The Guardian

Warren Buffett defends Goldman Sachs
The Guardian

The world’s third richest man, Warren Buffett, today declared that he saw nothing wrong in an allegedly fraudulent $1bn mortgage deal by Goldman Sachs and suggested that losers in the transaction, including Royal Bank of Scotland, had only themselves to blame for exercising « dumb » judgment.

The SEC’s case against Goldman centres on a 2007 mortgage derivatives deal named Abacus, struck by Fabrice Tourre, a banker now based in London. The SEC contends that Tourre failed to inform participants about the extent of involvement of a hedge fund, Paulson & Co, that had a short position betting on Abacus’s failure.

Within nine months, more than 99% of the mortgages referenced by Abacus were in default, leaving Royal Bank of Scotland’s Dutch subsidiary, ABN Amro, with an $840m bill as it had insured the derivative against failure.

Buffett was scornful of this loss, pointing out that ABN voluntarily agreed to insure Abacus for a fee of $1.6m. « It’s a little hard for me to get terribly sympathetic with the fact that a bank made a dumb credit deal. »