(4pages) - John Paulson, Goldman Sachs and Abacus 2007 AC1 - Term Paper Example

Due to imperfect information Goldman comes in with the knowledge of a German bank which is in the position of buying the risk that Paulson is exposed to as Paulson looks for a short. This bank is only able to buy the securities if the if they can be introduced by an external party. Goldman is still having the information that not every manager would not be willing to work with Paulson; this is because of the risk exposure and public complaint directed towards Paulson. With all this information, Goldman approaches ACA management bank for insurance brokerage.

Successfully the bank accepts be become the manager in the deal of which it would assist Paulson in the selection of securities (Cohan and William, 27). By February 2007 Paulson had reached an agreement after working on a portfolio, they signed the agreement the same year. Gold man being behind all these does not reveal any information to anyone about the involvement of ACA and Paulson in the deal and the deal therefore remains a secret. The information that Paulson is engaged in an insider trading hence is shorting the securities also remains a mystery.

Goldman had vast information including hat Paulson is planning to hold the riskiest of all the securities of ACA is also aware of, all these are based on the complaints presented (Cohan and William, 123). Gold man swiftly puts together a deal branded as ‘Collateral Debt Obligation”, this deal is designed with a major objective of enabling Paulson to receive the exposure to the extent which they want it. In addition, the deal also coves the extent of IKB’s risk exposure extent is reached.

In following of this, IKB takes a share of the deal of $150 million and this is the extent of risk to which it is exposed, another firm takes a risk up to $909 million. Both of the forms buy a protection to the extent of its