Well, rhetorically, at least. This Goldman press release argues it was all ACA’s fault. No explanation for the email traffic indicating Goldman itself thought the role of Paulson & Co., the hedge fund that initiated the transaction at issue and wanted to short the underlying mortgage securities, was peculiar.
One way of thinking about the alleged (we have to keep in mind that Goldman deserves its day in court) behavior of Goldman Sachs is to imagine that they offer investors an opportunity to invest with a very well respected real estate investor like Sam Zell. They tell potential investors that buying shares in Zellco gives them the chance to ride along in the real estate market and benefit from the widely known acumen of Mr. Zell.
But it turns out that Zell was not the individual who was really picking the real estate for Zellco. Instead Richard Hell was picking the securities and he was really interested in shorting the stock of Zellco so he picks really bad investments.
If Goldman misled investors into thinking it was Zell not Hell who running the show at Zellco they could be in trouble.
But this scenario presumes that the investment opportunities picked by Zellco were not made prior to the sale of stock in the company. The equivalent in the world of CDOs are what is known as actively managed vehicles where the portfolio manager’s role was more than ministerial because the underlying mortgage backed securities are adjusted from time to time.
Goldman argues that its manager for the ABACUS deal, ACA, had final say on the selection of mortgage securities in the vehicle and it appears from descriptions I’ve seen that once that selection was made there were no changes. At that point ACA’s role was ministerial, by and large.
So the question that remains is whether or not it was appropriate for investors like IKB, the German bank that lost money on the deal, to rely on the selection made by ACA when they bought the deal or did they have an independent obligation to analyze the portfolio themselves. Clearly if it were actively managed there would be no opportunity to do so – it would be a moving vehicle subject to ACA oversight. But if the reference portfolio were fixed at the outset then one argument might be that IKD could have examined the mortgage securities themselves to see if their value would hold up.