Goldman CDOs at the Caymans

Did you know CDOs are actually issued by Special Purpose Vehicles, often incorporated in tax havens like the Cayman Islands?

Tax Justice wrote up a great overview post:

In the much-publicised fraud case involving a lawsuit filed by the Securities and Exchange Commission against Goldman Sachs, it is absolutely no surprise to us to find that this deal, known as Abacus 2007-AC1, involves:

Issuer: Abacus 2007-AC1, Ltd., Incorporated with limited liability in the Cayman Islands
Co-Issuer: Abacus 2007-AC1, Ltd., Incorporated with limited liability in Delaware.

Were you aware that special purpose vehicles (SPV) were routinely created in the Caymans?

As Tax Justice cites, McClatchy wrote up a detailed article on Goldman Sachs offshore deals:

McClatchy has obtained previously undisclosed documents that provide a closer look at the shadowy $1.3 trillion market since 2002 for complex offshore deals, which Chicago financial consultant and frequent Goldman critic Janet Tavakoli said at times met "every definition of a Ponzi scheme."

The documents include the offering circulars for 40 of Goldman's estimated 148 deals in the Cayman Islands over a seven-year period, including a dozen of its more exotic transactions tied to mortgages and consumer loans that it marketed in 2006 and 2007, at the crest of the booming market for subprime mortgages to marginally qualified borrowers.

How common is it to create SPVs to isolate and shield from everything under the sun including liability? Extremely. Recall Enron used SPVs to hide their losses. Just Google SPV and Cayman and you'll see what I mean.

Would it amuse you, in a gallows humor laugh, to know the very first CDO was created, in 1987, by a Savings & Loan which subsequently went bust and taken over by the S&L crisis Resolution Trust Corporation?

Would it scare you to know Delaware is considered more of a tax haven than the Caymans?

Each state, nation have their own laws, their own regulations. Countries which make it plain impossible to discover fraud or sue or even how much money is present are labeled tax havens. So, it's not just about avoiding taxes, it can also be about avoiding lawsuits, discovery, transparency...just about anything you want to hide.

So, as tax justice notes, maybe, just maybe one needs to address the tax haven status of many of these types of deals and stop that as well.

From the GAO:

The Cayman Islands is a major offshore financial center and the registered home of thousands of corporations and financial entities. Financial activity in the Cayman Islands is measured in the trillions of dollars annually. One Cayman building--Ugland House--has been the subject of public attention as the listed address of thousands of companies. To help Congress better understand the nature of U.S. persons' business activities in the Cayman Islands, GAO was asked to study (1) the nature and extent of U.S. persons' involvement with Ugland House registered entities and the nature of such business; (2) the reasons why U.S. persons conduct business in the Cayman Islands; (3) information available to the U.S. government regarding U.S. persons' Cayman activities; and (4) the U.S. government's compliance and enforcement efforts. GAO interviewed U.S. and Cayman government officials and representatives of the law firm housed in Ugland House, and reviewed relevant documents.

The sole occupant of Ugland House is Maples and Calder, a law firm and company-services provider that serves as registered office for the 18,857 entities it created as of March 2008, on behalf of a largely international clientele. According to Maples partners, about 5 percent of these entities were wholly U.S.-owned and 40 to 50 percent had a U.S. billing address. Ugland House registered entities included investment funds, structured-finance vehicles, and entities associated with other corporate activities. Gaining business advantages, such as facilitating U.S.-foreign transactions or minimizing taxes, are key reasons for U.S. persons' financial activity in the Cayman Islands. The Cayman Islands' reputation as a stable, business-friendly environment with a sound legal infrastructure also attracts business. This activity is typically legal, such as when pension funds and other U.S. tax-exempt entities invest in Cayman hedge funds to maximize their return by minimizing U.S. taxes.

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Goldman doubles profits


earnings jumped 91 percent to $3.46 billion, or $5.59 a share

Anyone care to analyze where those came from, should be interesting.

Goldman - The Hand is quicker than the Eye

Just before the Tsunami, a recruiter half my age wanted to know if I wanted a spot with Goldman, I declined and he rotated the conversation to Silicon Alley. The recruiter wanted to know what I knew about short selling and derivatives.

The 101 Course on Short Selling and Derivates needs to go out to the media soon. As a Hedge Fund, I get my CMOs from Hank Paulson's fund, don't let anyone know. I take a naked short against the CMOs in the Hedge Fund. A short means that I sell a security I do not own. I am liable for the value of the security at the time of the short sale. If the value of the CMO basket declines, my profit is equal to the difference between the value of the CMO and short sale debt I owe to my broker. If the CMO value increases, I have a loss equal to the difference in value of the security and the original short sale liability in my account. SEC reviewed that prospectus between AMC and Goldman and did not find disclosure of the Hedge Fund position. These facts are alleged.

SEC Acts going back to 1933-34 are "clear". You must disclose any facts which may be material to an informed reasonable investor. Let me know when you find one. But AMC will be considered informed and even knowledgeable. So AMC should be entitled to the facts of Goldman's hedge fund position. Even if the investor throws the prospectus in the trash and never reads it, the plaintiff lawyers will jump on the absence of disclosure. Again, all this assumes facts 'not held in evidence' as they say.

Key here is that the Hedge Fund transaction precedes. The transaction hand is quicker than the eye of disclosure. Maybe Goldman wrote the prospectus first, and never knew or bothered to ask? Blankfeind was personally involved with Tourre in the details of all the housing paper according to NYT.


Burton Leed

you mean in software?

Writing a Flash transaction platform to take these "can't lose" bets?

Did you mean John Paulson? i.e. work for a hedge fund writing proprietary "trading platforms", or architecting out the actual trades?

Also, CMO for the 3 letter mnemonic disabled, means credit mortgage obligation.

On the Cayman's piece, that was one of the "features", is writing disclosures and prospectuses so long, so abstruse, so dinky tiny print and oops, we left out a few things, such as the damn CDO is rigged like loaded dice, is aok with those national laws. Another "offshore feature" to "attract capital and business".

Yes, John Paulson, not Henry

Yes, John Paulson, not Henry Poulson and CDO as the vehicle
funding the mortgage pool. Before the pooling of mortgages
banks found money from any source wherever.

Burton Leed

to make u feel better

when I first wrong up the GS Fraud, I made the same mistake, but so did almost all of the first news reports from the media! easy to do, we're so used to typing Hank.