EPT
I dont understand whats going on with goldman Sach
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HyoSang
United States194 Posts
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Chunkybuddha
Canada347 Posts
Organizations like ACA (market insurance), IKB (German bank), ABN (dutch bank), and Goldman all were betting against the packages and deals they all created. Hence how the market fell through, yet these businesses made MASSIVE profits... Oh btw, I doubt Goldman will fall. You have to remember it wasn't just Goldman doing this, lol. The situation became too complicated so its very difficult to point blame. If you point blame at Goldman, Goldman points blame at ACA, etc etc. These companies have geniuses working for them creating not only great money making deals, but ways to cover up their deals. ENRON was way worse than this shit. | ||
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Glider
United States1353 Posts
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StRyKeR
United States1745 Posts
In this case, one party seems to have pretty much known all along that the trade was going to go in their direction. Paulson and Co. concocted these "CDO"s that apparently were extremely toxic. Goldman Sach marketed these CDOs to various investors. Once the housing market crashed, Paulson and Co. made $1 billion. The counter-parties lost $1 billion. The crux of the SEC charge is that GS had a conflict of interest -- they had a client who was creating super risky contracts, but did not reveal this to the investors. Because of their fiduciary duty to the investors, they should have fully revealed, to the extent as written by law, who created them, etc. I remember reading that GS's description of the CDOs did not mention Paulson and Co. even once and in fact were offering CDOs created by "trustworthy" institutions. One can argue that buyers of the CDOs should have known all along that they were risky investments. No one was forcing them to buy. On the other hand, one could argue that the seller misrepresented the products and tricked people. Whether it's "buyer beware" or "gtfo frauds" is what will result from the trial. | ||
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ShOoTiNg_SpElLs
Korea (South)690 Posts
The catch however, is that the SEC claims that Paulson & Co. hand-picked the mortgages in the portfolio, and third parties were not aware of the fact that a major hedge fund who picked the mortgages for the portfolio was taking a short position. So when the housing market eventually crashed, Paulson & Co. took home over a billion dollars, whereas the other investors lost the billion dollars. | ||
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ramen-
90 Posts
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StRyKeR
United States1745 Posts
On April 20 2010 12:33 ramen- wrote: If I understand correctly they bought insurance on the toxic assets. This effectively means that the insurance company was "betting" the assets wouldn't turn out to under, and Goldman was "betting" that they would go under. If the assets were bad, Goldman would receive the insurance money and the insurance company would lose. If the assets were good, the insurance company doesn't have to pay anything, and Goldman lost the amount they paid for the insurance. There's more layers than that, because everything you stated is legal. The illegal part (potentially, if proven) is that GS had a conflict of interest. The SEC is charging them of favoring one client over the other. | ||
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ramen-
90 Posts
On April 20 2010 12:37 StRyKeR wrote: + Show Spoiler + On April 20 2010 12:33 ramen- wrote: If I understand correctly they bought insurance on the toxic assets. This effectively means that the insurance company was "betting" the assets wouldn't turn out to under, and Goldman was "betting" that they would go under. If the assets were bad, Goldman would receive the insurance money and the insurance company would lose. If the assets were good, the insurance company doesn't have to pay anything, and Goldman lost the amount they paid for the insurance. There's more layers than that, because everything you stated is legal. The illegal part (potentially, if proven) is that GS had a conflict of interest. The SEC is charging them of favoring one client over the other. Yeah that's true, I just thought in his post he was primarily asking how it was possible to bet against the housing market. | ||
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ShOoTiNg_SpElLs
Korea (South)690 Posts
On April 20 2010 12:13 Chunkybuddha wrote: Well they designed a package that knew would fail. Organizations like ACA (market insurance), IKB (German bank), ABN (dutch bank), and Goldman all were betting against the packages and deals they all created. Hence how the market fell through, yet these businesses made MASSIVE profits... Oh btw, I doubt Goldman will fall. You have to remember it wasn't just Goldman doing this, lol. The situation became too complicated so its very difficult to point blame. If you point blame at Goldman, Goldman points blame at ACA, etc etc. These companies have geniuses working for them creating not only great money making deals, but ways to cover up their deals. ENRON was way worse than this shit. ACA/IKB/ABN didn't make profits from this. In fact, IKB and RBS (who took over ABN) needed to be bailed out by the government as a result of losing nearly $1 billion from this investment. | ||
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Acies
Australia196 Posts
Am I on the right track here? | ||
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ShOoTiNg_SpElLs
Korea (South)690 Posts
On April 20 2010 12:49 Acies wrote: My rather primitive understanding is they bundle a bunch of assets into a package, some that will have a good rate of return and some that will result in loss. The distribution of good and toxic assets in the package is meant to be random but they deliberately made them have high amounts of toxic assets so the package would still be valued high since it's assumed to be random but in reality is worthless. Am I on the right track here? Ideally, one only wants products that will perform in the future. For example, the Abacus product was rated Aaa by Moody's when Goldman was marketing it to its investors. ACA also believed that the assets in the Abacus product would all be worth a lot in the future, because it thought Paulson & Co. (who submitted the initial shortlist of the mortgages in the Abacus) was taking a long position. | ||
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StRyKeR
United States1745 Posts
On April 20 2010 12:49 Acies wrote: My rather primitive understanding is they bundle a bunch of assets into a package, some that will have a good rate of return and some that will result in loss. The distribution of good and toxic assets in the package is meant to be random but they deliberately made them have high amounts of toxic assets so the package would still be valued high since it's assumed to be random but in reality is worthless. Am I on the right track here? Well, sort of. That kind of package would be entirely legal, given full disclosure. The problem arises if any part of the representation was misleading. | ||
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HyoSang
United States194 Posts
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