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Nope. 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
by cwp 17y ago
Nope. 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.