The most amazing true confession of a derivatives trader, aptly titled Legerdemath, confirms what we know. Banksters pushed their derivatives to make profits for themselves and fooled their customers with some highfalutin' math, three letter mnemonics and outright fraud.
Our clients were non-financial corporations, the Deltas and Verizons of the world, which relied on us for advice and education. Our directive was “to help companies decrease and manage their risks.” Often we did just that. And often we advised clients to execute trades solely because they presented opportunities for us to profit. In either case, whenever possible we used our superior knowledge to manipulate the pricing of the trade in our favor.
The grand prestigious employer? Citigroup. The fictional pricing that anyone with a solid Bachelors in mathematics could figure out? Interest-rate swaps and Treasury-rate locks.
I never heard this arrangement described as a conflict of interest. I learned to think we were simply smarter than the client. For unsophisticated clients, being smarter meant quoting padded rates. For the rest, a bit of “legerdemath” was required. Most brazenly, we taught clients phony math that involved settling Treasury-rate locks by referencing Treasury yields rather than prices.
The FCIC now says it's considering sending in outside accountants to audit Goldman's systems for data on its derivatives business, the Financial Times reports.
“I’ve been talking to lawyers and rival CEOs just trying to ballpark it at this point…there is no number, but people are ball parking, and these are CEOs and lawyers, between $1 and $5 Billion.
I still do not get it!!.
What is meant by a Synthetic CDO short position?
(1)- Selling the security of the CDO.
(2)- selling insurance on the referenced Synthetic CDO mortgages?
In Other words,
How did IKB ( the German bank) lose that One Billion$ in the Abacus deal?! Did they sell insurance to Paluson?
It's almost a certainty that there will be a settlement," said a source.
As another person put it, the SEC has an "unlimited supply of ammunition" in the form of e-mails and records that it could release, and Goldman officials would like to avoid having those documents fired back at them the way they were on Tuesday.
For those of you who have not picked up Yves Smith's book, ECONned, perhaps you've never heard of the Magnetar Trade.
In the wake of the Goldman Sachs civil fraud charge, Journalists and Bloggers are wondering and hoping where the next investigative shoe will drop. Hence, the Magnetar fund, a hedge fund of synthetic CDOs, where buttloads of CDS bets were placed against them, is being revisited.
Now the world is awash in Goldman Sachs stories. If you have no idea what they are talking about. Credit Slips explains an Abacus CDO in English (semi):
A CDO is more or less a hedge fund. It's an actively managed, unregulated investment fund. The assets can be anything. In the case of the Abacus 2007-ACA deal, the assets were a portfolio of credit default swaps (CDS). The Abacus CDO was the securitization of a bunch of CDS positions (if it has cash flow, it can be securitized).
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