Accused Goldman Sachs Exec Crowed Of Pending 'Collapse'

[Whomp]

Today, some of you have heard about the SEC's allegations of fraud against Goldman Sachs and 31 year old Goldman exec Fabrice Tourre.

It's looks like "Fab" is not so fab. In fact, I would say "epic Fab fail".
You really have to wonder what our elite institutions are doing. "Fab" was a 2000 graduate of Ecole Centrale Paris with a bachelor's degree in mathematics, followed by a 2001 master's degree in operations research from Stanford University.

By Joseph Checkler
Of DOW JONES NEWSWIRES

NEW YORK -- Fabrice Tourre, the Goldman Sachs (GS) executive accused by the Securities and Exchange Commission of making misleading statements about toxic investments, had a grandiose view of his own position in the financial system, according to emails the SEC said he wrote.

An email by Tourre, according to the SEC's complaint against him and Goldman Sachs, proclaimed, "More and more leverage in the system. The whole building is about to collapse anytime now...Only potential survivor, the fabulous Fab(rice Tourre)...standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!!" (Sic)

That email was sent to a friend of Tourre's, according to the SEC complaint.

His department was also of the view that CDOs were in terrible shape, according to the SEC. A Feb. 11, 2007 email that the complaint says was sent to Tourre by the head of Goldman Sachs' structured production correlation trading desk allegedly said, "the cdo biz is dead we don't have a lot of time left."

The SEC said Goldman Sachs and Tourre misled investors about a synthetic collateralized debt obligation, or CDO, that hinged on the performance of subprime residential mortgage-backed securities.

Goldman Sachs said in a release, "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."

Tourre didn't immediately respond to a request for comment.

The CDO, called ABACUS 2007-AC1, was structured and marketed by Goldman in early 2007 when the U.S. housing market and related securities were beginning to show signs of distress, the SEC complaint said.

According to the SEC, Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that John Paulson, a major hedge fund manager, played in the portfolio selection process, and the fact that the hedge fund had taken a short position against the CDO. Neither Paulson nor his hedge fund company were named as defendants in the SEC complaint.

The complaint said it seeks unspecified monetary penalties against Goldman and Tourre, and seeks an order that they "disgorge all illegal profits they obtained as a result of their fraudulent misconduct."

 

[illram]

I am slightly alarmed that Mr. Tourre writes emails like a 15 year old text messaging.

 

[Cutlass]

I'm more than slightly alarmed that anyone like this could get into a possition of authority anywhere in the world.

 

[stormbind]

The shares of Goldman Sachs, the investment bank that likens itself to God, dropped by 12.75% today. Its going to take a long time for the SEC and Goldman Sachs to call a ceasefire and neither side can afford to back down.

Meanwhile, those shares are not going to recover - who is going to invest in an embattled bank following recent historical events at Lehman Brothers and other former- banking superstars? Could this be the end of the self-proclaimed institutional God?

It's their arrogance that has made me dislike that particular bank. How can I bet against Goldman Sachs? I can very easily bet against the index, I have never actually understood how to partake in betting against a firm and nor do I understand how it generates a return - although I have seen that it clearly does. Could someone show me.... puhlease! Or, if you know, can you show me the maths because I would love to understand it

 

[warpus]

I'm more than slightly alarmed that anyone like this could get into a possition of authority anywhere in the world.

Moving up in the world is usually not a question of your abilities but rather who you know, and how many people you blew & how frequently.

 

[Cutlass]

Moving up in the world is usually not a question of your abilities but rather who you know, and how many people you blew & how frequently.

I'm well aware of that. But you think the people at the top would have better taste about who they sponsor.

 

[Whomp]

The shares of Goldman Sachs, the investment bank that likens itself to God, had its shares drop by 12.75% today. Its going to take a long time for the SEC and Goldman Sachs to call a ceasefire and neither side can afford to back down.

Meanwhile, those shares are not going to recover - who is going to invest in an embattled bank following recent historical events at Lehman Brothers and other former- banking superstars? Could this be the end of the self-proclaimed institutional God?

What's a hedge funds alternative prime lender? Most of the prime lenders are gone or severely reduced. It's a hugely profitable business for Goldman, JP Morgan and Morgan Stanley. I doubt they'll all move to the other two.

Like UBS, they'll see assets leave the firm but I doubt it will destroy the organization. I would say their customers will demand less proprietary and insular architecture for clients.

I'm more than slightly alarmed that anyone like this could get into a possition of authority anywhere in the world.

But, but he went to two of the most elite universities in the world. I think we're consistently seeing the negative impact of how these universities are not creating thinkers.

 

[stormbind]

Actually, the clients will probably demand transparency above all else. However, transparency is precisely what Goldman Sachs is fighting against! In fact, Goldman Sachs' moral defense in its argument with SEC is that transparency is not required!!

On Hedge Funds - they are opportunistic, and they exist precisely because they do not need a lender. They might need a market maker, which is not quite the same as a lender. Some exchanges ban market makers.

 

[Cutlass]

But, but he went to two of the most elite universities in the world. I think we're consistently seeing the negative impact of how these universities are not creating thinkers.

Or more that they are creating group think.

 

[stormbind]

Or more that they are creating group think.

Well... it is better for the individual to fail with everyone else, than to fail alone

 

[Whomp]

Hedge Funds are opportunistic, and Hedge Funds exist precisely because they do not need a lender.

They might need a market maker, which is not quite the same as a lender.

They most certainly need a prime broker. Leverage is a very big part of the hedge fund market.

Prime brokers also offer clearing, custody, securities based lending, technology, operational support, new client introductions, risk mgmt. tools and consulting. It just so happens that Goldman is the best in the market at this so I doubt their biggest hedge fund clients really care.

Anyhow, this is not a balance sheet issue like Lehman and Bear it's a client trust issue. I think they'll lose some relationships and a lot of structured product business to their competitors but I would not expect it to destroy the firm.

 

[Bill3000]

...monstruosities?

 

[Cutlass]

...monstruosities?

The guy is clearly a child pretending to be an adult because he's been given everything he ever wanted without having to work for it.

 

[stormbind]

@whomp. Granted, this is a trust issue and that is why Goldman Sachs cannot back down!

However, the ballance sheet issue was also a matter of trust. In fact, in banking, everything boils down to building relationships on trust, transparency and integrity. Goldman Sachs may not have had all three, and might now have none at all.

Well, their status as best is what is being debated. Goldman Sachs might have a reputation for making big profits, but its clients often do not!

I know about the services provided. Personally, I think a lot of those services should be handled by the clients' own software. Why outsource the management of critically sensitive data (aka intellectual property)?

 

[Whomp]

...monstruosities?

He's French so maybe we give him that he's not a native speaker? What I do know is he's "Fab" and likes to talk about himself in the 3rd person.

Granted, its a trust issue. However, so is the ballance sheet issue - it still boils down to trust. In fact, banking is all about building relationships on trust, transparency and integrity. Goldman Sachs may not have had all three, and might now have none at all.

Well, their status as best is what is being debated. Goldman Sachs might have a reputation for making big profits, but its clients often do not!

I know about the services provided. Personally, I think a lot of those services should be handled by the clients' own software.

I agree on the trust and services issue but I'm not sure some of their clients will leave based on something they didn't get involved in. Those that did, for sure, will take issue and leave.

On the balance sheet issue, I would disagree. Investment banks are in the "moving business" not the "storage business" and when they got caught storing bad inventory on their balance sheets they were annihilated.

 

[stormbind]

Ok.

What influence would share prices have on the performance of Goldman Sachs?

 

[I'm Cleo!]

But, but he went to two of the most elite universities in the world. I think we're consistently seeing the negative impact of how these universities are not creating thinkers.

We could be seeing where those two elite universities send their students who don't think. Cf.

Cleo

 

[FriendlyFire]

In 2007 Goldman Sachs created what is known as a "synthetic collateralized debt obligation," or CDO, called "ABACUS 2007-AC1," which we'll call Abacus. It was one of many.

Goldman invited its clients to invest in Abacus, explaining in marketing materials that the $2 billion CDO was based on 90 bonds derived from subprime mortgage loans made over the previous 18 months.

The Securities and Exchange Commission says this is where Goldman lied. According to the SEC's complaint, the underlying portfolio was put together by John Paulson, a hedge fund manager who hand-picked the worst possible assets in hopes that they would default

If people whose mortgages make up the bonds in Abacus keep up with their house payments, then folks who invest in Abacus -- typically banks, insurance companies, and pension fund managers -- will make money.

The Securities and Exchange Commission says this is where Goldman lied. According to the SEC's complaint, the underlying portfolio was put together by John Paulson, a hedge fund manager who hand-picked the worst possible assets in hopes that they would default

John Paulson picked those lousy underlying assets for the Abacus CDO so that he could bet against them by purchasing "credit default swaps" -- insurance policies that pay out if borrowers default.

Paulson's position is called "short." He set up a CDO that would be perfect to short (short is both a noun and a verb).

Within a year, 99 percent of the underlying assets in Abacus had been downgraded by ratings agencies, costing investors $1 billion and earning Paulson $1 billion

No wonder the whole market collapsed like a house of cards.

 

[Whomp]

Ok.

What influence would share prices have on the performance of Goldman Sachs?

Oh, don't get me wrong I'm not sure being long Goldman right now is a sound idea. I think, like UBS, they're going to lose business from this. Their salesmanship will severely tested over the coming months.

 

[Cheezy the Wiz]

Did anyone here think that CEO was more than a puppet, figurehead position? Seriously, this is essentially just a fall guy for the management-level decision makers.