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| Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks |
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The rating agencies correctly attracted criticism for their role in offering a spurious security to investors in leveraged credit instruments. Their internal models were deeply flawed and agency officials proved to be easily manipulated by the investment bankers who structured trades.
The SEC suit over one of Goldman’s Abacus synthetic CDO trades shifted the focus to the external credit portfolio managers that were also played by bankers and some of their hedge fund clients, especially as the credit boom moved into its final stages.
The details of the SEC suit underline the sheer gullibility of many of the participants in the credit boom. Clear signs of problems in the US mortgage market by late 2006 led some credit investors to demand use of supposedly independent collateral managers in any new portfolio deals.
Goldman addressed this issue for the Abacus 2007-AC1 deal by lining up insurer ACA as both collateral manager and investor for a deal that also targeted IKB of Germany as a subscriber to its top-rated tranches.
