Comments on: How important is IKB’s sophistication? A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: libarbarian Thu, 14 Apr 2011 18:41:25 +0000 Getting in on a deal with Goldman-Sachs is like sitting at a poker table:

If you can’t spot the obvious patsy within the first 5 minutes then YOU ARE THE PATSY!

By: hsvkitty Wed, 28 Apr 2010 16:28:31 +0000 So if the Mob dupes someone sophisticated, then it is no longer doing anything wrong? Silly rubes then! (what a terrible argument but you gotta know that the lawyers will milk it)

*Withholding material information and misleading is not allowed, so while there were rubes, Goldman should still be charged with fraud. Rule 10b-5 applies.

*Referring to Paulson as the transaction sponsor rather then the one who picked the bonds, or the one who will be going short.

*saying an independent party picked the assortment of bond trash to select from.

*Calling it a hands off trade, then bet short on it, and insure it,knowing it was junkier then the usual junk in such ‘sophisticated’ transactions.

*Coercing Moody to upgrade AAA while admitting it was junk.

*This deal was created by someone who likes things to blow up, specifically designed to blow up and with that insider knowledge, Goldman sold it others. Who knows what the insurance actually netted of if they did switcheroos as well.

By: HBC Mon, 26 Apr 2010 15:42:22 +0000 Sophisticated Goldman’s biggest challenge will be finding a judge whose retirement fund they haven’t already rogered.

By: randymiller Sun, 25 Apr 2010 00:49:13 +0000 One more point, do you notice all the AAA and AA and A ratings on every traunch above equity? I would think that Goldman putting that in their literature indicates that they gave credence to those ratings, when they knew the indexed CDO’s were BBB trash.

Tell me why that is not deceptive, “All the security lawyers on earth”. The lawyers for Goldman are trying to find some slippery loopholes here, which will end up making Goldman look bad, and the lawyers look sleazy.

How do these guys feel about their kids friends reading about this in the Times? Are their kids going to be proud of them? I may not have made 68 million dollars in a year, but at least I can look my kids in the eyes. Which is worth a whole lot more to most people.

By: randymiller Sun, 25 Apr 2010 00:39:00 +0000 Remember the OJ trial? He may have been acquitted, but his reputation was destroyed by all the publicity about his life. I think Goldman would be wise to salvage their reputation by saying Fabric was a rogue trader, that there may be other rogues in their midst, and they are going to clean house.

If Nixon had fired Haldeman and Erlichman, and cut his losses, he would have gone down as one of the better presidents in the 20th century.

But Goldman will not do the sensible thing. Hubris trumps humility. And their stock will slowly drift down, and customers will drift away. Somebody is going to look at their market cap of 84 billion, and say almost all of that is blue sky, in other words, their reputation.

By: Kosta0101 Sat, 24 Apr 2010 16:46:27 +0000 Somehow I think that the level of sophistication of the investors is relevant to the case, and Goldman is right to point it out (but maybe not 23 times).

The case boils down to whether or not Goldman disclosed the relevant material facts. The most pertinet fact being that Paulson sponsored the CDO and was actually shorting the entire structure.

An unsophisticated investor likely would not have realized (or even understood) that the sponsor of the CDO could be net short (or perhaps even that there was a sponsor separate from Goldman). Goldman’s defence is that a sophisticated investor must know that in a synthetic CDO, for every long, there must be short. Given that the sophisticated investor knows this, then it is not material that Paulson is that short.

I don’t know how the courts will rule on this issue, but it is important that IKB implicitly knew that there was a short position on the CDO. It obviates the need for Goldman to disclose it.

Mind you, the crux of the case isn’t that it wasn’t disclosed that Paulson was short, it’s that it (potentially) wasn’t disclosed that Paulson played a role in selecting the refence basket while being short.

By: iflydaplanes Sat, 24 Apr 2010 15:02:22 +0000 @ericgarland, I agree with your unsophisticated point of view!

By: sethchan Sat, 24 Apr 2010 01:27:59 +0000 I’m not all that sophisticated, but what’s the big deal for Goldman Sachs? With 13 billion in profits, a fine of a few million is just a cost of doing business. In fact, the most they’ll have to pay is less than the compensation package of one of its big cheeses.

By: ericgarland Fri, 23 Apr 2010 22:07:22 +0000 This reminds me of all of the Wall Street types who chastised the rest of the unwashed masses for daring, in our unsophisticated way, to question why this whole system melted down requiring a few hundred spare billion dollars from the federal treasury. After all, if you don’t have technical information regarding AT5-XQ*2! Structured Asset Ladder Reflux Capacitor Credit Field Obligation Funds, you shouldn’t get all cranky when the currency catches on fire and requires your taxes, right?

We need to come to terms with the fact that most parts of our society, upon which we interdepend, require specialized knowledge not shared by the masses. Fully 99.97% of us will never become doctors, but if a bunch of MDs run around spreading the plague, you shouldn’t need to be able to cite the differential diagnosis for pleuritic chest pain in order to make a complaint.

Perhaps we need a law that says if you can’t explain a financial instrument in under twelve words (“We’re buying coffee futures because people are drinking lotsa coffee.”) it is declared fraudulent. We would lose CDOs but maybe retain the housing sector.

An unsophisticated point of view, I admit.

By: DanHess Fri, 23 Apr 2010 20:50:47 +0000 JHedges —

Do enlighten us. What other laws apply than the one Felix cited?