Spoke to Eric Dash, NYT, and Joe Bel Bruno, WSJ, re Goldman Sachs CDO Abacus that was put together by the dynamic duo of Fabrice "The Fabulous Fab" Tourre and Jonathan Egol. "Black box inside a black box inside a black box," says Dash. Bel Bruno says that Goldman will fight hard and that it admits to nothing. The SEC case turns on the notion that Goldman fooled smart guys to believe that Abacus was constructed to succeed by ACA. There is fresh information that a former John Paulson partner in fact told ACA that Paulson was short the housing market and was involved in constructing Abacus. Of course it is confusing. On purpose. Witness the black box metaphor. The best news is that Lloyd Blankfein will fight the SEC alongside his new hire Greg Craig, late chief counsel of the Obama White House. An early peek at the strategy is to feed the Fabulous Fab to the Congress. Orchestra!
Brief
Black Box Fabulous Fab
5 Comments
Leave a comment
"The best news is that Lloyd Blankfein will fightthe SEC alongside his new hire Greg Craig, late chief counsel of the Obama White House."
Lessee. What's the likelihood the WH crooks wouldn't warn off one of their golden boys if the SEC was serious? These guys in the administration are all shakedown artists in the best Mafia style. They'll end up with a token payment of a few hundred thousand dollars for failure to report or some other trifle which sum GS will gladly pay to get this story off the front pages.
Fabrice should get a good lawyer and PR firm and throw Goldman under the bus. Goldman execs have little concern for him.
Many sharks in the water.
AIG deal may kill Goldman. Goldman took out Lehman and AIG, and has many enemies on Wall st. Knives are out in a close quarters fight.
From what I understand and this may not necessarily apply to this particular GS transaction, the investment bankers were taking the lowest tranches of various mortgage bonds that were rated BBB and repackaging these into a new instrument that is called a CDO and then slicing these CDO's and calling some of them AAA down to BBB. So someone buying this AAA bond is getting pure junk thinking it was safe. This is not just immoral it is fraud and should be criminal and whoever did it should be wearing an orange jump suit. If there is no law covering it then one should be written immediately.
From what I understand, AIG insured only AAA bonds so whoever was behind these transactions from the investment bank should also be up for criminal prosecution. And Michael Lewis says it was Goldman Sachs that was one of the middle men between AIG and the holder of the phony bonds. Something is being covered here.
after listening to dash last night i can't tell if he doesn't understand cdo's or if he doesn't want to. he seems more in love with creating the aura of mystery than with explaining what went on. black box inside ad black box etc. catchy phrase hiding lack of comprehension. he shouldn't be writing about derivatives and synthetics if he doesn't understand them.
cdo's can be explained pretty easily. synthetic cdo's take a little longer but they are not that hard. when you stuff cdo paper into another cdo to make a cdo-squared it gets messy and transparency begins to fail.
there is alot of politician and journalist handwaving going on at structure when the greatest source of opacity was the fact that there were so many structured products created that none ever traded, so market value was an illusion.
the easiest way to understand how you can get a AAA tranche out is to realize that the other tranches absorb losses before the AAA tranche is impaired. if the other tranches are much much bigger than the defaults then the AAA tranche never gets hurt. you can be wrong about the default rate as was the case in the subprime universe. you can even be stupidly wrong.
AIG got hurt at the holding company level by
mark-to-market write downs during a market panic
the collapse of the commercial paper market
collateral calls (margin calls) resulting from the mark-to-market and ratings downgrades of AIG itself.
how much has AIG actually lost in cash (collateral postings are not cash losses - they are deposits with the counterparty that get refunded at the end of the contract if there is no default). AIG lost money when the feds forced them to close out some of the positions. have they incurred real (not mark-to-market) losses on the positions that were not terminated? zero is not a sexy number- $170 billion is (or used to be.).
it serves the political class to perpetuate the muddled blather the press puts out on these issues.
For every winner on Wall Street, there's a loser; for every seller there's a buyer. It all perfectly balances out. The only way to distort this balance is when humans interfere in the process and fracture it according to some bias. Most people understand that much.
People understand that this nation is being messed around with. It's being carved up into pieces, some of which are then called ‘good’ and others ‘bad’. We have figured out that Obama does not like winners. Therefore winners are ‘bad’. We know that Obama wants to turn the tables, making success ‘bad’ and failure ‘good’. It's not quite working out for him, so, he has to discredit the entire system of buying and selling - and replace it with what?
Bottom line: Anybody debating whether this or that Obama proposal will be good for the country or not is wasting their time. ‘Good’ and ‘bad’ is no longer the issue. Trust is the issue. Do any of us trust Obama to make the right decision with respect to anything?
http://peterkoelliker.blogspot.com/