Felix Salmon

Paulson’s letter appears, but not in the press

By Felix Salmon
April 22, 2010

When the WSJ and FT wrote articles about Paulson’s letter to investors yesterday, I was cross: I wanted to see it, and they neither posted it nor linked to it.* Since then, it has appeared on both Zero Hedge and the Big Picture; it can be downloaded directly here.

The weird thing is that since the letter was made public, I haven’t been able to find a single mainstream media outlet which has linked to it. (Do let me know if you find any, I’ll happily name them here.) The WSJ even put up a blog entry with the headline “Read John Paulson’s Take on the Goldman CDO Case”; the timestamp I have on that is 10:25am Eastern time, which is a good three hours after the 7:33am timestamp on the Zero Hedge posting. Yet there’s still not a single link in that post, even today.

Yesterday, I emailed the WSJ’s Greg Zuckerman, who literally wrote the book on Paulson and who was bylined on that paper’s story. Hypothetically speaking, I asked, if you obtained a letter from a fund manager on the condition that it not be posted online, would agreeing to that condition prevent you from posting the letter if you got it from other sources? He never replied.

It would be pretty bad, I think, if fund managers could prevent their letters from appearing in places like the WSJ by the simple expedient of sending those outlets their letters. It’s all well and good giving someone exclusive access to something you want them to see, but it’s another thing entirely giving them access in order to prevent them from letting anybody else see it.

But this case seems to be worse than that. For one thing, any agreement made by the WSJ reporter who first obtained the letter seems to have bound not only that reporter, but the entire newsroom. And more gruesomely, the agreement seems to have gone well past the question of whether the WSJ can post the letter: it seems to include the question of whether the WSJ can even link to a copy of the letter posted elsewhere. And judging by the lack of links at the NYT and the FT, similar agreements would seem to have been entered into there. Otherwise, why wouldn’t they link to a letter which constitutes a key development in the SEC/Goldman case?

Now it’s possible, I suppose, that all the hundreds of journalists at these outlets have been so busy reporting the story that they simply didn’t have time to notice that the letter had actually appeared in public. But I doubt it: the blogs which published it get a lot of traffic. It’s also possible that they’re not being censored by an agreement they made with Paulson, but that they’re simply self-censoring, in the knowledge that if they link to the letter, Paulson will be much less likely to talk to them in future.

In any case, it’s pretty obvious that if you want to stay on top of all the developments in this case, you’re going to have to start reading blogs: the big financial newspapers won’t give you the whole story.

Oh, and one question about the letter itself: what do you suppose Paulson means when he writes this?

After ABACUS AC-1 was structured, tranched, rated, and issued, Paulson purchased CDS protection on the “AAA” tranches from Goldman Sachs, our counterparty.

The triple-A tranches of the Abacus deal added up to only $150 million or so; Paulson’s profit on it, meanwhile, was the best part of $1 billion. And in any case, wasn’t Paulson buying CDS protection on the underlying reference securities, rather than on Abacus itself or its tranches? Very odd.

*Update: FT Alphaville did post the contents of the letter yesterday. Good for them. Apologies for missing it. But after they did so, the WSJ can’t possibly still have felt bound by any agreements. Can they?

7 comments so far | RSS Comments RSS


Is there any chance that part of the reason Goldman’s defence and PR have been so muddled, that somehow they took a bath on the deal and are frantically trying to cover it up?

Just wondering,

- Andrew

Posted by voodoobunny | Report as abusive

Is is possible that Paulson could have purchased multiple swaps on the same tranche – getting paid multiple times for the failure of a single tranche?

Posted by murphzero | Report as abusive

“The triple-A tranches of the Abacus deal added up to only $150 million or so; Paulson’s profit on it, meanwhile, was the best part of $1 billion.”

The super senior tranche was also triple-A. It just wasn’t funded.

“And in any case, wasn’t Paulson buying CDS protection on the underlying reference securities,”


Posted by GingerYellow | Report as abusive

How do you get ‘cross’ about not being able to read what the writer doesn’t want you to. You can be disappointed but not cross. It’s his property to do what he likes with.

As for the WSJ, of course the newsroom is bound when a reporter accepts Paulson’s conditions. Even if someone else comes across the document independently, Paulson would very reasonably suspect otherwise. Same thing goes for after another site publishes. How does Paulson know it wasn’t leaked so WSJ now has a out to do what they agreed they weren’t going to?

Posted by Mr.Do | Report as abusive

There is something else weird about the letter:

“In other words, the ‘short’ side of the synthetic COO had to be the same size as the ‘long’ side of the synthetic COO. In the particular transaction, ABACUS 2007ACI, Paulson expressed our interest to be on the short side.”

But from the offer document:

“Through the Credit Default Swap, investors
in the Notes will be effectively providing the Protection Buyer loss protection with respect to each
Reference Obligation up to the Reference Obligation Notional Amount of such Reference Obligation.
Losses incurred will be borne by the Noteholders. Since the Reference Portfolio Notional Amount for the
Reference Portfolio exceeds the Aggregate USD Equivalent Outstanding Amount of the Notes, investors
in the Notes are providing such loss protection to the Protection Buyer on a leveraged basis.”

The total funding of the deal A-1 and A-2 tranches only was $192 million so Paulson can’t have made a $1 billion profit and have the above statement in the letter be correct. The Protection Buyer is Goldman. Paulson is not mentioned anywhere in the offer document.

The other thing I don’t understand about the deal is: how could ACA or IKB believe that Paulson was the equity investor when it was clear from the offer document that the FL tranche was unfunded? They must have known that there was no equity investor.

Posted by Gennitydo | Report as abusive

Then again, the WSJ just truncated its blogs RSS feeds. Maybe it just has zero interest in being part of the online conversation.

Posted by MitchW | Report as abusive

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