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That's Goldman's very argument. It may be true in a sense - the investors in Abacus should have been aware that somebody, somewhere would benefit, at least a li
by cwp 17y ago
That's Goldman's very argument. It may be true in a sense - the investors in Abacus should have been aware that somebody, somewhere would benefit, at least a little, if Abacus failed.
Nevertheless, the following are facts:
- Paulson was involved in creating Abacus
- Paulson would gain nothing if Abacus succeeded
- Paulson would make a billion dollars if Abacus failed
If you're contemplating investing in Abacus, that's important information. Goldman neglected to mention it.
- yummyfajitas 17y agoNonsense. The following are facts that are known to every investor in any synthetic CDO (including ABACUS) who bothered to look up the definition of synthetic CDO: -- Anonymous counterparty was involved in creating Synthetic CDO. -- Anonymous counterparty gains nothing if the CDO succeeds. -- Anonymous counterparty makes money if it fails.
- cwp 17y agoNope. You first bullet does not follow from the definition of a synthetic CDO. Yes, somebody is taking the other side of the bet. The fact that he got to pick the portfolio isn't obvious. Goldman brought in ACA precisely because having an independent third party pick the portfolio would make it more attractive to investors. Goldman's lie was omitting the detail that ACA didn't actually operate independently.
- deleted 17y ago[deleted]
- yummyfajitas 17y agoAnonymous counterparty will not take the short side of just ANY synthetic CDO. Most likely, he wants a specific short. If he does not get that short, he will walk, and there will be no CDO. That's exactly what happened in this case. Paulson wanted to short a certain profile. They selected a set of securities meeting this profile, and ACA took the best possible longsides from that set of shorts.
- cwp 17y agoAh, so the investor would have to look up the definition of a synthetic CDO and know how Wall Street actually operates. They have to know that Goldman isn't serious about ACA being an independent third party. Well, perhaps most investors out there really are that sophisticated. But Bear Sterns decided the deal Paulson proposed didn't meet their ethical standards. It couldn't have been completely uncontroversial.