Friday, July 16, 2010

Written by David Fiderer

The weaknesses in the S.E.C.’s case against Goldman were always obvious. At the end of the day, an investor who bought Abacus 2007 AC-1 was buying a static portfolio of risks. It didn’t matter who chose the underlying investments in the CDO, or whether John Paulson was destined to receive a windfall. If you were a sophisticated investor who had done his due diligence, you didn’t need to be told that the deal was designed to fail. You would have figured it out for yourself. If you actually reviewed the performance of mortgage backed securities held by the CDO, and understood how cash flow waterfalls and delinquency triggers worked, then you could see that subordinate tranches being insured for the benefit of Goldman were already worthless when the CDO closed. You could also figure out that the rating agencies had deliberately delayed announcing downgrades of the RMBS within the CDO, in order to keep the markets and the deal flow moving.

But the dirty little secret on Wall Street was that all too often, due diligence was a sham. People went through the motions without a thorough understanding of what they were doing, like kids who write a report by plagiarizing the encyclopedia. Investors saw triple-A ratings and stopped thinking. Goldman didn’t need to lie in order to sell “shitty deals.” It only needed to find a greater fool with an impressive resume at a multibillion-dollar institution who didn’t ask too many questions. And it was able to keep the scam going because all CDOs remain shrouded in secrecy to this day. The only people who can buy access to CDO performance data on ABSNet are actual investors, who are subject to nondisclosure agreements.

The risk to Goldman was that more of its dirty laundry would be exposed. As we learned David Viniar’s testimony before the Financial Crisis Inquiry Commission, the company remains in lockdown mode. And once again, the S.E.C. shows little appetite for digging deeper, especially since its new COO of the Enforcement Division is a 30-year-old kid from Goldman.

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CHIPPEWA PARTNERS, Native American Advisors, Inc. is a Registered Investment Advisor, founded by Dean Thomas Parisian in 1995. The firm is a manager to an exclusive clientele and is closed to new clients. As a Registered Investment Advisor, our expertise developed over 35 years balances experience, integrity and tremendous work ethic. Dean Parisian is a member at the White Earth Reservation of the Minnesota Chippewa Tribe, a former NYSE and FINRA arbitrator and trader who began his career with Kidder Peabody and later worked for Drexel Burnham Lambert in LaJolla, CA. His philanthropic interest is in Native American education and he's endowed a significant scholarship for Native Americans at the University of Minnesota. His greatest accomplishment includes raising two sons and 26 years of marriage. The Parisian family enjoys outdoor pursuits at Pamelot, their farm in Tennessee and at the Ghost Ranch, their ranch on the Yellowstone River in Montana. For media requests contact the firm via email: ChippewaPartners (at) gmail dot com, on Twitter: @DeanParisian. Global 404-202-8173