Goldman’s Abacus lies

By Felix Salmon
April 16, 2010
SEC suit against Goldman Sachs (full complaint here, and well worth reading) is explosive stuff. Essentially the SEC seems to have nailed down the kind of behavior that ProPublica was looking for in its story on the Magnetar Trade -- a hedge fund which was short mortgages, in this case Paulson, was carefully picking nuclear waste to put into synthetic CDOs, unbeknownst to the final investors in those deals.

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The SEC suit against Goldman Sachs (full complaint here, and well worth reading) is explosive stuff. Essentially the SEC seems to have nailed down the kind of behavior that ProPublica was looking for in its story on the Magnetar Trade — a hedge fund which was short mortgages, in this case Paulson, was carefully picking nuclear waste to put into synthetic CDOs, unbeknownst to the final investors in those deals.

From the complaint:

GS&Co marketing materials for ABACUS 2007-AC1 – including the term sheet, flip book and offering memorandum for the CDO – all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC (“ACA”), a third-party with experience analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. (“Paulson”), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO, played a significant role in the portfolio selection process.

It seems here that ACA was somewhere between a useful idiot and an outright victim of Goldman’s Fabrice Tourre:

Tourre also misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting.

Essentially what Goldman was doing here was using the respected ACA brand name (it wouldn’t remain respected for long) in order to attract big investors like Germany’s IKB: they even said in an email that “we expect to leverage ACA’s credibility and franchise to help distribute this Transaction.” But ACA was to a large extent a front for Paulson, as is evidenced in the name of the spreadsheet where it listed the proposed contents of the CDO:

On January 22, 2007, ACA sent an email to Tourre and others at GS&Co with the subject line, “Paulson Portfolio 1-22-10.xls.” The text of the email began, “Attached please find a worksheet with 86 sub-prime mortgage positions that we would recommend taking exposure to synthetically…

On February 5, 2007, Paulson sent an email to ACA, with a copy to Tourre, deleting eight RMBS recommended by ACA, leaving the rest, and stating that Tourre agreed that 92 bonds were a sufficient portfolio.

On February 5, 2007, an internal ACA email asked, “Attached is the revised portfolio that Paulson would like us to commit to – all names are at the Baa2 level. The final portfolio will have between 80 and these 92 names. Are ‘we’ ok to say yes on this portfolio?” The response was, “Looks good to me.”

I think that the SEC has the right defendant here. Paulson and ACA are both culpable, but it’s Goldman which was clearly central to the plan of deceiving investors into believing that the CDO was being managed by people who wanted it to make money, when in fact it was being structured by the biggest short-seller in the entire subprime market.

And although ACA should never have been so passive in terms of accepting the names given to it by Paulson, it did reasonably believe, because it was essentially lied to by Goldman Sachs, that Paulson was in the deal to make money on the long side:

On January 10, 2007, Tourre emailed ACA a “Transaction Summary” that included a description of Paulson as the “Transaction Sponsor” and referenced a “Contemplated Capital Structure” with a “[0]% – [9]%: pre-committed first loss” as part of the Paulson deal structure. The description of this [0]% – [9]% tranche at the bottom of the capital structure was consistent with the description of an equity tranche and ACA reasonably believed it to be a reference to the equity tranche. In fact, GS&Co never intended to market to anyone a “[0]% – [9]%” first loss equity tranche in this transaction…

On February 12, 2007, ACA’s Commitments Committee approved the firm’s participation in ABACUS as portfolio selection agent. The written approval memorandum described Paulson’s role as follows: “the hedge fund equity investor wanted to invest in the 0- 9% tranche of a static mezzanine ABS CDO backed 100% by subprime residential mortgage securities.”

The really crazy thing about this deal is that ACA not only managed the CDO, but also wrote the credit protection underlying most of it:

On or about May 31, 2007, ACA Capital sold protection or “wrapped” the $909 million super senior tranche of ABACUS 2007-AC1, meaning that it assumed the credit risk associated with that portion of the capital structure…

ACA Capital was unaware of Paulson’s short position in the transaction. It is unlikely that ACA Capital would have written protection on the super senior tranche if it had known that Paulson, which played an influential role in selecting the reference portfolio, had taken a significant short position instead of a long equity stake.

In a sense, then, IKB and the other investors in the deal were right to think that ACA was genuinely managing this structure to make money, and believed that it was sound. After all, if it all went to zero — as it eventually did — ACA stood to lose hundreds of millions of dollars.

But what happened here was that both IKB and ACA Capital placed their trust in ACA Management. And Goldman, armed with hefty CDO management fees and sleazy lies about Paulson’s role in the transaction, turned ACA Management from a bona fide fund manager into a useful idiot who could be relied upon to buy exactly the subprime securities that Paulson wanted to short.

With this suit, the SEC has finally uncovered the real scandal behind the Abacus deals. The NYT tried, back in December, but it didn’t quite get to the nub of the story — although Paulson was mentioned in the NYT story as someone who was generally short the subprime market, there was no indication that he played any role in structuring the deals. Neither was there any mention of ACA.

The scandal here is not that Goldman was short the subprime market at the same time as marketing the Abacus deal. The scandal is that Goldman sold the contents of Abacus as being handpicked by managers at ACA when in fact it was handpicked by Paulson; and that it told ACA that Paulson had a long position in the deal when in fact he was entirely short.

Goldman Sachs has lost more than $10 billion in market capitalization today, in the wake of these revelations. Good. It can go long markets and it can go short markets. But it can’t lie to its clients. That’s well beyond the pale.

Update: The Abacus pitch book can be seen here.


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good synopsis, Salmon.

Posted by ottorock | Report as abusive

“And Goldman….turned ACA Management from a bona fide fund manager into a useful idiot who could be relied upon to buy exactly the subprime securities that Paulson wanted to short.”
If you had read the complaint slowly and carefully, you would know that’s completely false => ACA accepted 55 out 123 names submitted (page 10 item 30).

Posted by alea | Report as abusive

One thing: I fail to see why the SEC cannot go after Paulson as a named defendant on the same ticket. Would you care to expand on your opinion, Salmon?

Posted by ottorock | Report as abusive

Have to agree with alea, and I suspect that’s what the case is going to turn on. GS will undobutedly claim that the rejections show ACA was in fact actively picking the portfolio, and hence Paulson’s role didn’t need to be disclosed. Whether the court buys that, particularly in light of the short position, is another matter.

Posted by GingerYellow | Report as abusive

Who was actually long the first-loss tranche? And who took the other side of Paulson’s bet?

Posted by JeremyJohnson | Report as abusive

alea, the fact is that Paulson chose 100% of the names in the CDO. The number of names is barely relevant.

ACA was the Portfolio Selection Agent, picked/had the final say on the portfolio, had a huge experience managing and constructing CDO.
That there were back and forth negotiations between Paulson and ACA IS irrelevant, this is not Joe SixPacks, ACA is/was a sophisticated entity in a position to accept or reject any of the bonds proposed by Paulson and guess what, they did just that => took 55 only out the 123 proposed by Paulson. Good luck to the SEC if/when that thing goes in front a judge.

Posted by alea | Report as abusive

But if all 123 assets proposed by Paulson were dogs, then ACA’s choice in only illusory. Paulson could easily have made sure that any choice was a bad choice.

Posted by RobNYNY1957 | Report as abusive

I agree with Felix–so far. It isn’t hard to figure out how Goldman and Paulson could manipulate ACA’s winnowing of choices given their knowledge of shorts position etc. that was not disclosed to ACA. The crux is Goldman’s (and Paulson’s) withholding of Paulson’s short position while implying Paulson was going to go long. That’s outright trickery and fraudulent. Let’s apply RICO to these organized financial criminals and impound all their wealth on their way to prison.

Posted by advocatusdiabol | Report as abusive

Well done Felix. I understood the general idea but you’ve filled in the details quite nicely. The guys at Goldie are bright and motivated, and sometimes too smart by a half. The culture there is too ingrained to change just yet, but these wise guys have been put on notice.

Posted by Gotthardbahn | Report as abusive

Impressive collateral selection. 78 out of 90 defaulted. Looks like the seniors took a 100% loss as well. Wow.

Posted by DavidMerkel | Report as abusive

I have a hard time believing that Paulson wasn’t actually long the equity (though net short overall). Who took the equity position if not Paulson?

Posted by o_nate | Report as abusive

Note the actual allegation: “GS&Co did not disclose Paulson’s adverse economic interests or its role in the portfolio selection”

Surely the fact that a hedge fund client of GS instigated the formation of the CDO for the purposes of shorting the market was material and should have been disclosed — whether or not that client had a role in structuring the portfolio. The fact that the hedge fund was allowed to communicate with ACA just makes the allegation more egregious.

Also note para 63. ACA didn’t have the super senior exposure, that was farmed off to ABN Amro.

Posted by csissoko | Report as abusive

“But if all 123 assets proposed by Paulson were dogs, then ACA’s choice in only illusory.”
Not really, ACA didn’t have to pick anything, didn’t have to the deal for that matter.

Posted by alea | Report as abusive

@alea – a careful reading actually indicates the opposite. ACA initially only accepted 55 of the 123 suggestions but by the end virtually 100% of the names were mutually agreed upon.

This occurred on February 2, 2007: “Later the same day, ACA emailed Paulson, Tourre, and others at GS&Co a list of 82 RMBS on which Paulson and ACA concurred, plus a list of 21 “replacement” RMBS. ACA sought Paulson’s approval of the revised list, asking, “Let me know if these work for you at the Baa2 level.” The initial 55 of 123 acceptances you previously noted was from a previous discussion on January 22, 2007.

This was followed on February 5, 2007 with the following: “an internal ACA email asked, “Attached is the revised portfolio that Paulson would like us to commit to – all names are at the Baa2 level. The final portfolio will have between 80 and these 92 names. Are ‘we’ ok to say yes on this portfolio?” The response was, “Looks good to me. Did [Paulson] give a reason why they kicked out all the Wells [Fargo] deals?” Wells Fargo was generally perceived as one of the higher-quality subprime loan originators.

A final portfolio of 90 RMBS was agreed to around February 26th. Perhaps between the 5th and the 26th ACA made lots of changes but then it would seem Paulson would have had to ok’ed them too. The point was Paulson had HEAVY influence in the entire selection process.

Posted by tlippincott | Report as abusive

Ooops. Careless reading. Para 63 indicates that ABN Amro was a backup underwriter for super senior — just in case ACA failed to pay. Now why would anybody have been worried about that?

Posted by csissoko | Report as abusive

“Not really, ACA didn’t have to pick anything, didn’t have to the deal for that matter.”

Good point, except they did do the deal and they did pick names. Cf. reality.

Posted by RobNYNY1957 | Report as abusive

And of course, if ACA rejected every suggested name, or declined to do the deal, it would never see Goldman work again.

Posted by RobNYNY1957 | Report as abusive

Real issue will be proving that Tourre was ‘reckless’ in not correcting ACA’s assumption that Paulson was long. The securities regulation is broad enough that it seems possible, but there’s no smoking gun so it’ll be a fight or settlement.

The big issue reading through is that ACA did their job lazily starting from Paulson’s list. They did select though, which was their stated role. But there didn’t seem to be an obligation to do so. From the filing:

On January 22, 2007, ACA sent an email to Tourre and others at GS&Co with the subject line, “Paulson Portfolio 1-22-10.xls.” The text of the email began, “Attached please find a worksheet with 86 sub-prime mortgage positions that we would recommend taking exposure to synthetically. Of the 123 names that were originally submitted to us for review, we have included only 55.”

Posted by Darrren77 | Report as abusive

Compare the situation of the rating agencies: They never needed to rate a deal, and they never needed to give a AAA rating. And yet they did, because that was what they were hired to do. I worked a deal once where 75% of a portfolio of second mortgages on used mobile homes was rated AAA, the same rating as a Swiss bond backed by gold in an Alpine vault. It never made sense to me, and I told the bankers it would never get rated, but it did.

Posted by RobNYNY1957 | Report as abusive

Felix – I have some trouble understanding GS’ role in this given this statement from the SEC complaint:

“After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure.”

In other words Paulson bought insurance for the underlying portfolio from Goldman.

If the underlying portfolio fails–or if it were to fail–Goldman will have to post collateral.

If Goldman knew that these are bad securities (implying that at some point it has to post collateral to Paulson & Co.) then why would GS structure them in a way that Paulson wants?

Even if for some strange reason GS did structure it the way Paulson wanted and got a fee in return, how can GS be held culpable, given the fact it is long on the underlying insurance?

Can you help me understand?

Posted by DoubleLiability | Report as abusive

I read the entire complaint and there is no case. No, I am not a Goldman employee.

The whole case is premised on the allegation that if the holders of credit risk (ABN Amro and ACA Capital) and/or the investors (German bank) had known that Paulson was betting on the other side (ie., shorting the reference portfolio) then the holders of credit risk and the German bank WOULD NOT have invested in the reference portfolio.

How does the SEC know that? In retrospect, of course. But its an extremely difficult allegation to prove without knowledge of hindsight.

Goldman will come out swingingly clean. I bet 50 cents.

Posted by DoubleLiability | Report as abusive

If ACA is doing its job as professional manager on behalf of investors, why should it care if the suggested securities are selected by someone long or short the product? If it is relying on that basis, rather than its own models and expertise to put the deal together, then I think the lack of fiduciary responsibility is theirs, if anyone’s. I realize they no longer exist and can’t be hung out to appease the public, but still.

Posted by mistaken | Report as abusive


You make some good points:

1) GS sold the risk to ABN and I agree that ABN should have know the risks

2) Paulson isn’t some omniscient entity — no one forced ACA to select those instruments. ACA had the resources to make an independent determination (and it looks like they were incapable)

That said:

1) The complaint alleges that GS was creating structures with the sole intent of selling CDS on those structures

2) That is tantamount to a company issuing a buy recommendation on a stock solely to attract put sellers

Posted by longandshort | Report as abusive

After a once over it seems that Paulson had serious input on the selection of securities, though I admit to seeing good points on both sides of the discussion above.
However, isn’t the charge made by the SEC against GS more narrowly defined, in that GS did not disclose the short position held by Paulson? This undisclosed fact, had it been made known, would have no doubt resulted in a completely different impression of ABACUS

Posted by JamesCC | Report as abusive


Hindsight is 20/20. I don’t anyone who knew who Paulson was back in 2007. I’m not sure knowing his position would have altered anything.

And ABN most definitely and ACA supposedly had the resources to analyze the collateral.

Yes, GS was structuring CDOs to a benefit short seller and did not disclose that fact to the buyers of the CDOs. But those buyers of the CDOs should have known better.

Posted by longandshort | Report as abusive

In a CDO, the seller goes short and the buyer goes long. In fact this is pretty much true not just of a CDO but any security. I think both ACA and IKB might have picked up on this. ACA and IKB may also have been noticed the assets going into the structure given the risks they were taking.

Posted by nsp1 | Report as abusive

This is good discussion but I really wanted to add something:
I think that the real story here is reputation – never mind the kind of follow up lawsuits we will see (including foreigners and anyone else who got screwed in these kinds of deals). Even if Goldman wins, if no-one does deals with them any more (or only at a hefty risk premium) they may go into a death spiral.

Posted by JamesPerly | Report as abusive

This reminds me of a debate we once had via AOL IM. Note that the scam wouldn’t work if cash settlement CDS contracts were not enforceable so that only physical settlement CDS contracts are ever signed. IIRC we agreed that this would be a good reform. Why hasn’t any legislature even considered it ?

I’d consider the scam to be the financial analog of arson. To understand what went wrong and what can be done to prevent it, go straight North from Wall Street. The reason arson is not as profitable as it used to be in New York City is that the city is effectively preventing people from over insuring buildings so that they profit if the buildings burn (many of those buildings burned).

Once upon a time, long long ago, CDSs were physical settlement CDSs — if one had the instrument in default and the CDS the CDS writer made you whole. If you had just the CDS, you had a piece of paper (OK a bytes on a hard disk — it wasn’t that long long ago).

Then people who bet that a firm would go bankrupt by buying naked CDSs discovered that the firms bonds were sellign for 100 cents on the dollar, because so many people owned naked CDSs. For some reason this was considered to be a problem and so now you can buy a CDS to insure against a loss on an instrument which you don’t own.

Oddly, some such instruments were designed to default. Who could have guessed ? If only physical settlement CDSs were allowed, this scam wouldn’t have worked.

So what is the useful social role of cash settlement CDSs ? Why is the rule for all other insurance contracts not applied to CDSs ?

Posted by robertwaldmann | Report as abusive

Agree with many of you on here (alea, doubleliability, nsp1, mistaken). Many things didn’t seem to add up when I read the SEC complaint:

1) “On January 27, 2007, ACA met with a Paulson representative in Jackson Hole, Wyoming, and they discussed the proposed transaction and reference portfolio.” (Goldman wasn’t even at the meeting)

2) “Had ACA been aware that Paulson was taking a short position against the CDO, ACA would have been reluctant to allow Paulson to occupy an influential role in the selection of the reference portfolio.” (hindsight is 20/20)

3) “In sum, GS&Co arranged a trasaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests.” (isn’t this why most clients come to Goldman?)

4) “Although the marketing materials for ABACUS 2007-AC1 made no mention of Paulson or its role in the transaction, internal GS&Co communications clearly identified Paulson, its economic interests, and its role in the transaction.” (Goldman generally doesn’t disclose the activities of one client to another client on the opposite side of a trade)

5) “According to an internal GS&Co memorandum ot the Goldman Sachs Mortgage Capital Committee (“MCC”) dated March 12, 2007. . .” (committees generally aren’t approving deals if they think that they’re going to end up defrauding clients)

5) “This synthetic CDO. . .was structured and marketed by GS&Co in early 2007 when the United States housing market and related securities were beginning to show signs of distress. Synthetic CDOs like ABACUS 2007-AC1 contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.” (irrelevant, particularly since nobody knew this at the time)

Posted by samp3 | Report as abusive


Your arson/insurance scenario is flawed. Neither Paulson nor GS caused the defaults on the loans backing the securities issued by Abacus.

Your analogy would work if GS or Paulson somehow forced those homeowners into not making payments or lied about the composition of the collateral making up the CDO. All Paulson had was an idea that these sub prime mortgages would go under (based on public information)

The investors in those CDO tranches had full access to the collateral information and knew explictly (it is stated in the Abacus pitch book) that GS and its affiliates were purchasing CDS protection on those tranches.

Instead, unlike Paulson, investors buying the tranches relied on S&P and ACA.

Posted by longandshort | Report as abusive

Removing a golden egg from a chicken (client) and chicken never dies. How lucky is GS, winning either way by shedding undisclosed risks onto customers. Now is the time for retribution.

Posted by leungsite | Report as abusive

I felt compelled to comment as I am surprised you use the allegations made by the SEC as proof rather than using the underlying evidence. I read the complaints in depth and could not find much of a smoking gun.

The crux of the case is based on the following:

“On January 12, 2007, Tourre spoke by telephone with ACA about the proposed transaction. Following that conversation, on January 14, 2007, ACA sent an email to the GS&Co sales representative raising questions about the proposed transaction and referring to Paulson’s equity interest. The email, which had the subject line “Call with Fabrice [Tourre] on Friday,” read in pertinent part: “I certainly hope I didn’t come across too antagonistic on the call with Fabrice [Tourre] last week but the structure looks difficult from a debt investor perspective. I can understand Paulson’s equity perspective but for us to put our name on something, we have to be sure it enhances our reputation.”

And then:

“On January 16, 2007, the GS&Co sales representative forwarded that email to Tourre. As of that date, Tourre knew, or was reckless in not knowing, that ACA had been misled into believing Paulson intended to invest in the equity of ABACUS 2007-AC1.”

It’s really slim at best. Your interpretation of this is: “it told ACA that Paulson had a long position in the deal when in fact he was entirely short.”

I cannot read this myself, merely that ACA seemed to believe that Paulson was going long and that Tourre was aware of that possibility, not that he misrepresented amything pro-actively. Nuances matter.

Posted by fdestin | Report as abusive

1. maybe Feds should expand it to a RICO action to include ratings agency as part of the ‘racketeering criminal enterprise’.

2. GS white lie (head fake) in the pitchbook – note slides on “diversification” of everything extraneous except for the fundamentals of the underlying mortgages themselves

Posted by essorkm | Report as abusive

This is a very interesting case, and nuances do matter. I agree that there seems to be no evidence that Goldman actually stated that Paulson was the equity investor. However, there does seem to be sufficient evidence that ACA believed that Paulson would be the equity investor and that Goldman knew this, yet did nothing to correct ACA’s false assumption. A key point in this case is whether Goldman was obliged to do so.
In order to answer this, it is important to understand some of the key nuances of this industry. For a CDO manager, it is a logical assumption that the “Transaction Sponsor” would take some material long position in the deal. The sponsor was traditionally the key investor, the person taking the riskiest part of the deal (usually the equity). It is also customary to work with the “key investor” to select the portfolio as it is assumed that all parties have aligned interests. The “key Investor” is, in every way, your customer and, like in any industry, you take their recommendations seriously. Goldman introduced Paulson as the “Transaction Sponsor” and encouraged, in fact facilitated, ACA to work with Paulson on the portfolio selection. In this industry, these actions are tantamount to stating Paulson was taking the equity.
But even if the Courts don’t buy that argument, not identifying Paulson as a party who will be shorting the deal is akin to encouraging your clients to play in a card game where you knew the deck had been stacked by a casino in Vegas. If the client knew, there is no way they would play. They would play at one the other 50 casinos in Vegas. No rationale investor, sophisticated or not, would select a deal where they knew the deck was so blatantly stacked against them over other deals where it was not. Goldman’s lack of disclosure is a material omission as I believe it is inconceivable that it would not have affected investor decisions. The SEC should absolutely come down hard on such an unashamed abuse of client trust.
One more point. Goldman state that they invested and lost $90mm from a piece of the deal. They use this fact to support their premise that the deal was not designed to fail. I have dealt with Goldman for many years and there are only two reasons that Goldman would have been long any of the deal. The first is that they weren’t able to sell all of it before the market turned, that is, they got stuck with it. Or, the position was hedged somewhere within the bank. There is no way in a million years that Goldman kept that position simply because they liked the risk; it is just not what they do. I am sure if the SEC dig deep enough they will find the real reason the position was held, but it definitely does not absolve them of guilt.

Posted by Nindy | Report as abusive

Has anyone seen the Pooling agreement or any other deal documents other than this Abacus 2007-AC1 PDF? I would love to see the Pooling agreement. Since the trust is on La Salle trustee website (now BAC), I assume they are the Trustee. But where are critical documents? I like to see the Pooling Agreement and distribution reports. It seems they are locked up now. If you have any of these docs post them. Then I will tell you who has done what. As it stands now. GS – Guilty of Fraud and RICO, Paulson – Guilty of Fraud and RICO, ACA Guilty of Fraud and RICO. La Salle – Most Guilty of all for Signing the deal, forming the bogus trust, registering (I would assume they did not do this) in Cayman, Filing bogus 1066 Tax Returns (1066′s)and issuing false Distribution Reports for a trust whose assets were defaulted bonds (artificially kept alive by advances of servicers).

But unfortunately, SEC has a conflict of interests. It can not make the accusations it should because it would open the door for total annihilation of all financial institutions in U.S. whom are all guilty of participating in these MBS criminal activities and equity stripping. U.S. Government has just spent over 5 Trillion Dollar to prop up all these bankrupt financial institutions and there is no way it can allow SEC to take them down. This case is just a slap on the wrist to stop GS from raiding the cookie jar.

It will be settled in a very quick order to prevent conviction of GS. The Fraud conviction would make Goldman and other MBS players liable for $5+ trillion to foreign financial institutions and governments who were raped by Wall Street.

Posted by Yuansavvy | Report as abusive

Oh.. Everyone is assuming that the Securities in this deal were traded at face. The reality is as aged first loss pieces, they were probably traded at 10% of face which means even if GS actually kept the B-Pieces (First Loss of Abacus 2007-AC1) their real loss would have been $0 as the super senior had already been overcharged by 200% of the real cost (discounted from face). The $90M loss based on face value of B-Pieces is a standard lie by MBS players to cover up their frauds. It works every time and servicers and trustees use it all the time in the courts and goes over so well.

Posted by Yuansavvy | Report as abusive

just read Magnetar analysis at

GS = Magnetar ….. nearly same M.O.

RA’s are not the only paid stooges in the CMO mills, so are the “CMO Managers” who presumably independently select the securities.

both Magnetar and GS ‘outsourced’ all fiduciary duties to hand-selected stooge CMO management firms

Posted by essorkm | Report as abusive

Does the “Never Scared” part of the motto mean the blog is insufficiently afraid of being foolish, but with confidence?

Posted by lancec | Report as abusive

I guess you were absent the day they taught that the facts alleged in a legal complaint are, duh, alleged facts. You write as if they are all true.

Posted by nemoknada | Report as abusive

Did IKB believe Paulson was long on the deal? It seems to me IKB would be called to testify at the civil trial to clear up this issue.

Posted by tippygolden | Report as abusive