FRM: Goldman Sachs Abacus SCDO
A review of the Goldman Sachs Abacus SCDO transaction. Study notes:
1. it’s a “synthetic CDO” b/c the SPV writes CDS to Paulson (instead of buying mortgages from an originator, such a “true sale” implies a cash CDO).
2. It is “partially funded” b/c notes were sold to investors for only the 21/45 AAA tranche. That is, the unsold lower tranches provide credit enhancement but nobody win/loses (if only modest defaults on underlying RMBS, then Paulson loses premiums and investors profit by keeping their extra yield); the SS tranches are referenced in a bilateral transaction that is not part of the SPV (and, as i say in the video, this is great illustration of pure derivative: anybody can make a side bet…just happens to be a side bet on the SS)
For more financial risk videos, visit our website! http://www.bionicturtle.com