Did "hedge everything" policy push Goldman into a bad deal?

Ed Grebeck, CEO of Tempus Advisors had an engrossing news to deal that haw be relevant to the past Sober Look post on the nihilist - Buffett transaction:

1999: metallic price declining and volatile. GS approached me [Employers Re., a subsidiary of GE capital] with a dealings to inclose their danger to 3 metallic mines [These firms had oversubscribed metallic nervy to nihilist to inclose their metallic production]: Ashanti [Ghana; mostly owned by Anglo-American], digit in Indonesia [previously part of OK Tedi Gold/copper mine] and another in Southeast aggregation that escapes my memory. One of the threesome was fringe BBB/BB. Other two were solidified B. These firms also had significant "emerging market" assign issues every around, and CDS in much markets would've outlay mega bps.

Trying to come the counterparty venture on the nervy contracts, GS came up with a solution: number crunch "joint quantity of default" into polysynthetic (structured finance) tranche exposure. "We want you to sell endorsement on MEZZ TRANCHE... which as you can see from our painstakingly researched model is... solidified BBB"... our pricing is "standard for BBB, nonnegative [small, almost infinitesimal] premium".

Goldman wanted to buy endorsement on these firms, but to make it cheaper, wanted endorsement for losses above a certain level on the portfolio of the threesome obloquy (a mezz tranche CDS). And they were pricing it supported on where accepted BBB levels were at the time.

Ed Grebeck continues:

No earnest name of "liquidity... hedging ourselves"... another than "we [GS] don't nous if you reinsure yourself ... of course, we can help YOU inclose in cap mkts".

I unloved unqualified -- but I'm trusty another P&C Re "convergence operations"... AIGFP (as substantially as another competitive silos within AIG), land Re, city Re, obloquy not in playing today-- ACEFS, St. Apostle Re, Gerling Global, Centre etc etc ... jumped at chance to "write payment for GS".

IF GS venture management went Norse 1999 over relatively small counterparty danger to physical metallic producers, imagine what they staleness hit thought in the summer of 2008, when they saw HUGE, UNCOLLATERALIZED danger on 10 year + S&P index to county Hathaway

The conclusion here is that with Goldman's focus on hedging every their exposures (based on internal policies), they staleness hit been fearless to intend some money discover of Buffett to turn their apace ascension county venture (as the puts went unfathomable into the money). It is thence likely that Buffett was healthy to push nihilist into a dealings that was significantly inclined in his favor - not meet because nihilist needed additional justness capital, but because they had to turn their county exposure. This in fact provides additional support to a theory that Buffett took nihilist for a ride using his money losing brief place positions as negotiating leverage.



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