Goldman’s Self-Described ‘Shitty’ Timberwolf CDO Deal

FT.com has a must-read piece on one of Goldman’s disastrous sub-prime CDO deals.

Tom Montag, then a senior Goldman executive and now head of corporate and investment banking at Bank of America, was quoted as describing the deal in an e-mail as follows: ‘Boy that timeberwof (sic) was one shi**y (sic) deal,’  according to the Senate subcommittee.

The subcommittee said that Matthew Bieber, the Goldman trader responsible for managing the deal, later described the day that the Timberwolf security was issued as ‘a day that will live in infamy’, recalling the language President Franklin Roosevelt used for the Japanese attack against Pearl Harbor.

The $1 billion CDO was sold to a Bear Stearns owned hedge fund. It went on to lose 80% of its value in FIVE MONTHS — causing the hedge fund to liquidate and contributing to the demise of Bear (who was conveniently one of GS’ biggest competitors).

The Timberwolf CDO was a financial time bomb, not an investment product. And GS knew it. If nothing else comes out of this, it should be a big fat signal to anyone considering doing business with GS — don’t.

Bloomberg has more details. After saying, “Boy that timberwolf was one shitty deal”, Thomas Montag told the Senate panel today, “I didn’t use that term in respect to this deal”.

The balls on these guys are truly Randy-sized…

And for no specific reason other than my liking it:

New Jim Rogers Interview: Inflation, Gold, Silver, Oil, Fed

Nice Jim Rogers interview via Newsmax.tv. Rogers knows commodities and currencies like no other. And he actually says the Fed is a scam in public. Bueno.

Some of my favorite quotes from this interview:

On Equities: “Stocks will probably be O.K. for a while, with all this money floating around.”

On The $Dollar: “If you own U.S. dollars, you may find yourself losing money down the road… Longer term the U.S. dollar is a terribly flawed currency.”

On Oil: “The price of oil is going to stay very high. And in the future it’s going to go much higher”.

More Jim Rogers:

Blogger Reactions: Goldman Subprime Fraud

Commentary on the Goldman SEC fraud investigation from some of my favorite blogs:

Jesse: “This could be construed as a deft way of throwing red meat to the angry mob, nailing a specific individual at Goldman while limiting the criminal charges against the company although there will be significant civil cases, and dealing with the billionaire hedge fund owner Paulson who made a fortune betting against the subprime market.”

Zero Hedge #1: “Creamer has just come to the rescue of this former co-workers at Goldman, claiming a “source” has notified him that Goldman was “long” Abacus. Well, duh – that’s how structured finance works.”

Zero Hedge #2: “What will Buffet’s response be now that Goldman’s ‘ethics’ are exposed?”

Barry Ritholtz: “I’ve been racking my brain for the easiest way to get people to understand what GS did. The best I could come up with was Mel Brook’s “The Producers.” They purposefully tried to create the worst play ever, lose their investors money and pocket the proceeds.”

Mish: “While Goldman can claim it did not “know” anything, the statement rings as hollow as saying we do not “know” if the sun will come up tomorrow. Goldman is nothing more than a giant hedge fund that front runs trades and bets against advice it gives clients, with one important exception.

Yves Smith: “This is also interesting because Paulson appears not to have bought the CDS created to serve as collateral for the transaction, but instead shorted (via Goldman) some of the tranches. We’ve been told that shorting CDO tranches (as opposed to shorting BBB supbrime bonds) was pretty uncommon, but “pretty uncommon” may not be quite as rare as we had been told.”

Bill Black and Barry Ritholtz on Tech Ticker: “Rotten to the core”. Must watch.

Will post more as I come across them.

Current Rally in Perspective

The chart store gives us the gem of a chart below. At the 55 week mark, the current move ranks #27 out of 4,327 rallies since 1929.

Hat tip BR.

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