Thinking Close The Abacus Sign
The widely distributed - nay viral - pic of a miss carrying a sign referring to Abacus - the much litigated Goldman Sachs/Paulson/IKB bargain got me thinking.
Here is the sign for the modest discover of you lot that get got non seen the picture:
It says that "It's incorrect to practise a mortgage-backed safety filled alongside loans that you lot know are going to neglect together with thus that you lot tin sell it to a customer who isn't aware that you lot sabotaged it past times intentionally picking the misleadingly rated loans nearly probable to live on defaulted on".
I can't help simply grip except this is non what happened inwards the Abacus case. The Abacus safety was an entirely synthetic security. It was non filled alongside loans that were intentionally picked, it was loaded alongside derivatives that someone sentiment were nearly probable to live on defaulted on.
That is an of import distinction. If Goldman had created a safety filled alongside bad loans together with sold them in that location is no agency that the customer would live on able to travel out that someone was betting against the loans.
But that is non what happened. It was filled alongside derivatives where it was obvious that a financially sophisticated counter-party was taking the other side. Indeed what the safety was was the opposite side of a packet of bets against mortgage securities jump upwards past times Goldman Sachs together with the simplest agreement of it revealed that fact. Sure the buyer did non know it was Paulson taking the other side of the bet. (Indeed, given Paulson's latest run the fact that was Paulson neither adds nor subtracts from the illustration for buying or non buying the Abacus bundle.)
I mean value Goldman Sachs was done hither unfairly (although it is difficult to imagine it happening to to a greater extent than deserving people). Anyone who was financially sophisticated (and IKB for sure portrayed themselves every bit sophisticated) should get got realized in that location was an opposite side to that bet together with that someone had deliberately taken the opposite side alongside honor to every derivative inwards the bundle.
Now contrast this alongside what happens when I brand a brusque sale. I borrow a safety from a broker which is identical to whatever other safety alongside the same cusip number. I sell it inwards the market. The individual on the other side purchased a safety together with they get got no sentiment whether they purchased it from a long or a short.
People who purchase securities from me inwards the regular securities marketplace are at a disadvantage to IKB. IKB knew in that location was someone making the opposite bet. When nosotros brand coin brusque selling (and nosotros get got made plenty) the people who lose get got no agency of knowing that Bronte/John Hempton was on the other side of the bet.
I am (in part) a short-seller. I regularly motility to materials the marketplace alongside securities that are "intentionally picked" every bit "most probable to live on defaulted on".
Where is my sign?
John
Here is the sign for the modest discover of you lot that get got non seen the picture:
It says that "It's incorrect to practise a mortgage-backed safety filled alongside loans that you lot know are going to neglect together with thus that you lot tin sell it to a customer who isn't aware that you lot sabotaged it past times intentionally picking the misleadingly rated loans nearly probable to live on defaulted on".
I can't help simply grip except this is non what happened inwards the Abacus case. The Abacus safety was an entirely synthetic security. It was non filled alongside loans that were intentionally picked, it was loaded alongside derivatives that someone sentiment were nearly probable to live on defaulted on.
That is an of import distinction. If Goldman had created a safety filled alongside bad loans together with sold them in that location is no agency that the customer would live on able to travel out that someone was betting against the loans.
But that is non what happened. It was filled alongside derivatives where it was obvious that a financially sophisticated counter-party was taking the other side. Indeed what the safety was was the opposite side of a packet of bets against mortgage securities jump upwards past times Goldman Sachs together with the simplest agreement of it revealed that fact. Sure the buyer did non know it was Paulson taking the other side of the bet. (Indeed, given Paulson's latest run the fact that was Paulson neither adds nor subtracts from the illustration for buying or non buying the Abacus bundle.)
I mean value Goldman Sachs was done hither unfairly (although it is difficult to imagine it happening to to a greater extent than deserving people). Anyone who was financially sophisticated (and IKB for sure portrayed themselves every bit sophisticated) should get got realized in that location was an opposite side to that bet together with that someone had deliberately taken the opposite side alongside honor to every derivative inwards the bundle.
Now contrast this alongside what happens when I brand a brusque sale. I borrow a safety from a broker which is identical to whatever other safety alongside the same cusip number. I sell it inwards the market. The individual on the other side purchased a safety together with they get got no sentiment whether they purchased it from a long or a short.
People who purchase securities from me inwards the regular securities marketplace are at a disadvantage to IKB. IKB knew in that location was someone making the opposite bet. When nosotros brand coin brusque selling (and nosotros get got made plenty) the people who lose get got no agency of knowing that Bronte/John Hempton was on the other side of the bet.
I am (in part) a short-seller. I regularly motility to materials the marketplace alongside securities that are "intentionally picked" every bit "most probable to live on defaulted on".
Where is my sign?
John
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