Comments on: How ACA was misled A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: DanHess Mon, 19 Apr 2010 14:11:47 +0000 Goldman Sachs is trading at a trailing earnings multiple and a forward earnings multiple in the range of seven. That is atrocious and reflects what the market thinks of the franchise and its earnings quality. By contrast, Berkshire Hathaway, which like Goldman is a kind of hedge fund, has an earnings multiple three times as high.

When a meaningful share of your revenue pie is fraudulently obtained, it contaminates all of your other revenues.

The board needs to throw out Blankfein, Cohn and Viniar. Investment banking needs to revolt until that happens. They are Goldman’s rotten core. Goldman cannot improve until those at the helm amid these ethical disasters are gone.

By: HBC Mon, 19 Apr 2010 00:14:54 +0000 DanHess, is your real name Ben Stein?

Of course not, you’re just channeling the bad Ben.

By: DanHess Sun, 18 Apr 2010 23:57:10 +0000 Point taken. If Goldman accepts responsibility in this case, there are more like it, here, there and everywhere.

Still, I think Goldman could get through it well if they focus on rebuilding the franchise, wherein the good Goldman roots out the bad Goldman. We must appreciate that there are many good parts of Goldman Sachs including investment banking, much of their market-making and part of their trading.

I-banking should be in open revolt right now, because the some of the traders have been destroying the franchise.

If Merck can get through Vioxx, Goldman can get through this. They will have to scale back trading and reform their culture and probably leave some dirty money on the table, but the world needs the good Goldman and there is a bright future and plenty of up-and-up business for them in a gigantic globalized economy.

By: bff426 Sun, 18 Apr 2010 21:37:44 +0000 DanHess, you seem to consider this case an anomaly, perpetrated without Goldman’s knowledge. If, on the other hand, this was business as usual, then I would expect Goldman to take the actions that they have. After all, if they admit that an employee did this, against company guidelines, they will be on the hook for the billion dollars that the European banks — including one now owned by the British government — lost. I don’t think they want to pony up that money without a fight, especially if it means a slew of follow-on lawsuits from other ABACUS deals, nearly all of whom collapsed. And that might open up the AIG can of worms again. Last thing they want.

As the report from ProPublica on the Magnetar deals makes clear, there were a number of these “sponsors” who had a say in the selection of either the CDO manager, the MBS that went into the CDO, or both. What knowledge the investment bank that put the deals together had is still in question. The evidence ranges from damning, as in this case for Goldman, to J.P. Morgan’s deal with Magnetar in which they lost $880 million.

By: HBC Sun, 18 Apr 2010 20:06:09 +0000 If the whole rigamarole here were to begin and end with “Fabulous Fab” then what Felix is suggesting would make perfect sense and then, y’know, game over, let the big greed olympics continue, et cetera…

But. What’s really at issue here is the flimsy proposition that Goldman did anything other than zoom in on ailing core investments that didn’t stand a snowball’s chance, pad them up with an extra load of tosh to make them into really big balls of slush, then create the aura of possibility that anyone in their right minds would step in as a counter-party with any sort of illusion as to these toxic balls ever coming to anything other than a bad end.

It’s not just one rotten Apple Fabulous, it’s what Fool’s Goldman is made of, through and through.

Goldman only needs shills like ACA to lend a superficial whiff of (fake) viability to the (other people’s and in some cases fictitious) property aka financial vehicles they were insuring. The operative expression being, “Well, SOMEbody’s stupid enough to buy these”. One shill will do, and a few other fools are bound to join in. Goldman then precipitated the vehicles’ (plural, Abacus being one of many) demise and merrily cashed in – on the largely fictional deal, and on (to date, a trillion or two in) fraudulently obtained insurance. Voila.

As blatant as it has been, this crime spree of Goldman’s couldn’t last forever. The time for it to end, once and for all, is now.

By: DanHess Sun, 18 Apr 2010 03:35:16 +0000 Unfortunately for you Felix, I fear folks that hand out journalism awards don’t pay that much attention to bloggers, because you and others are working hard and doing good work on this story.

One of your better points…

“Fabrice Tourre is not a trustworthy banker, and Goldman should be firing him. Instead of mounting a vigorous and forthright defense of his actions.”

Exactly. What on Earth is Goldman thinking? Every other company of Goldman’s stature would immediately announce that this behavior will not be tolerated because whether or not the law was broken this type of treatment of clients is not acceptable.

Goldman has a choice:
(1) They can take charge and deal with this immediately themselves, and the guilty employees take the fall that they deserve or
(2) They can fight a fight they are unlikely to win and have the words ‘Goldman Sachs’ and ‘fraud’ appear side by side in headlines every day for the next couple of years.

Door number one is far better for shareholders. That Goldman would even think about choosing door number two means present management is incompetent. This is a Chappaquiddick situation where the failure to take responsibility quickly makes things worse.

By: longandshort Sun, 18 Apr 2010 01:26:04 +0000 I’m still at a loss to understand why sellers of credit protection would have changed their mind if they knew the buyer of the protection structured the transaction.

Do ABN/IKB assume all market participants are lazy and gullible as they are? Popeye the Sailor could have selected the collateral but it was incumbent on ABN and IKB to perform their own due diligence on the underlying assets.

Paulson/GS also had no inside or non-public information that these bonds would default. They structured the CDO based on their view that the bonds were likely to default. This information was also available to ACA, ABN, IKB.

Paulson/GS certainly didn’t force the homeowners to default on their payments or cause the bond trustee to declare the bonds in default.

By: rootless Sun, 18 Apr 2010 00:40:47 +0000 Here’s from the sales deck. Spells out that GS is betting on fail. A prudent investor would ask why GS thought it would get money from this deal.


Goldman Sachs will enter into a CDS with the Issuer to buy protection on Reference Portfolio losses
related to the Class A through Class D Notes.

The Collateral Securities and/or Eligible Investments will be available to make payments to
Goldman Sachs in the case of writedowns or other Credit Events occurring on the Reference
Portfolio, which in each case incur writedowns on the Class A through Class D Notes

By: Justaninvestor Sat, 17 Apr 2010 23:24:34 +0000 What I don’t understand is this: 1) why didn’t ABN Ambro and IKB conduct due diligence on these assets before investing in them, such as contacting directly the portfolio selection agent, ACA, to inquire exactly how it arrived at its decision to recommend the assets in question. Can someone please tell me if ABN Ambro and IKB were to have contacted ACA, would it have been incumbent upon ACA management to disclose to these potential investors at the time that ACA approved the portfolio in partnership with Paulson or at least mention his involvement? 2) According to court documents, how could ACA Capital, the parent company of ACA Management, LLC, not know of Paulson’s close involvement in the selection of the assets in the portfolio? Is it not also incumbent on the part of ACA Capital to do their own due diligence on what its subsidiary is doing and how it is arriving at it recommendations. In my opinion, the information of Paulson’s involvement was out there, at least available to ACA Capital (and possibly to IKB and ABN Ambro as well) but no one bothered to ask for it or search it out. There are a lot of unanswered questions here and many parties are to blame for not doing what “sophisticated investors” are suppose to do before shelling out millions of dollars. Although I think Fabrice was indeed a distrustful investment banker, I also think Goldman was right in arguing that investors had to the opportunity to analyze the assets on their own or at least contract another third-party bond agent to give its unbiased opinion on the portfolio before investing in it. My fear is that other banks will likely be entangled in this mess with allegations of similar wrongdoing, which does not bode well for financials in the short-term because the SEC’s vague comments and the general sense of uncertainty are still strong.

By: jsrogers Sat, 17 Apr 2010 22:30:35 +0000 I see the fraud at the macro level rather than at the micro level. The most appropriate metaphor to me is a pyramid scheme. The expansion of the potential home buyer market was a pyramid where the prime mortgages provided the cash to fund the sub primes until eventually the universe was exhausted and the chain letter collapsed. Chain letters and pyramid schemes are fraud. The creators of the game anticipated and planned for the collapse. With the approval of the legislative regulators they created the CDO and Credit Default Swaps with the plan that the investors would be protected by the taxpayers. So did Paulson participate in creating this scheme or just bet against it?