Great piece by Matt Taibbi, which shows two important things. First, despite all the talk about the sophistication of the mathematical models behind the creation of derivatives, the whole thing was pretty trivial. According to Taibbi the infamous Timberwolf deal (the sh**ty one):
(...) was built on a satanic derivative structure called the CDO-squared. A normal CDO is a giant pool of loans that are chopped up and layered into different "tranches": the prime or AAA level, the BBB or "mezzanine" level, and finally the equity or "toxic waste" level. Banks had no trouble finding investors for the AAA pieces, which involve betting on the safest borrowers in the pool. And there were usually investors willing to make higher-odds bets on the crack addicts and no-documentation immigrants at the potentially lucrative bottom of the pool. But the unsexy BBB parts of the pool were hard to sell, and the banks didn't want to be stuck holding all of these risky pieces. So what did they do? They took all the extra unsold pieces, threw them in a big box, and repeated the original "tranching" process all over again. What originally were all BBB pieces were diced up and divided anew — and, presto, you suddenly had new AAA securities and new toxic-waste securities.The other thing, is that there is plenty of evidence in the Levin Report is more than enough to indite several managers at Goldman, in particular, Daniel Sparks, the head of the mortgage division, that lied under oath, when he claimed that they did not expect the securities that they were betting against were going to be downgraded.
PS: The original post was accidentally deleted by Blogger. The guy on top is Goldfinger, a lesser villain than the guys at Goldman.