Comments on: Would a Goldman disclosure have helped? A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Gobannian Wed, 21 Apr 2010 06:59:19 +0000 ACA were paid a fee as selection agent. It’s obvious now that the bonds which Paulson proposed were particularly stinky. But why does his motivation for doing that matter?
Suppose he really had wanted to go long but was particularly useless. Isn’t it the job of ACA to spot that the bonds he chose all seem to be on mortgages in California with no paperwork to back them up? If Paulson could do that based on publicly available information, why couldn’t ACA as an alleged expert.
ACA through a different branch was the biggest single investor. The complaint basically says that ACA (investor) was misled to believing that ACA (selector) had chosen the bonds.
This is laughable. Paulson found that there were a lot of stupid people on the market who were wrong about mortgages overall and who were not willing to do the study of the details which he did. That’s what used to be called “research.”
There are so many dreadful things which the investment banks did to cause the crisis. It’s pathetic that the SEC pick on this one, where a broker observed the principle of client confidentiality.
I understand that people hate Goldman because it has been enormously successful and only exists because the US taxpayer bailed it out. That’s no excuse for this suit.

By: AEinCH Tue, 20 Apr 2010 13:08:05 +0000 “It is a much more ridiculous counterfactual to imagine ACA would have remained in the game.”

Why do you believe this? In any arm’s length, zero-sum derivatives deal, it is normal for both buyers and sellers to have some hand in structuring the “product” to be traded, based on their mutually contradictory notions of value and/or risk preference.

By: DanHess Tue, 20 Apr 2010 03:10:28 +0000 TinyOne —

Felix is right. If they had found out Paulson was short, it would have been game over, then and there. Paulson picked the debt he thought would fail? Dear God!

It is a much more ridiculous counterfactual to imagine ACA would have remained in the game.

In any case, the case is strong whether or not ACA would ultimately have gone long. Paulson’s role was highly material and in fact central to the deal no matter how ACA would have reacted to the news.

By: TinyOne Mon, 19 Apr 2010 20:53:23 +0000 “At that point, the whole history of meetings with Paulson would start being replayed in ACA’s mind a bit like that shoe-dropping moment at the end of a David Mamet film, where the structure of the con is revealed. Only in this case, it wouldn’t have been too late, and ACA would have run very far and very fast in the opposite direction, vowing never to deal with Paulson, Tourre, or Goldman ever again.


By: KidDynamite Mon, 19 Apr 2010 20:39:57 +0000 felix: i think this one is more important: 4/19/the-goldman-defense-caveat-emptor/

Goldman says:
“Similarly, the fact that ACA may have perceived Paulson to be an equity investor is of no moment. As a threshold matter, the interests of an equity investor would not necessarily be aligned with those of ACA or other noteholders, and holders of equity may also hold other long or short positions that offset or exceed their equity exposure. Indeed, Laura Schwartz of ACA understood this from her work on a transaction that closed in December 2006 in which Magnetar, a hedge fund that bought equity and took short positions in mezzanine-level debt, participated. (See GS MBS-E-007992234 (“Magnetar-like equity investor”).) Certainly, ACA could have questioned Paulson about its interests if it that information were significant to it.”