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John Paulson, Goldman Sachs and Abacus 2007 AC1 - Term Paper Example

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John Paulson, Goldman Sachs and Abacus 2007 AC1

The bonds were so risky and this could be witnessed in their rating of “BBB,” this could be translated that incase there was a collapse such bonds could feel the most of the pinch. Due to imperfect information Goldman comes in with the knowledge of a German bank which is in the position of buying the risk that Paulson is exposed to as Paulson looks for a short. This bank is only able to buy the securities if the if they can be introduced by an external party. Goldman is still having the information that not every manager would not be willing to work with Paulson; this is because of the risk exposure and public complaint directed towards Paulson. With all this information, Goldman approaches ACA management bank for insurance brokerage. Successfully the bank accepts be become the manager in the deal of which it would assist Paulson in the selection of securities (Cohan and William, 27). By February 2007 Paulson had reached an agreement after working on a portfolio, they signed the agreement the same year. Gold man being behind all these does not reveal any information to anyone about the involvement of ACA and Paulson in the deal and the deal therefore remains a secret. The information that Paulson is engaged in an insider trading hence is shorting the securities also remains a mystery. Goldman had vast information including hat Paulson is planning to hold the riskiest of all the securities of ACA is also aware of, all these are based on the complaints presented (Cohan and William, 123). Gold man swiftly puts together a deal branded as ‘Collateral Debt Obligation”, this deal is designed with a major objective of enabling Paulson to receive the exposure to the extent which they want it. In addition, the deal also coves the extent of IKB’s risk exposure extent is reached. In following of this, IKB takes a share of the deal of $150 million and this is the extent of risk to which it is exposed, another firm takes a risk up to $909 million. Both of the forms buy a protection to the extent of its exposure. Even after knowing the extent to which other firms are exposed to risks, Goldman did not bring to the open the extent to which Paulson is exposed to risk and that he is shorting over $1 billion of the securities. Out of this transactions Goldman receives a fee of $15 million in form of fees. A month later, IKB makes a loss of almost all its investments of $150 million and much into the year ABN was acquired by a series of banks in Scotland. The Scottish bank unwinds ABN’s position by paying Goldman $840 million and he relinquished the firm’s position in ABACUS. Out of all these amount most of it goes to Paulson who made closer to $1 billion out of the deal. Goldman sachs is a titan in the in the wall street which gained much in the mortgage crisis through deception of clients selling them mortgage securities that John Paulson’s firm designed. John Paulson made a kill out of the deal. The Security Exchange Commission (SEC) convicted Goldman who fiercely denied having engaged in insider trading. The suit by SEC had political impact where it strengthened the position of President Barack Obama in his fight for financial overhaul, which had the objective of bringing derivative under control. The financial regulators accused Goldman to have allowed Paulson’s firm to design an investment called the CDO, which built an asset, it was headed to collapse, and that they were aware, Paulson with all the information bet ...Show more


Date John Paulson, Goldman Sachs, and Abacus 2007 AC1 The issue at stake is that of Gold man and abacus 2007 AC1 deal. Paulson and Goldman entered into together with others for speculation purposes this deal. This was at the verge of the looming financial crisis that largely hit the mortgage industry…
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John Paulson, Goldman Sachs and Abacus 2007 AC1 essay example
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