Bank Says Losses Prove No Ill Intent
On Monday I posted questions about Goldman Sachs and the CDO that is now a household name: Abacus 2007-AC1. Specifically, I asked:
Why did Goldman lose $75 million on this trade, when its negative bets on the housing sector yielded a $4 billion profit during 2007?
Over the long term, there are no such thing as secrets. Over the long term, everything is transparent. And today, The New York Times provided a few clues about why Goldman lost $75 million when the bank knew mortgages were turning bad.
Hint: Maybe Goldman Sachs didn’t lose money. Here’s what The New York Times reports:
Goldman executives urged Mr. Tourre to sell that stake. And they urged his colleague, Jonathan M. Egol, who is not named in the case, to purchase large amounts of insurance that would pay off in the event that mortgage investments like the Abacus stake lost value. That insurance ultimately offset the losses that Goldman claims it suffered on Abacus 2007-AC1, several former Goldman employees said.
Goldman’s brand is shot if you ask me. These details make it look like the bank cultivated a poison fungus in its petri dish, pocketed $15 million in fees, and then washed its hands of the germy aftermath.
But that’s just my opinion. What do you think?
PS. I don’t think the entire story has been told. My guess is that the Tourre de Toxic, like this year’s Tour de France, will have 20 stages. The major difference is there are no real winners with “synthetic CDOs.”
The New York Times describes my novels as “money porn,” “a red-hot franchise,” and “glittery thrillers about fiscal malfeasance.” Through fiction I explore the dark side of money and the motivations of those who have it, want more, and will steamroll anybody who gets in their way.