How the Synthetic CDO "Abacus" was set up

The Abacus transactions are so-called synthetic CDO.

Abacus deals were filled with default swaps that offered payouts to Goldman Sachs if certain mortgage bonds didn’t pay as promised, in return for regular premiums from the bank.

Such securitization enabled debt with the lowest investment-grade ratings to be transformed, in part, into AAA securities that turned out to not be as safe as that ranking suggested. At least $5 billion of Abacus slices now carry junk ratings, below BBB-, from Standard & Poor’s, or have defaulted, Bloomberg data show.

The SEC said that Goldman Sachs created and sold Abacus 2007-AC1 without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and also bet the CDO would default. Paulson was proved correct, and his hedge fund eventually turned a $1 billion profit and CDO investors lost a similar amount, according to the SEC

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“The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” Goldman Sachs said in a statement today.

The firm put together the Abacus deal in 2007, a year in which Goldman Sachs earned a then-record $11.6 billion, a figure it surpassed in 2009, when it earned $13.4 billion. Goldman Sachs paid Blankfein $68.5 million for 2007 -- $600,000 in salary, plus a $67.9 million bonus.

According to the SEC’s complaint, Tourre, now 31, sent an e-mail to a friend in January 2007 saying, “The whole building is about to collapse” in reference to CDOs tied to subprime mortgages.

‘Fabulous Fab’

“Only potential survivor, the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrousities!!!” Tourre wrote in the e- mail, according to the SEC. The agency didn’t identify the recipient of the note.

Reached at his London office today, Tourre declined to comment. “I need to jump, thank you, goodbye,” he told Bloomberg News before hanging up. A call to Pamela Chepiga , a lawyer for Tourre at Allen & Overy LLP, wasn’t returned. Tourre, a graduate of Ecole Centrale Paris, one of France’s top engineering schools, and Stanford University, joined Goldman Sachs in July 2001, according to his LinkedIn profile.

Goldman Sachs and Tourre knew it would be difficult, if not impossible, to sell the CDO if they disclosed to investors that Paulson played a significant role in selecting the collateral and was also betting against it, the SEC said.

‘Surreal’ ACA Meeting

The bank also knew that at least one potential investor, Dusseldorf, Germany-based IKB Deutsche Industriebank AG , wasn’t likely to invest in a CDO that didn’t have a collateral manager to analyze and select the portfolio, according to the complaint.

In January 2007, Goldman Sachs approached ACA Management LLC , a firm that analyzes credit risk, to select the portfolio for a CDO transaction sponsored by Paulson. In an internal memo on March 12, 2007, Goldman said it would “leverage ACA’s credibility and franchise” to help distribute the transaction, the SEC said.

Paulson, Tourre and a representative from ACA met in February 2007 to discuss assets that would be included in the residential-mortgage backed security, the SEC said. While Paulson and Tourre knew Paulson intended to short the security, ACA wasn’t in the loop.

“I am at this ACA meeting,” Tourre wrote in an e-mail to an unidentified Goldman Sachs employee during the meeting. “This is surreal.”

Goldman’s ‘Extensive Disclosure’

Goldman Sachs also said that it lost more than $90 million because it had an investment in the deal, overwhelming the $15 million it made in fees. The firm said it provided “extensive disclosure” to IKB and ACA about the risk of the underlying mortgage securities. Goldman Sachs never told ACA that Paulson was going to be a “long” investor in Abacus, and ACA selected the underlying securities, the firm said.



《博客主的建议》

建议高盛邀请香港金管局和证监会为他们辩护.

香港金管局和證監會會說：
合成 CDO "Abacus" 有 AAA的評級，不需要多講其它，風險披露也講了“本產品不保本”，這就是足夠的風險披露了, 就是［“vital information" about the CDO］了，不需要披露其它甚麼 ［“vital information" about the CDO］， 況且買家（投資者）是專業機構投資者。
看看我们香港的银行散户是什么水平。银行，雷曼亚洲以及有关的人员和机构都是只要跟散户讲雷曼迷债／星展Constellation Notes /大摩精明债券是 ’跟几个著名公司信贷挂钩，本产品不保本。抵押品是 AAA的評級‘ 就足够了！ 根本不需要解释产品的抵押品的实质，特征以及具体详情呢！抵押品实为跟100多个公司信贷挂钩以及挂钩公司的信息都是多余，是不需要的信息！

什么是 “vital information" about 雷曼迷债／星展Constellation Notes /大摩精明债券？ ‘ ’跟几个著名公司信贷挂钩，本产品不保本。’就是 “vital information" ！

我们香港的银行散户就都会完全明白这雷曼迷债／星展Constellation Notes /大摩精明债券的真实特征和重大风险了。



Related reading:
SEC Sues Goldman Sachs, Alleging Fraud in CDO Tied to Subprime