I can remember when I first learned that Goldman Sachs was pumping CDO's to its clients while, at the same time their proprietary investment department was Selling or Shorting the same instruments. I was appalled at the breach of fiduciary responsibilty. How naive I was-every one was doing it. It's just that I and millions of other poor suckers (read small retail investors) had no idea that our brokers were playing with marked cards.
Here's a juicy quote from Mark Mitchell at deep Capture. Musko
An example of a particularly sordid scheme, orchestrated by hedge fund billionaire John Paulson, was discovered some time ago by David Fiderer, a blogger for the Huffington Post. The information in Fiderer’s blog is rather incriminating, and, of course, the mainstream media is not on the case, so I think it bears repeating.
In a close reading of Wall Street Journal Gregory Zuckerman’s book, “The Greatest Trade Ever”, an otherwise starry-eyed account of Paulson’s bets against the mortgage market, Fiderer discovered this nugget:
“Paulson and [partner Paolo Pellegrini] were eager to find ways to expand their wager against risky mortgages. Accumulating it in the market sometimes proved to be a slow process. So they made appointments with bankers at Bear Stearns, Deutsche Bank (NYSE:DB), Goldman Sachs (NYSE:GS), and other banks to ask if they would create CDOs that Paulson & Co. could essentially bet against.”
As Fiderer explains, Paulson asked the banks to create those CDOs “so that they could be sold to some suckers at close to par. That way, Paulson’s hedge fund could approach some other sucker who would sell an insurance policy, or credit default swap, on the newly minted CDOs. Bear, Deutsche and Goldman knew perfectly well what Paulson’s motivation was. He made no secret of his belief that the CDOs subordinate claims on the mortgage collateral were close to worthless. By the time others have figured out the fatal flaws in these securities which had been ignored by the rating agencies, Paulson could collect up to $5 billion.[/b][/u]
We average retail investors are on the outside, just like poor kids with our noses pressed against the window of a beautiful department store window display. MuskoHappy Trading, but watch your back.
http://www.deepcapture.com/category/djr/
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