Designed to Fail

I’m sure by now you’ve heard that Goldman Sachs (NYSE:GS) has been indicted for fraud. Goldman is accused of creating securities that were designed to fail, so it and its hedge fund cronies could make billions in profits. Case in point: Abacus 2007-AC1. "Abacus" was a 23-part series of "synthetic collateralized debt obligations" that Goldman Sachs constructed and sold to supposedly sophisticated investors. According to Bloomberg, a "synthetic collateralized debt obligations" was a mixture of "…credit- default swaps (CDO), used to transfer the risk of losses on debt, and securitization, used to slice the risk in a pool of assets into various new securities." (We’ve discussed how the securitization process allowed good (prime) and bad (subprime) mortgages to be combined to create new securities that …
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