loss to speak of from the transaction itself. Rather, it served to further inflate the bubble that ultimately triggered the crisis.
  - pak 16y ago
    Goldman did receive TARP funds, and used those funds to correct losses from maneuvers like this one. Regardless of whether or not Goldman Sachs considers that it paid back all of its TARP loans with interest, having the government prop up the company with a bottomless loan made of taxpayer money for any period of time is a public loss. It practically sponsors bad behavior on the part of Goldman and other large financial firms, because there is now a precedent for the government saving them from bearing the consequences of massively horrific choices as long as they would also cause horrific potential damage to the entire economy. The moral hazard incurred by these sort of transactions in light of the government's response is a significant and unresolved risk.
    - billybob 16y ago
      Yes. This renews my fury about the bank bailouts. You know what's REALLY too big to fail? Capitalism. And rewarding market failure is the surest way to take it down.
    - brezina 16y ago
      Exactly! We should file suit against the US Treasury for propping up Goldman and others with our tax money. They defrauded us by forcing us bankroll the bailout while providing limited upside for the massive risk we took.
    - 16y ago
rit 16y ago
4. goto 1
dmillar 16y ago
You should know, GS was basically forced to take the bailout money by Paulson, and were the first to pay it back.
- afterburner 16y ago
  Are you thinking of former Treasury Secretary and GS CEO Henry Paulson? The Paulson in Paulson and Co. is John Paulson, no relation.
sandee 16y ago
Here’s Goldman Sachs’ pitch book for ABACUS, the synthetic collateralized debt obligation at the heart of the SEC charges. http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-20070226 http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-...

deleted 16y ago

[deleted]

If I read it correctly, it's not that they sold doomed products to stupid clients. It's that they represented the products as awesome, when they knew they were structured specifically to be doomed.

drunkpotato 16y ago
Correct.
jamiequint 16y ago
Its the job of Goldman's investment bank to broker product not take one side or the other. It didn't matter to Goldman if they were "doomed" or not (in fact when Goldman structured them Goldman may have even thought Paulson & Co were the fools) they were trying to find pairs of parties willing to take bets against each other and make a commission.
- dsplittgerber 16y ago
  In the process of structuring and pairing willing parties they just forgot to mention one party had privileged information about what the product actually was. That is not what a supposedly neutral broker does.
  - jamiequint 16y ago
    Sorry, you're wrong. Both parties had access to the mortgages in the pool. Paulson & Co. just had a more accurate analysis of what they were actually worth because they had done in depth macroeconomic research on the residential mortgage market.
    - dsplittgerber 16y ago
      Please read the complaint (relevant part starts on p.9). This has nothing to do with Paulson's superior research. This is Paulson telling ACA which RMBS to put into the portfolio, ACA signing off on it, and GS telling investors that ACA selected the portfolio, which it did not. GS structured this whole deal from the beginning because Paulson wanted to short specific RMBS portfolios; ACA was just engaged in order to have a "brand-name" signing off on it.
      - jamiequint 16y ago
        warfangle was talking about the representation of the products. Yes, they misrepresented who put them together, but they were completely up front about the underlying assets. In fact you can see in the pitch deck (http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-20070226 http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-...) on slides 56 and 57 a list of the assets the CDO was based off of.
        anigbrowl 16y ago
        This is true, but it must be balanced against: a) the ~32 slides (almost 50%) explaining why ACA was such a reliable and reputable sponsor of the issue, and b) the fact that ACA's participation was secured with the help of blatantly false statements from GS VP Fabrice Tourre about Paulson's intended positions in those assets (which were represented to ACA as long when they were actually short). ACA thought that Paulson & Co. were going to buy the equity (riskiest) tranche, and that they, ACA, were only taking on the risk of the mezzanine tranches. GS knew that not only did Paulson not intend to buy in, they intended to bet against the CDO.
    - jamiequint 16y ago
      @dsplittgerber (won't let me directly reply) I'm not sure that who picked the bonds necessarily qualifies as "privileged information". The underlying assets were the same so if they were analyzed properly why would it matter who picked them?
  - billybob 16y ago
    "Sure, sure, we'll take your horse bets. You think the horse will win, this guy thinks the horse will lose. Place your bets and we keep the fees. Oh, you lost? Too bad. Yeah, we forgot to tell you that the other guy knew your horse was poisoned. Yeah. He poisoned it himself. We saw him do it - we helped him, really. Oh well. Security guards? Oh, they work for the other guy. He pays 'em. Tough luck for ya, though, kid, real tough luck. You win some, you lose some, eh?"
    - cellis 16y ago
      Is that from a movie? Because if not , you really need to start being a screenwriter!
  - flipbrad 16y ago
    I'll bet the principle of 'buyer beware' wins out. This is about giving Goldman a PR hit, not a judicial one. It'll settle.
- jakarta 16y ago
  "The scandal here is not that Goldman was short the subprime market at the same time as marketing the Abacus deal. The scandal is that Goldman sold the contents of Abacus as being handpicked by managers at ACA when in fact it was handpicked by Paulson; and that it told Abacus that Paulson had a long position in the deal when in fact he was entirely short." http://blogs.reuters.com/felix-salmon/2010/04/16/goldmans-abacus-lies/ http://blogs.reuters.com/felix-salmon/2010/04/16/goldmans-ab...
  - ig1 16y ago
    This. I've undergone FSA mandated financial crime training while working for several financial institutions and lying about positions held in order to make a sale is the only thing that's clearly illegal here. There's a very thin line between what's legal and what's illegal, and the reason banks have compliance departments is to check over things which are borderline. In a lot of cases not only can the bank be fined but the individuals involved can also face jail time. But with borderline issues typically if they're done in good faith (full honestly, going through compliance departments) the regulatory bodies don't get too involved because they don't want to scare people away from the large number of legitimate activities which are beneficial to the system but are borderline. However in the case where someone lied outright (presumably without the knowledge of their compliance department) that's a much clearer cut-case for prosecution. It's deception for the purpose of making money, and saying "I didn't know it was illegal" doesn't wash, because it obviously is.
- dandelany 16y ago
  Incorrect. Goldman didn't just broker this product, they helped construct it. During this process, they allowed Paulson and Co. to add RMBS's to the product that they knew Paulson was short on. It is not their job to take one side or the other, but it is absolutely their job to represent the true nature of the product they are selling. And the fact that the product was constructed specifically so that its creators would profit hugely from its demise is incredibly important material information. > Goldman may have even thought Paulson & Co were the fools Wrong. The entire point of this case is that GS knew two facts: Paulson & Co. helped construct the fund, and they also held a short position. GS is smart enough to know that someone who shorts their own product is not a fool, they're a con man. Or as Goldman probably saw it, a shrewd businessman.
- prosa 16y ago
  If you actually read the complaint, you will find that Goldman Sachs was intent on using ACA's brand as a critical means through which to sell the CDOs to their clients, and kept ACA in the game by misrepresenting Paulson's position. Had ACA known, they would have been far less likely to be willing to enter into the deal. Goldman: “One thing that we need to make sure ACA understands is that we want their name on this transaction. This is a transaction for which they are acting as portfolio selection agent, this will be important that we can use ACA’s branding to help distribute the bonds.” ACA: “I certainly hope I didn’t come across too antagonistic on the call with Fabrice [Tourre] last week but the structure looks difficult from a debt investor perspective. I can understand Paulson’s equity perspective but for us to put our name on something, we have to be sure it enhances our reputation.”

jamiequint 16y ago

This isn't an accurate depiction of what happened. The banks that failed did so because they were the ones holding on to the doomed products. In fact, the banks that shorted the products in volume were the ones that survived and didn't need bailouts (GS being one of them).

startuprules 16y ago
"In fact, the banks that shorted the products in volume were the ones that survived and didn't need bailouts (GS being one of them)." So you're saying 1.) GS never needed bailed out 2.) GS was a bank before and after the crisis. Goldman Sachs takes $12B Bailout, Hands out $14B Bonuses http://www.dailymail.co.uk/news/worldnews/article-1081624/Goldman-Sachs-ready-hand-7BILLION-salary-bonus-package--6bn-bail-out.html http://www.dailymail.co.uk/news/worldnews/article-1081624/Go...
- jamiequint 16y ago
  Yes, they were forced to take bailout money: http://www.businessinsider.com/uncovered-tarp-docs-reveal-how-paulson-forced-banks-to-take-the-cash-2009-5 http://www.businessinsider.com/uncovered-tarp-docs-reveal-ho... and paid it back as soon as they could.
  - deleted 16y ago
    [deleted]
  - dpapathanasiou 16y ago
    "Goldman Sachs released its 2009 annual report today. In its shareholder letter, Goldman says it repaid TARP money, but did not mention the massive new taxpayer subsidies it continues to enjoy." http://www.huffingtonpost.com/janet-tavakoli/goldman-sachs-spinning-go_b_528144.html http://www.huffingtonpost.com/janet-tavakoli/goldman-sachs-s...
  - jamiequint 16y ago
    @startuprule (won't let me reply directly to you). That article talks about counterparty risk, has nothing to do with whether GS themselves needed a bailout. In fact it speaks to the fact that they probably didn't see this crisis coming, as the biggest trading partner of AIG they would have known their counterparty exposure and tried to reduce it ahead of time.

dpapathanasiou 16y ago

3a. If fail, have taxpayer pay for it That's the most disturbing part of all this: profits are kept private, but losses are socialized. It's the equivalent of "heads, I win; tails, you lose".

prosa 16y ago
That is true in many aspects of the crisis, sadly. However, in this case, there is no public loss to speak of from the transaction itself. Rather, it served to further inflate the bubble that ultimately triggered the crisis.
- pak 16y ago
  Goldman did receive TARP funds, and used those funds to correct losses from maneuvers like this one. Regardless of whether or not Goldman Sachs considers that it paid back all of its TARP loans with interest, having the government prop up the company with a bottomless loan made of taxpayer money for any period of time is a public loss. It practically sponsors bad behavior on the part of Goldman and other large financial firms, because there is now a precedent for the government saving them from bearing the consequences of massively horrific choices as long as they would also cause horrific potential damage to the entire economy. The moral hazard incurred by these sort of transactions in light of the government's response is a significant and unresolved risk.
  - billybob 16y ago
    Yes. This renews my fury about the bank bailouts. You know what's REALLY too big to fail? Capitalism. And rewarding market failure is the surest way to take it down.
  - brezina 16y ago
    Exactly! We should file suit against the US Treasury for propping up Goldman and others with our tax money. They defrauded us by forcing us bankroll the bailout while providing limited upside for the massive risk we took.
  - 16y ago

rit 16y ago

4. goto 1

dmillar 16y ago

You should know, GS was basically forced to take the bailout money by Paulson, and were the first to pay it back.

afterburner 16y ago
Are you thinking of former Treasury Secretary and GS CEO Henry Paulson? The Paulson in Paulson and Co. is John Paulson, no relation.

sandee 16y ago

Here’s Goldman Sachs’ pitch book for ABACUS, the synthetic collateralized debt obligation at the heart of the SEC charges. http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-20070226 http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-...