News that Goldman is being sued by the SEC this morning reminded me of a blog post I did last November.
As I reflected on all the ways you could be screwed in the CDO market, I marveled at how the boys at Goldman seemed to have invented new ones.
It was a real stroll down memory lane.
After all, Goldman was, to my knowledge, the only major issuer of private-label MBS deals that put loans into their deals that were already 60 days delinquent in the second or third month those loans existed. And that was on simple “plain vanilla” MBS securitizations pumped out under names like GSAMP, AKA Goldman Sachs Alternative Mortgage Products.
Is it just me, or do most people think that a mortgage that never gets a monthly payment might have been fraudulent in the first place?
Am I out of line for thinking that the dealer whose name is on the front cover, who delivered the loans into the deal and took my money, should make the investor whole or substitute a similar loan where at least the borrower was current on their payments when the loan transferred into the deal?
Even the much-maligned private company issuers like New Century, Novastar or Ameriquest never went that far.
But synthetic CDO’s — now those were born to be complicated.
The Abacus deals had a very unusual manager option built into them — the ability to choose to pay subordinated bonds early, while leaving senior bonds outstanding. I can’t tell you where this option appeared, because my exposure to that deal was very brief when it came out. I saw that it was a kennel (filled with dogs), and didn’t spend any more synapses on it.
The anti-reform crowd will no doubt take this as some kind of cynical manipulation, since it’s hitting as the debate over reform heats up on the Senate floor. Traders that see manipulators behind every tree have already suggested that maybe Goldman owns April puts or sold calls on their own stock, since the April $160 calls were sold yesterday near $25, and now they’ve fallen to $3. Even better were the $170 puts, that closed yesterday at five cents, and now trade over $8.
Some are even suggesting that this is the signal for the bear market to start its destructive thing all over again, with the most paranoid among these poor suffering bears thinking this is happening because Greece didn’t work.
I’ll take it as a sign that Matt Taibbi is getting more than a few followers after he tagged Goldman with the memorable “vampire squid” appellation. Just goes to show that even the Bible of Rock ‘n Roll can be a platform for business news.
What will be the outcome?
Like the famous vaudeville routine Hitchcock immortalized in North by Northwest, at some point someone at Goldman will step in and suggest that Blankfein “pay the two dollars.”