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A synthetic CDO can not even exist unless some party believes the securities it is comprised of will go bad. Not true at all, you don't necessarily have to thi
by jfager 16y ago
A synthetic CDO can not even exist unless some party believes the securities it is comprised of will go bad.
Not true at all, you don't necessarily have to think it will go bad, you just have to be afraid enough that it might to pay an insurance premium.
- yummyfajitas 16y agoIn general, brokers are not required to disclose whether the other side of a trade is a hedger or a speculator. In fact, they are usually legally forbidden from doing this.
- jfager 16y agoWhy would the broker themselves even have to know? The point isn't that the shorter and their motives should be disclosed, it's that the long side has plenty of explanations for why the short side is short other than simply taking the other side of a risky bet. The Goldman case isn't about whether or not they should have disclosed that the short had speculative motives. It's that they actively lied about who put the reference portfolio together and why.