![]() Alternatively, synthetic CDOs gain credit exposure to a portfolio of fixed-income assets through the use of credit default swaps. The primary difference between the two is that a synthetic CDO does not own the underlying assets. ![]() A synthetic CDO is similar to a traditional cash CDO. Thus, junior tranches offer higher coupon payments (and interest rates) or lower prices to compensate for additional default risk. Interest and principal payments are made in order of seniority. CDO securities are split into different risk classes, or tranches, whereby “senior” tranches are considered the safest. Collateralized debt obligations are a type of security whose value and payments are derived from a portfolio of underlying ( fixed-income) assets. Goldman Sachs case were comprised of subprime mortgages. Residential mortgage-backed securities are commonly issued bonds that are backed by pools of residential real estate mortgages. Residential Mortgage-Backed Securities (RMBS).However, some wonder if the instruments are too complex for such investors to fully understand their potential downside risks. Typically, investors who buy or sell these types of products are considered highly sophisticated. The following three highly complex financial instruments were leveraged by Goldman and Paulson & Co. IKB was a valuable client of Goldman Sachs and had invested in several of Goldman’s CDOs prior to 2007. The SEC asserts that IKB was on the wrong side of the Goldman ABACUS CDO deal, resulting in losses estimated at $150 million. IKB was bailed out in August 2007 because of the massive losses it sustained from the subprime market meltdown. A bank based in Dusseldorf, Germany, that specializes in lending to small and medium-sized companies. The firm is currently operating as a run-off financial guaranty insurance company. Its parent company, ACA Capital, fell under financial distress and eventually failed in late 2007. ![]() It is estimated that ACA lost approximately $900 million due to its position in the ABACUS deal. for the 2007 ABACUS deal in an effort to lend credibility for marketing purposes. ACA was chosen as the Portfolio Selection Agent by Goldman, Sachs & Co. A former well-known manager of collateralized debt obligations (CDOs) in the financial markets. He bet against the ABACUS CDO and netted approximately $1 billion in doing so. At the time of the case, Paulson was known for his pessimistic outlook of the mortgage industry. A New York-based hedge fund founded in 1994 by John A. The SEC has the authority to bring civil enforcement actions against individuals or companies alleged to have violated the securities law. A federal agency that acts as the primary enforcer of federal securities laws and regulates the securities industry, the nation’s stock exchanges, and other electronic securities markets in the United States. The Securities and Exchange Commision (SEC).Goldman’s credo is they “bring together people, capital and ideas to produce solutions and results for clients by playing a number of roles: financial advisor, lender, investor and asset manager.” Among other things, Goldman has become known for its advisory services and proprietary trading. A prominent global investment banking and securities firm founded in 1869 and located in the heart of Wall Street. The central players in the Goldman Sachs ABACUS deal in 2007 include the following: Goldman Sachs case, which was settled in the summer of 2010. The following is a description of the parties, financial instruments, sequence of events, and transactions in The SEC vs. Applying virtue ethics: the Rajat Gupta case.Applying Utilitarianism: Are Insider Trading and the Bailout of GM Ethical?.Early Roots of the Western Moral Tradition.Episode 3: Issue Spotting and Problem Solving.Episode 1: Financial Ethics, the Performance Enhancer.Seven Pillars Institute’s Financial Ethics Training Video Series: Ethics in Finance is Good!.Author Guidelines and Article Submission.Codes of Ethics for Financial Institutions.
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