[hrothgar]

Winstonm, on Apr 17 2010, 03:01 AM, said:

Quote

More specifically, recall that the CDOs only work when the underlying securities are independent of one another.

This is the entire crux of the matter - the variation within the tranches can only be meaningfully priced if the loan make-up of each tranch acts independently from each other. In other words, if loan A defaults loan B is neither more or less likely to default.

I want to focus specifically on the Abacus 2007-AC1 CDOs:

This set of mortgages that were included in this CDO were deliberately selected to have a very similar set of characteristics.

The chance that these mortgages were independent of one another was significantly less than a randomly selected group of mortgages, or, alternatively, one that was engineered to try and ensure that the mortgages were independent of one another.

[PassedOut]

It's good to see that Obama does not intend to let the lies about financial reform go unchallenged: Holding Wall Street Accountable

Quote

Now, unsurprisingly, these reforms have not exactly been welcomed by the people who profit from the status quo – as well their allies in Washington.  This is probably why the special interests have spent a lot of time and money lobbying to kill or weaken the bill.  Just the other day, in fact, the Leader of the Senate Republicans and the Chair of the Republican Senate campaign committee met with two dozen top Wall Street executives to talk about how to block progress on this issue.

Lo and behold, when he returned to Washington, the Senate Republican Leader came out against the common-sense reforms we’ve proposed.  In doing so, he made the cynical and deceptive assertion that reform would somehow enable future bailouts – when he knows that it would do just the opposite.  Every day we don’t act, the same system that led to bailouts remains in place – with the exact same loopholes and the exact same liabilities.  And if we don’t change what led to the crisis, we’ll doom ourselves to repeat it.  That’s the truth.  Opposing reform will leave taxpayers on the hook if a crisis like this ever happens again.

Bipartisanship only goes so far. If the Republicans are going to be soft on crime in return for a payoff from the criminals, voters have a right to know that.

[Winstonm]

Quote

The change that these mortgages were independent of one another was significantly less than a randomly selected group of mortgages, or, alternatively, one that was engineered to try and ensure that the mortgages were independent of one another.

The significant aspect of the charge against GS IMO would have to be the pricing - did GS collude with the seller to knowingly create a product that increased the mispricing of the risk for the benefit of the seller?

[hrothgar]

Winstonm, on Apr 17 2010, 04:48 PM, said:

Quote

The change that these mortgages were independent of one another was significantly less than a randomly selected group of mortgages, or, alternatively, one that was engineered to try and ensure that the mortgages were independent of one another.

The significant aspect of the charge against GS IMO would have to be the pricing - did GS collude with the seller to knowingly create a product that increased the mispricing of the risk for the benefit of the seller?

I couldn't care less about the pricing of the individual derivative.

What I care about is whether or not the seller's disclosed all of the material information about said derivatives so that potential investors were in a position to make an informed decision.

[Winstonm]

hrothgar, on Apr 17 2010, 08:54 AM, said:

Winstonm, on Apr 17 2010, 04:48 PM, said:

Quote

The change that these mortgages were independent of one another was significantly less than a randomly selected group of mortgages, or, alternatively, one that was engineered to try and ensure that the mortgages were independent of one another.

The significant aspect of the charge against GS IMO would have to be the pricing - did GS collude with the seller to knowingly create a product that increased the mispricing of the risk for the benefit of the seller?

I couldn't care less about the pricing of the individual derivative.

What I care about is whether or not the seller's disclosed all of the material information about said derivatives so that potential investors were in a position to make an informed decision.

I think in a sense we are saying the same thing - the pricing of the risk would vary depending on the nature of the loans, right?

I agree with you that it is withholding information (or possible collusion) that is the significant charge. But without a mis-pricing of the risk there would not be harm, no, and thus no cause of action?

[hrothgar]

Winstonm, on Apr 17 2010, 05:26 PM, said:

I agree with you that it is withholding information (or possible collusion) that is the significant charge. But without a mis-pricing of the risk there would not be harm, no, and thus no cause of action?

The market for these CDOs is pretty thin.

I don't think that its possible to arrive at an objective "price" for these types of instruments. Therefore, you can't really use price as a metric.

I think that its much easier to measure disclosure...

[Winstonm]

hrothgar, on Apr 17 2010, 11:34 AM, said:

Winstonm, on Apr 17 2010, 05:26 PM, said:

I agree with you that it is withholding information (or possible collusion) that is the significant charge.  But without a mis-pricing of the risk there would not be harm, no, and thus no cause of action?

The market for these CDOs is pretty thin.

I don't think that its possible to arrive at an objective "price" for these types of instruments. Therefore, you can't really use price as a metric.

I think that its much easier to measure disclosure...

Disclosure is certainly critical. I am wondering about the legals - because if all we have here is two parties to a derivative contract, the losses on the underlying security are unimportant to any cause of action for either party based on the derivative's value.

But from what I make of it, the issue is that the buyer of the underlying security is claiming that Goldman Sachs failed to disclose that a short-seller of a derivative based on the security had a hand in structuring the loans and that was a civil fraud against the company who bought the security product from GS.

I'm not sure of the ramifications and legalities; however, I am pretty certain that had not Robert Rubin and his chums convinced Bill Clinton to support the total unregulation of these derivative markets that the issue would never have reared its ugly head.

It is amazing what the light of day does to vampire squid.

[Winstonm]

Concerning the CMFA.

Quote

Greenspan Testimony to Senate Agriculture Committee in note 18 below (“the Board continues to believe that, aside from safety and soundness regulation of derivatives dealers under the banking or securities laws, regulation of derivatives transactions that are privately negotiated by professionals is unnecessary”).

Nice, call, Al. Maestro, my ass.

[Winstonm]

hrothgar, on Apr 17 2010, 11:34 AM, said:

Winstonm, on Apr 17 2010, 05:26 PM, said:

I agree with you that it is withholding information (or possible collusion) that is the significant charge.  But without a mis-pricing of the risk there would not be harm, no, and thus no cause of action?

The market for these CDOs is pretty thin.

I don't think that its possible to arrive at an objective "price" for these types of instruments. Therefore, you can't really use price as a metric.

I think that its much easier to measure disclosure...

Btw, this is what Barry Ritholtz had to say to someone making the "caveat emptor-like argument":

Quote

Read the SEC complaint. When you tell investors that a well know hedge fund is the lead investor in a Synthetic CDO, and that he is putting $200 million in it — when the truth of the matter is he is not putting any money into this and is in fact short the CDO, at best that is a material misrepresentation. It sure smells like Fraud to me . . .

[fred]

I just finished reading "The Big Short". I enjoyed it.

Those interested in reading this book might get more out of it if they read "Liar's Poker" (also by Michael Lewis) first.

Fred Gitelman
Bridge Base Inc.
www.bridgebase.com

[mike777]

This gs fraud charge gets more interesting.

I just repeat the facts in this case are in dispute but...


It appears that there were no actual mortgages or MBS in this pool. It was all a series of bets.

It appears the company that put the pool together ACS? bought most of these bets on the upside.


It appears that GS itself bet on the upside and lost 90 million.

In any case in about 18-24 months all worthless.....1 billion.



Again facts and details are in dispute.

[y66]

Where have you gone Joe Friday?

[Al_U_Card]

y66, on Apr 20 2010, 10:16 AM, said:

Where have you gone Joe Friday?

Might be a (long) Lost Weekend

[Winstonm]

Quote

Rule 10b-5: Employment of Manipulative and Deceptive Practices

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,
(B) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
© To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.”

It's hard not to connect to (B) above:

Quote

According to the SEC, Goldman did not tell investors "vital information" about ABACUS, including that Paulson & Co was involved in choosing which securities would be part of the portfolio

[kenberg]

Listening to a discussion on NPR I got the impression that it is far from clear that the SEC will succeed in the suit. I lack a reference to that discussion, but here is perhaps a preview of the GS defense:
http://www.washingtonpost.com/wp-dyn/conte...id=opinionsbox1

Don't get me wrong. I am no apologist for GS. It seems clear that they were screwing people, the question is whether they were legally screwing them or illegally screwing them. Very highly paid lawyers will, in some sense, settle this question.

Some things seem clear.
There will always be individuals and corporations that will attempt to make a lot of money while doing nothing that is remotely socially productive.
Government agencies, through understaffing, stupidity, or whatever are often not up to dealing with the more shady aspects. See Bernie Madoff, for example.
Many people, I am an example, find that complex financial transactions are confusing. We approach such matters with simple rules: Don't spend money you don't have, don't get into a poker game with professionals at the table. That sort of thing.

So what can be done?
Try to keep the big boys from totally shafting the rest of us to the extent that this can be done, sure, but mostly keep them from seriously gumming up the works while they are busy shafting each other.


If the SEC lawyers are playing a little hardball with GS lawyers by pushing a less than solid case, I don't actually mind. Some asses are in serious need of some kicking. But what I really want is some action that will keep the boat afloat during stormy weather. If that is done, I'll be happy to watch out for myself when someone tries to sell me either the Brooklyn Bridge or synthetic collateralized debt obligations.

[y66]

Kick some ass. And keep the boat from running aground again?

Works for me.

[mike777]

thank god we have found our whipping boy......GS........the country needed one to kick around.

Look how happy it made our posters and the tv commentators.


So what if it looks like ACA, the company that put this thing together, bet a billion bucks on the upside and lost....and they knew it was a bet and it is accussed that ACA is the company Paulson talked to.....

[kenberg]

mike777, on Apr 21 2010, 11:26 AM, said:

thank god we have found our whipping boy......GS........the country needed one to kick around.

Look how happy it made our posters and the tv commentators.


So what if it looks like ACA, the company that put this thing together, bet a billion bucks on the upside and lost....and they knew it was a bet and it is accussed that ACA is the company Paulson talked to.....

If the suit is truly frivolous I am sure GS has the legal strength to quickly put a stop to it. We really don't need to fret about them being unable to defend their interests. More likely, I think, is that they were skating near the legal edge and there will be some close examination to see which side of the edge they were on.


We will see where this goes. Unless there is someone who is in danger of serious jail time I doubt it will come to all that much. Some money will, perhaps, change hands. Some lawyers will buy a new summer home.


Kicking GS around is not really my issue. I can't say I really mind if doing it is sort of an added attraction but the main event is protecting the economic system from fallout when the big boys are playing with their nukes.

[Al_U_Card]

If only G-S had made the "Million-dollar Club", I am sure they and their alumni could have got out unscathed...

The firm certainly knows how to work the corridors of power: Goldman's employees contributed more - $980,945 - to Barack Obama's presidential campaign than any other company.

And Goldman has more than 30 ex-government officials working as registered lobbyists on staff, including former House Majority Leader Richard Gephardt (D-Mo.) to represent its interests on issues related to TARP, according to Mother Jones.


From here:

http://www.sott.net/articles/show/197774-G...and-White-House

[Winstonm]

The SEC vote to sue Goldman Sachs was split 3-2, along party lines - now there's a shock.