Friday, April 16, 2010

Goldman Sachs (GS) VP Email Jan 2007: "The whole building is about to collapse anytime now."

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Oh my.

I have no idea the implication but for those of you around a decade ago you know what this parallels... Eliot Spitzer made his career on almost the same exact thing a decade ago.  Investment banks bringing product (IPOs) public, their analysts cheerleading the stocks to the public while writing internal emails about how the companies were complete trash.

Well this London based VP looks like the sacrificial lamb.
  • The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment

As usual the snake oil never really changes... but in the past the snake oil salesmen would be run out of town.  Now they are protected by government, backstopped by our Federal reserve, and glorified.  We've really evolved as a society :)  It's good to be an oligarch.

  • According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.
  • Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds.
  • But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.

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Fascinating to see John Paulson's firm involved as well - I don't see any wrong doing on his part but apparently one of his former lieutenants, Paolo Pellegrini was the 'snitch'. [Oct 2, 2009: Paolo Pellegrini, Formely of John Paulson's Hedge Fund, on Bloomberg]

Full pdf file of SEC complaint here.

p.s. bought some SPY puts to get some hedging going on.

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