Goldman Sachs & Paulson … and a fixed “horse race”
According to what one saw on Bloomberg, Goldman Sachs (GS) advised their clients to buy CDO’s etc.. from ABACUS, a “special purpose vehicle” owned by GS.
GS also told their clients that an independent third party, ACA, had chosen what went into those CDO’s. They convinced ACA to let PAULSON advise them on what to put into ABACUS.
What PAULSON did was to advise ACA to fill ABACUS with the worst instruments.
So while PAULSON was now betting against the “junk” contents of ABACUS with GS, GS was simultaneously advising their clients to purchase the contents of ABACUS.
But GS and PAULSON were in collaboration regarding the contents of ABACUS, plus PAULSON’s intention to bet against it. And, needless to say, GS would also be getting a fair sized fee for playing their part as brokers.
At the end of the day the clients, not surprisingly, lost about $1billion and PAULSON, also not surprisingly, profited to the tune of about $1billion.
If you were the judge, would you say that GS acted in the best interests of their clients ?
I'd say that "CONFLICT OF INTEREST" is a Major Factor in this scenario.
According to Paddy Hirsch, in the following link ...
marketplace.publicradio.org
... it's a bit like a bookie (GS) and a gambler (PAULSON) teaming up to fix a horse race, and the horse is ABACUS and ACA is the stables. GS then advises ACA that the "trainer", PAULSON, will advise them as to how to get the horse in tip top shape to win the race.
The rest, as we’ve seen, is history. |
