Abacus 2007-AC 1...OMG!!!! What is it?
Let me say first off that I'm no fan of the big investment banks (those still with us and those that expired in past few years). I did business with all of them over the years, and from day one had my hand on my wallet. And every time ( which is often) another Goldman employee is appointed to a high position in the government, my blood pressure rises a few basis points.
Still, at this early juncture, I have to say the SEC charges look like the beginning of a witch hunt; and for that reason it is scary. The SEC has an incentive to clear up some of its lack of oversight and can do that by deflecting attention to the investment banks.
Let me give a similar situation. From the 1980s on, the investment bankers created collateralized mortgage obligations. They did this by selecting mortgage-backed securities. Which did they pick? They picked the ones that they expected to pay down fast or slow, depending on their particular view of rates. Investors understood this and did their due diligence accordingly. Sometimes the investment banks won; sometimes they didn't.
As I understand it, Paulson, in helping Goldman pick the underlying sub-prime portion of the CDO, did not know for certain that the debt would fail. In fact, as we learned this week from Washington Mutual's testimony, a lot depended on government actions. They said they believe they would have survived if some of the rescue efforts steps would have been taken sooner.
Maybe Abacus 2007 - AC 1 would have turned out differently if the Federal Reserve hadn't jerked interest rates all around.
A lot of people want to get a piece of Goldman, including AIG. It could get nasty.
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