Financial Arson Watch III
Goldman Sachs accused of (civil) Financial Arson
I don’t want to bore readers so I’ll just mention, again, that this wouldn’t have been possible if cash settlement CDS were not allowed. In all other cases it is not legal to insure against a risk that one doesn’t bear. A simple law which says that Courts must consider all CDS contracts signed after May 1 2010 to be physical settlement CDS contracts if anyone seeks enforcement would eliminate the opportunity for the alleged fraud.
Since there were synthetic CDOs in the brew, I suspect that such a rule would result in someone figuring out how to generate the right synthetic instruments to allow the gamble. Never underestimate the creativity of the Banksters. Would that this creativity was put to a useful purpose, but… AFter all create an option on a CDO and would that qualify?
Without the cash settled CDS feature, the only losers would have been the investors in the RMBS backed by subprime loans. With the cash settled CDS feature, an additional loser was the CDS seller (which ultimately turned out to ABN/RBS).
ABN had the same information in 2007 as did Paulson, GS, S&P, etc.
And ABN apparently sold the protection on the ‘super senior tranche’ becuase it had a AAA rating. ABN also knew that the protection buyer didn’t own the collateral.
ABN thought they were getting a free lunch (getting paid premiums for taking on little or no risk).
You can’t legislate away greed and/or stupidity.
Why did Obama vote with Bush to bail them out? Mistake.
Just a proof that banksters will fall victim to schemese that look to good to be true as the rest of us. Perhaps we need to have banksters write on the blackboard 1000 times if its to good to be true it probably is. Free money is always to good to be true, look at the victims of the Ponzi schemes.