1 6 7 11 aca capital holdings, inc.€¦ · 01/06/2011 · 1 1 2 3 4 5 6 7 8 financial crisis...

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8 FINANCIAL CRISIS INQUIRY COMMISSION

9 RECORDED INTERVIEW

10 LAURA SCHWARTZ

11 ACA CAPITAL HOLDINGS, INC.

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23 Job No.: 0163-194913

24 Volume 1 of 1

25 Transcribed by: Bonnie Panek

LAURA SCHWARTZ

CONDUCTED ON May 10, 2010

(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664

Merrill LAD

21 P R O C E E D I N G S

2 MR. SEEFER: Thank you both for coming in.

3 As Robin has probably told you, we're with the FCIC.

4 Let me give you the blurb we give everybody before we

5 get into the meat of the interview. We were

6 established by a statute passed last year to figure out

7 the causes of the financial crisis, and so we're trying

8 to do that.

9 That statute tells us to look at

10 securitization practices. It tells us to look at

11 derivatives. It tells us to look at every institution

12 that failed or would have failed but for the receipt of

13 government assistance. We know that ACA was involved

14 in managing and investing in synthetic CDOs. Of course

15 we know about the Abacus transaction with Goldman.

16 And Goldman was one of those institutions

17 that received exceptional government assistance, so

18 that's why we contacted ACA and that's why we contacted

19 you. So, you know, we want to talk to you generally

20 about ACA's business, but of course we want to talk to

21 you specifically about the 2007 AC-1 deal also.

22 But before we do that what I like to do with

23 everybody so I know who they are and what they are in

24 context, can you just give me your educational

25 background and a brief description of your work

LAURA SCHWARTZ


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Merrill LAD

31 background since college?

2 MS. SCHWARTZ: My name is Laura Schwartz. I

3 went to the University of Michigan, graduated from

4 there, and then went to NYU and got a master of

5 business administration from NYU. I started working at

6 New York Life Insurance in January of 1984. I started

7 in their real estate investment group and I spent 14

8 years, 14 and a half years at the New York Life

9 Insurance Company in lots of different investment

10 roles.

11 The roles started as making commercial

12 mortgage loans and eventually evolved into -- from my

13 job there, running their structured product portfolio

14 which was asset backed, commercial mortgage backed, all

15 of those, credit cards, autos, you know, all of those

16 kind of structured products. And I left New York Life

17 in 1998 and went to Merrill Lynch where I became a

18 banker of residential and commercial mortgage backed

19 securities.

20 I was at Merrill until 2002, July, August of

21 2002, and I joined ACA right after Labor Day in 2002

22 and worked at ACA to -- through September until the

23 beginning of October of 2007, so just over 5 years, and

24 since then I've worked in a sales and training

25 capacity, structured products, at a smaller regional

LAURA SCHWARTZ


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Merrill LAD

41 broker dealer.

2 MR. SEEFER: Okay. So when did you join New

3 York Life?

4 MS. SCHWARTZ: In 1984, February probably,

5 1984.

6 MR. SEEFER: And you were there till '98?

7 MS. SCHWARTZ: I was there till '98, then

8 Merrill from '98 to '02, and with ACA from '02 to '07.

9 MR. SEEFER: Okay. Can you give me a

10 general description of your job responsibilities at ACA

11 in that five-year time period?

12 MS. SCHWARTZ: When I was hired at ACA I was

13 hired to be the portfolio manager for the structured

14 products, CDO asset management business, primarily

15 focusing on their ABS CDOs. I was hired as the

16 portfolio manager for their ABS CDOs, and I worked

17 there for three years in that capacity running the

18 credit and portfolio management on the ABS CDOs.

19 And then I believe it was '05. It may have

20 been '04 now. I don't even remember. My boss at the

21 time left. I think it was probably '04, and I took

22 over her role, which I became head of the asset

23 management for all of our products which included asset

24 backed securities, corporate bonds and leveraged loans,

25 and I continued to run that and the credit team's

LAURA SCHWARTZ


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Merrill LAD

51 portfolio management and credit until probably 2006.

2 And in 2006 they separated credit from

3 portfolio management so that our credit could support

4 other areas of ACA as well, and I ran the asset

5 management business until I left in September or

6 October of 2007.

7 MR. SEEFER: Okay. So we know from some

8 documents that we've seen that you were involved in

9 selecting the collateral in that Abacus transaction.

10 Did your job responsibilities prior to 2006 when they

11 separated the credit portfolio management functions

12 involve that?

13 MS. SCHWARTZ: Well, I would have said it

14 slightly different. I was not in charge. Our credit

15 department was responsible for reviewing and approving

16 or presenting to a credit committee all of the

17 underlying residential mortgage backed, commercial

18 mortgage backed corporate bonds. Whatever credit we

19 were reviewing was reviewed by the appropriate credit

20 committee or credit team and presented to a committee.

21 As the portfolio -- I was in charge of

22 portfolio management. Me, my team was able to use the

23 entire universe of approved credits and go through

24 those and select a portfolio based on all the credits

25 that had already been approved by ACA.

LAURA SCHWARTZ


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Merrill LAD

61 So it may seem like a slight nuance, but

2 everything that was in, for instance, the Abacus deal

3 had already really been approved and reviewed by our

4 credit team and our credit committee. So all we did,

5 we didn't select and approve the underlying credits.

6 We just selected them from a universe that had already

7 been approved.

8 MR. SEEFER: So is this on a CUSIP by CUSIP

9 basis, or is it more like approving Countrywide

10 mortgages?

11 MS. SCHWARTZ: No, no, no, CUSIP by CUSIP

12 basis.

13 MR. SEEFER: Uh-huh.

14 MS. SCHWARTZ: In fact, what our committee

15 did is because in a deal that a residential mortgage

16 backed -- let's take the heart of the discussion here,

17 residential mortgage backs.


19 MS. SCHWARTZ: Generally one deal off of a

20 Countrywide shelf, for instance, since you mentioned

21 the name --


23 MS. SCHWARTZ: -- would issue debt rated

24 from triple A all the way down to through double B and

25 even unrated tranches.

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Merrill LAD

71 MR. SEEFER: Uh-huh, uh-huh.

2 MS. SCHWARTZ: So our credit team would look

3 at that deal overall to determine whether they liked

4 the shelf that it was being issued off of, the

5 underwriter, the servicer, all of those kind of things.

6 They would run multiple different stresses and then

7 they would recommend the lowest credit attachment point

8 that they were comfortable with.

9 So if they approved the triple B tranche

10 then anything triple B and above was eligible and

11 considered approved, so it wasn't necessarily like --

12 when you say CUSIP by CUSIP --


14 MS. SCHWARTZ: -- we didn't put in every

15 single CUSIP.


17 MS. SCHWARTZ: But if we approved the triple

18 B then we could use the double A and the triple A in

19 portfolios.


21 MS. SCHWARTZ: If they only approved the

22 triple A then only that particular CUSIP could be used.

23 MR. SEEFER: Uh-huh. So -- thank you.

24 (Laughter.)

25 MR. SEEFER: I was asking something a little

LAURA SCHWARTZ


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Merrill LAD

81 different.

2 MS. SCHWARTZ: Okay. I'm sorry. I'm sorry.

3 MR. SEEFER: That was valuable information

4 anyway, so I appreciate it. But all I really wanted to

5 know was the role you were performing in the Abacus

6 deal, were those roles you were performing at ACA for

7 other deals before 2006, from 2004 throughout when you

8 were head of asset management? I was just trying to

9 just draw the distinction between your description of

10 your job responsibilities.

11 MS. SCHWARTZ: No real distinction.

12 MR. SEEFER: Okay.

13 MS. SCHWARTZ: I was always basically in

14 charge of the ABS CDO business, so --

15 MR. SEEFER: And part of that included

16 selecting from this existing universe collateral for

17 synthetic CDOs?

18 MS. SCHWARTZ: Or my team selecting, but

19 ultimately all reporting to me so I would take

20 responsibility for that, yes.

21 MR. SEEFER: Okay. So we've -- I mean,

22 ACA's counsel has responded to our document request,

23 and Robin, I think we talked about this earlier, but

24 they've just given us a listing by year of various

25 deals that I will show you, and it starts there but

LAURA SCHWARTZ


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Merrill LAD

91 most of them are on the second page.

2 And all I really want to know is like the

3 Abacus 2007-1 deal with Goldman, are these deals where

4 you were essentially performing the same type of

5 function as you were in that deal?

6 MS. SCHWARTZ: Oh, ACA --

7 FEMALE SPEAKER: That's a selection for

8 every one?

9 MS. SCHWARTZ: For every single one?

10 MR. SEEFER: Yeah, just generally.

11 MS. SCHWARTZ: Oh, general, yes. ACA

12 selected the assets in every single one of these deals.


14 MS. SCHWARTZ: Sorry. I don't --

15 MR. SEEFER: No, that's great. And then you

16 or your team were the ones personally involved in doing

17 that? Yes?

18 MS. SCHWARTZ: The credit team of course

19 reviewed and approved and presented, and then we

20 constructed portfolios from all of those approved

21 credits. This one I was -- I came in at the closing

22 time, but it was a managed deal so I continued to be

23 responsible for this.

24 FEMALE SPEAKER: She's pointing to the first

25 one.

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Merrill LAD

101 MS. SCHWARTZ: I'm sorry. The very first

2 one, ACA DS 2002-1. I was there at the closing, but

3 this was an actively managed deal, so responsible on an

4 ongoing basis, and these two corporate deals were done

5 actually before I joined as well.

6 I'm pointing to ACA CDS 2001-1 and 2002-1,

7 but those were actively managed. I was responsible on

8 an ongoing once I took over the entire asset management

9 platform.

10 FEMALE SPEAKER: Did you also work on this

11 last one in 2007 since you left in 2007?

12 MS. SCHWARTZ: I believe that's the Goldman

13 deal, so yes, that one closed before I left.

14 MR. SEEFER: That's a CLO.

15 FEMALE SPEAKER: A CLO.

16 MS. SCHWARTZ: That's a CLO.

17 FEMALE SPEAKER: Right.

18 MS. SCHWARTZ: All of these were -- I was

19 hired just --

20 FEMALE SPEAKER: Right.

21 MS. SCHWARTZ: But this is a Goldman deal,

22 too --


24 MS. SCHWARTZ: -- just so you know.


LAURA SCHWARTZ


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Merrill LAD

111 MS. SCHWARTZ: Sorry. I'm pointing to ACA

2 CLO 2007-1. It's a Goldman deal. I'll go with the

3 underwriter on that one as well.

4 MR. SEEFER: Good memory.

5 MS. SCHWARTZ: This is my life.

6 MR. SEEFER: So were there -- generally

7 other than the Abacus deal with Goldman were there

8 other deals where folks other than ACA were involved in

9 selecting the collateral?

10 MS. SCHWARTZ: We always let our investors

11 look at the targeted portfolio. Deals were either

12 synthetic or cash or a combination of cash and

13 synthetic, and cash deals had a very long sort of

14 ramped up warehousing period.

15 So by the time we started marketing the

16 deals we would have 70 percent of the portfolio

17 purchased and investors always wanted to see those. So

18 there were times when investors ask that we not include

19 certain names and we would, you know, talk about that

20 and weigh the pros and cons of that versus them

21 investing or whatever, so there was always a discussion

22 with investors on the credits.

23 MR. SEEFER: Okay. And, I mean, the

24 allegation is there so I might as well cover it since

25 that's where we are. Did you know that Paulson was

LAURA SCHWARTZ


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121 going only short on the Abacus 2007 AC-1 deal?

2 MS. SCHWARTZ: I did not know that.

3 MR. SEEFER: Okay. And do you know if

4 anyone else at ACA knew that? I know you can't speak

5 for everybody else, but --

6 MS. SCHWARTZ: I do not believe that anybody

7 else at ACA knew that.

8 MR. SEEFER: Okay. Now, the SEC alleges in

9 the complaint that -- words to the effect it would have

10 been unlikely had ACA known that that they would have

11 allowed Paulson to be involved in the selection of the

12 collateral. Is that accurate?

13 MS. SCHWARTZ: I think I would have worded

14 it differently. I mean, I think ACA stands by the fact

15 that we selected that portfolio. Every name in that

16 portfolio had been reviewed and approved by ACA. I

17 think ACA would have thought long and hard about doing

18 a deal from a reputational perspective if they had

19 known that somebody was solely betting against it.

20 MR. SEEFER: Okay. In other deals where ACA

21 has been the collateral manager, and again maybe I've

22 asked this but I just want to make sure that the record

23 is clear, do you know whether or not any investor in

24 any other synthetic deals was going solely short?

25 MS. SCHWARTZ: I do not know for a fact. I

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664

Merrill LAD

131 do not believe other investors were solely going short,

2 but I do not know that for a fact.

3 MR. SEEFER: Okay. Now, it's also alleged

4 in the SEC complaint that had ACA known about Paulson

5 shorting the deal that it would have been unlikely that

6 ACA would have invested in the deal, and I think they

7 invested like 909 million in the deal. Is that

8 accurate?

9 MS. SCHWARTZ: I think there are sort of two

10 different things. Again, the investment in the deal

11 was through a super-senior guarantee done by our

12 structured credit department. While I sat on that

13 committee, I was not involved in the day-to-day

14 business of that at all and how they generated business

15 and what criteria they used to approve other than, you

16 know, sort of sitting in the committee and seeing the

17 final product.

18 Do I think -- I mean, my gut is that if we

19 had known that an investor was only shorting us I don't

20 think we would have, you know, agreed to be the

21 selection agent, nor do I then think it would have

22 gotten all the way --


24 MS. SCHWARTZ: -- to the structured credit,

25 but I don't know that. You know, that's my gut.

LAURA SCHWARTZ


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Merrill LAD

141 MR. SEEFER: So I know I've seen in the

2 documents, and I'll try to find it, but there was a

3 document that is I think the presentation to the

4 committee you sat on recommending the long investment

5 by ACA in the deal. What -- I mean, explain to me how

6 that works since you weren't involved in the decision

7 to invest but you are on the committee. You are --

8 MS. SCHWARTZ: Right.

9 MR. SEEFER: -- part of the CDO selection

10 process.

11 MS. SCHWARTZ: You know, I'm going to go

12 back again. This was now over three years ago all of

13 this took place. Until all of this came back to my

14 attention -- obviously this is now basically public

15 record -- I did not even remember that ACA or know for

16 a fact that ACA had taken that long position. So with

17 that premise, this was an everyday business for ACA --


19 MS. SCHWARTZ: -- whether it was managing

20 CDOs or investing in the credit default swaps on the

21 top of CDO positions through our structured credit, so

22 just as part of a everyday process, you know, they were

23 looking at the transaction.

24 There was a whole team that worked on those

25 structured credit pieces, and at a certain point I got

LAURA SCHWARTZ


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Merrill LAD

151 a memo about a credit committee on the piece. You

2 know, I just don't remember specifics.

3 MR. SEEFER: Is that a document that -- I

4 think that's the document where it was presented to the

5 committee.

6 MS. SCHWARTZ: That's --

7 MR. SEEFER: Is that it?

8 MS. SCHWARTZ: That's correct.

9 MR. SEEFER: Okay.

10 MS. SCHWARTZ: To the best of my knowledge,

11 yes. Again, this was not produced by my group at ACA.

12 It was produced by a different group.

13 We had three different business lines at

14 ACA. One was my business line, which is the asset

15 management group, one was the structured credit group

16 that this was responsible for, and the third was the

17 municipal line.

18 MR. SEEFER: Okay. Nobody at Paulson ever

19 told you that they were going to go short on the deal?

20 MS. SCHWARTZ: No.

21 MR. SEEFER: Okay. I have at least seen

22 since the lawsuit got filed a report by one of -- in

23 the media that Paolo Pellegrini apparently testified

24 before the SEC that he did tell either you or someone

25 at ACA. Did Mr. Pellegrini ever tell you that Paulson

LAURA SCHWARTZ


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Merrill LAD

161 was going to short the deal?

2 MS. SCHWARTZ: No.

3 MR. SEEFER: Okay. I believe Mr. Tourre

4 testified in front of Levin's committee sort of that he

5 told you or someone at ACA that Paulson was going to

6 short the deal. Did Mr. Tourre tell you that Paulson

7 was going to short the deal?

8 MS. SCHWARTZ: No.

9 MR. SEEFER: Did anyone at Goldman tell you

10 that Paulson was going to short the deal?


12 MR. SEEFER: Okay. Did anyone tell you that

13 Paulson was going to short the deal?

14 MS. SCHWARTZ: No, no.


16 MS. SCHWARTZ: Not that I recall.

17 FEMALE SPEAKER: Just so we're clear, when

18 you say short you mean solely short?

19 MS. SCHWARTZ: Solely short.

20 MR. SEEFER: Yes.

21 MS. SCHWARTZ: Solely short.

22 MR. SEEFER: And then there's also

23 allegations, and I've seen some documents that indicate

24 this, that you or folks at ACA were under the

25 impression that Paulson actually was going to be long

LAURA SCHWARTZ


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Merrill LAD

171 in the deal perhaps and that the first lost tranches.

2 Is that true that you believed that at some point?

3 MS. SCHWARTZ: Yes.

4 MR. SEEFER: Okay. And why did you believe

5 that?

6 MS. SCHWARTZ: In looking back -- again,

7 this was over three years ago, and in looking back at

8 the documentation there is a specific E-mail that

9 identifies Paulson as a transaction sponsor and it

10 talks about a precommitted first loss piece, and that

11 would -- the precommitted first loss piece would

12 generally be known as the equity tranche and, you know,

13 from what I can remember inferring from that, that

14 Paulson would have been the equity investor.


16 MR. MCCARDEN: Can I ask questions?

17 MR. SEEFER: Yes.

18 MR. MCCARDEN: So does the term sponsor

19 generally mean equity tranche in the CDO business? Is

20 that --

21 MS. SCHWARTZ: I don't think there was a

22 clearly, you know, absolutely sort of defined, but when

23 they would be used together --

24 MR. MCCARDEN: Uh-huh.

25 MS. SCHWARTZ: -- that would have been my

LAURA SCHWARTZ


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181 inference, when they would have been used together in

2 the same -- you know, a very short document.

3 FEMALE SPEAKER: Together with?

4 MS. SCHWARTZ: Precommitted equities, that

5 would have been my inference from that.

6 MR. SEEFER: Is that the E-mail you were

7 referring to, the one you believe that Paulson was

8 going to be long and that was you as a sponsor? For

9 the record and for the tape recorder it's a January

10 10th, 2007 E-mail --


12 MR. SEEFER: -- or E-mail string, I guess --

13 no, just an E-mail. Okay. And then other than the

14 E-mail did Mr. Tourre or anyone else at Goldman tell

15 you that Paulson was going to be long the equity

16 tranche in the deal?

17 MS. SCHWARTZ: I do not recall any specific

18 instance where they told me. Through my documentation

19 I do refer to them as equity and equity perspective,

20 and I do not recall that ever being correct.

21 MR. SEEFER: Okay. And do you recall if

22 anybody at Paulson ever told you they were going to be

23 long on the equity tranche?

24 MS. SCHWARTZ: No, I do not recall them ever

25 telling me that either.

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191 MR. SEEFER: Okay. Let me -- have you ever

2 seen this document before? For the record, it's a

3 January 29th, 2007 E-mail that looks to be an internal

4 Paulson.

5 MS. SCHWARTZ: No, I have never seen this

6 document dated Monday, January 29th, 2007.

7 MR. SEEFER: Okay. Let me just say for the

8 record assuming it's internal, but it's an E-mail to

9 Mr. Pellegrini that states you're going to play the

10 role of potential equity investor when you meet with

11 BlackRock and TCW, correct? And Pellegrini responds I

12 already met with BlackRock and I will stick to the

13 script with TCW.

14 Other than seeing this E-mail have you ever

15 heard anything or seen any documents that indicated

16 Paulson was lending itself out or was representing that

17 it was going to be an equity investor in synthetic CDO

18 deals when it was not?

19 MS. SCHWARTZ: I have no knowledge of that,

20 no.

21 MR. SEEFER: Okay. It sounds like Mr.

22 Pellegrini was your main contact at Paulson. Is that

23 true?

24 MS. SCHWARTZ: And Sihan Shu, Mr. Sihan Shu.

25 MR. SEEFER: Okay. And you were meeting

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201 with them and talking with them about the collateral to

2 be the referenced collateral in the Abacus deal; is

3 that correct?

4 MS. SCHWARTZ: From the documentation, yes.

5 MR. SEEFER: What does that mean, from the

6 documentation?

7 MS. SCHWARTZ: I mean, I remember meeting

8 them, right, and I see the back and forth in the

9 E-mail. Over three and a half years -- it's over three

10 years ago. It's sort of hard to recall specifics, but

11 I do recall the meetings. I don't recall the specific

12 context, but I see it in the E-mails.

13 FEMALE SPEAKER: Just to clarify, your very

14 first meeting with them did not involve talk about the

15 collateral, correct?

16 MS. SCHWARTZ: I do not believe it did.

17 What I recall at the very first meeting was basically

18 ACA presenting its criteria to be a portfolio selection

19 agent.

20 MR. SEEFER: Given that ACA was selecting

21 the collateral why did it matter if Paulson was going

22 to exclusively short the deal and not be long in it at

23 all?

24 MS. SCHWARTZ: In and of itself in a tiny

25 little, you know, sort of stand alone vacuum it would

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211 not have mattered, but again from ACA's perspective ACA

2 wanted to be a long-term asset manager in the market

3 generally with institutional investors, and our

4 reputation was really of paramount concern, and I don't

5 think you would enhance your reputation by doing a

6 transaction really solely for the benefit of somebody

7 to bet against it.

8 MR. SEEFER: When you were at ACA were you

9 ever approached with a deal like this where it was

10 disclosed that an investor wanted to exclusively short

11 the deal?

12 MS. SCHWARTZ: Not that I recall, no.

13 MR. SEEFER: So then you don't recall

14 rejecting any such deals?

15 MS. SCHWARTZ: No, I don't. Sorry.

16 FEMALE SPEAKER: Is that something you think

17 you would recall?

18 MS. SCHWARTZ: I think it is something I

19 would recall if they would only want to go short.

20 MR. MCCARDEN: So in most synthetic deals

21 would you have been aware of who the short party was on

22 the transaction and what their motive was, or would

23 that have been not transparent?

24 MS. SCHWARTZ: When we wrote a deal that we

25 went long synthetically --

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2 MS. SCHWARTZ: -- generally the short the

3 other side could be done in several ways. One, we

4 could go out, and we sometimes did, and we broadly, you

5 know, went out with a big list basically on who wants

6 to take the other side --


8 MS. SCHWARTZ: -- who wants to go short, and

9 in derivatives there are approved counterparties.

10 There are basically eight or so firms at any one time

11 that are approved.


13 MS. SCHWARTZ: And so any of those eight

14 could have bid to be the one to go short.

15 MR. MCCARDEN: Approved. You mean by your

16 firm, by you?

17 MS. SCHWARTZ: No, no, by -- basically you

18 had to be an approved counterparty. I guess it wasn't

19 on an exchange. These days it could be through like

20 market partners or things like that.


22 MS. SCHWARTZ: Individuals didn't come to

23 ACA to take the other side. It was all done through

24 one of the major broker dealers, so that's why I said

25 there are probably eight to ten sort of counterparties

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231 from that first sector. So we could go long and the

2 short could be done in that way, sort of broadly

3 syndicated --


5 MS. SCHWARTZ: -- and lots of people could

6 bid on it, or you could do like we did in the Abacus,

7 more of a overall portfolio credit default swap and

8 then you would just phase in a correlation desk of a

9 major firm, and what that correlation desk then did on

10 the other side, I mean, who knows. They ran a whole

11 book, so that wasn't -- we never really knew what was

12 on the other side.

13 MR. SEEFER: So when you say a correlation

14 desk, do you -- in the Abacus deal do you just mean

15 Goldman?

16 MS. SCHWARTZ: Goldman, right. I mean the

17 part within Goldman that was responsible, right.

18 MR. SEEFER: Right. But in the end -- I

19 apologize. I'm not in the business and sometimes some

20 of these terms go right over my head --

21 MS. SCHWARTZ: Me, too.

22 MR. SEEFER: -- and I need, as one of my

23 colleagues who is not here would say, remedial

24 education. But when the Abacus deal -- my

25 understanding of the Abacus deal when it closes is that

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241 Goldman in the first instance took the short side of

2 that synthetic deal; is that correct?

3 MS. SCHWARTZ: In that deal it is correct.

4 MR. SEEFER: Okay. So did you know anything

5 about whether or not Goldman was going to participate

6 out that short position to anybody else?

7 MS. SCHWARTZ: No, we didn't know. We had

8 no knowledge of what Goldman was going to do with that

9 risk.

10 MR. SEEFER: And is that common in these

11 kind of deals, again for the uninformed attorney?

12 MS. SCHWARTZ: I think it is common that you

13 don't know what's going to happen because they run a

14 book of synthetics. They could be, you know, hedging

15 their own book. They could be long, they could be

16 short, they could be doing lots of things.

17 MR. SEEFER: So what did Goldman tell you

18 guys about why they wanted to do this deal?

19 MS. SCHWARTZ: I don't think they ever

20 specifically said anything, but generally for

21 distributing and underwriting debt you earn, you know,

22 three to four percentage points on the overall debt

23 that's debt in equity that's distributed. There is a

24 placement fee and that's why they did the business.

25 MR. SEEFER: Was ACA involved at all in how

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251 the proceeds were used that were paid by the long

2 investors, how those proceeds were used, the 150

3 million that IKB --

4 MS. SCHWARTZ: You mean in terms of it went

5 into the collateral agreement and the securities that

6 were selected to go into that collateral agreement?

7 MR. SEEFER: Correct.

8 MS. SCHWARTZ: Generally we were not, and

9 this was pretty standard across the street because the

10 Goldman or Merrills or whoever was that party to that

11 collateral agreement, they would guarantee the value of

12 the securities, so we generally considered them very

13 good credit risks, so where they actually went we were

14 not generally involved in that.

15 MR. SEEFER: Okay. And understanding you

16 weren't generally involved, did ACA know in this deal

17 how -- what type of collateral was going to be

18 purchased with the long proceeds?

19 MS. SCHWARTZ: I don't remember -- I don't

20 recall remembering what they were going to do with the

21 proceeds in this.

22 MR. SEEFER: Okay. One of the things that

23 you probably know now from the various hearings and

24 news articles, that in this time frame, the late '06

25 and into April of '07 when the Abacus deal closed,

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261 Goldman was in the process or had completed the process

2 from going net long on real estate to net short on real

3 estate.

4 Did you know then that Goldman was in the

5 process of reducing its exposure to real estate and

6 mortgage assets?

7 MS. SCHWARTZ: No.

8 MR. SEEFER: No discussions about that at

9 the time?


11 MR. SEEFER: Would that have made a

12 difference?

13 MS. SCHWARTZ: If they were in the process

14 of going from long to short, I don't know. I mean, I

15 just really don't.

16 MR. SEEFER: Okay. Bear with me --

17 MS. SCHWARTZ: Uh-huh.

18 MR. SEEFER: -- while I look at my notes.

19 MR. MCCARDEN: May I?

20 MR. SEEFER: Of course.

21 MR. MCCARDEN: So was there an equity

22 investor after all in Abacus? I guess I've seen

23 different accounts. I mean, my --

24 MS. SCHWARTZ: Nobody has definitively told

25 me either way. I have never seen anything specific.

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271 My understanding from the senate testimony --


3 MS. SCHWARTZ: -- is that no, there was not

4 an equity investor.

5 MR. MCCARDEN: Now, would that be something

6 you would know at the time as a CDO manager, or how

7 would that usually work?

8 MS. SCHWARTZ: Well, we were not the

9 underwriters, of course. The investment bank was the

10 underwriter.


12 MS. SCHWARTZ: So we would always ask for a

13 list of investors or try to get from them a list of

14 investors, but they did not have to share that.

15 Remember that's their -- to them that's their sort of

16 proprietary information, who they can sell this paper

17 to, because they wouldn't want us sharing that with,

18 you know, other investment banks or going to the

19 investors directly and going around them, so we only

20 found out if they wanted us to know at the time.


22 MS. SCHWARTZ: And sometimes even if we

23 didn't find out at the time we would find out after the

24 fact. Investors would contact us and say oh, we

25 invested in your deal, can you put us on your monthly

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281 newsletter or something like that.

2 MR. MCCARDEN: So I guess we spoke to some

3 market participant, and I'd have to look through my

4 notes to figure out who it was, but who said that --

5 and I think they were probably just going off of what

6 was in websites, that the equity tranche was a unfunded

7 synthetic tranche, in other words that it didn't really

8 exist, and I guess the only tranches that did exist

9 were the IKB -- well, the IKB was the only funded one

10 and then the super-senior was unfunded.

11 Does that make sense that that could be the

12 description?

13 MS. SCHWARTZ: It could have. I mean, it's

14 -- you know, funded and unfunded in synthetic, like you

15 never really have to fund, right.


17 MS. SCHWARTZ: You could always be -- you

18 could take the equity risk without funding it. You

19 could do it through also a credit default swap.


21 MS. SCHWARTZ: IKB, again, I don't even know

22 a hundred percent what they did at all. Nobody's ever

23 told me.


25 MS. SCHWARTZ: If they took it in funded

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291 form then they took a note as opposed to a credit

2 default swap.


4 MS. SCHWARTZ: ACA as unfunded would have

5 taken a credit default swap. You could be unfunded

6 equity as well as unfunded triple A or funded. It

7 didn't really matter, and when I looked back at the

8 offering memorandum it's not clear as to what it was.

9 MR. MCCARDEN: Would that have been an

10 unusual structure?

11 MS. SCHWARTZ: No, on a transaction, no,

12 where you could take synthetic risk. No, you could

13 always go either way.

14 MR. MCCARDEN: On any tranche?

15 MS. SCHWARTZ: On a synthetic. If it was a

16 cash deal supported by all cash assets --


18 MS. SCHWARTZ: -- you had to go pretty much

19 -- initially you had to be funded. Does that make

20 sense?

21 MR. MCCARDEN: I'm still not sure whether I

22 understand whether there even was somebody on the other

23 side of the equity, whether as a -- receiving a note or

24 a CDS. I think it was implied on one of the websites

25 that it was just theoretical, there wasn't anybody

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301 taking the equity risk.

2 MS. SCHWARTZ: That is what I have been led

3 to believe by the senate testimony, but my

4 understanding was there was going to be somebody on the

5 other side.

6 MR. MCCARDEN: At the time that was your --

7 MS. SCHWARTZ: Correct.

8 MR. MCCARDEN: Okay. And that specific

9 thing, having the equity be just theoretical, was that

10 common?

11 MS. SCHWARTZ: In a transaction that's a

12 hundred percent synthetic --


14 MS. SCHWARTZ: -- that's all theoretical,

15 right, right, so it would have been unfunded, it could

16 have been unfunded.

17 MR. MCCARDEN: Okay.

18 MS. SCHWARTZ: Sorry.

19 MR. SEEFER: So I just want to show you a

20 couple of documents and confirm that they mean what I

21 think they mean.

22 MS. SCHWARTZ: Okay.

23 MR. SEEFER: So let me show you this

24 February 28th, 2007 from you to the CDO team that says

25 Abacus 2007 AC-1 was launched yesterday, and then it

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311 says while it is a CDO, one investor is taking all the

2 equity in a triple B risk, paren, the zero to nine

3 percent tranche, and our role is one of portfolio

4 selection agent.

5 Let me show that to you, but my question is

6 going to be who was the investor that you believed was

7 taking the equity tranche in the triple B tranche?

8 MS. SCHWARTZ: My understanding was that it

9 was Paulson that was taking the first loss --

10 MR. SEEFER: And --

11 MS. SCHWARTZ: -- of tranche.

12 MR. SEEFER: And I'm sorry. I didn't mean

13 to interrupt you. And that understanding was based on?

14 MS. SCHWARTZ: You know, in going back three

15 years later in looking at the E-mail back and forth, by

16 Goldman showing transaction sponsor precommitted first

17 loss, by me referring to Paulson pretty continuously as

18 to equity investor, equity perspective.

19 MR. SEEFER: Okay. What do you know about

20 Paulson and these hedge funds in general at the time?

21 Did you know the general --

22 MS. SCHWARTZ: Nothing.


24 MS. SCHWARTZ: Until Goldman had mentioned

25 it I had never even heard of them, so I think I had,

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321 you know --

2 MR. SEEFER: And --

3 MS. SCHWARTZ: -- looked it up at the time

4 but, you know, I don't recall -- I didn't know them.

5 MR. SEEFER: Okay. And at the time, the

6 time being late '06 to April of '07 when you're doing

7 the deal, you don't recall any discussions with

8 Pellegrini or others where, you know, generally we're

9 going short.


11 MR. SEEFER: Okay. Let me ask you if you've

12 seen this document which I believe is the same date as

13 the senior credit committee presentation that you have

14 there, and for the record a February 27th, 2007 E-mail

15 string, Goldman document after the announcement of the

16 deal, a guy named Edward Steflan (phonetic) writing to

17 Peter Ostrem.

18 By the way, have you heard of either Peter

19 Ostrem or Edward Steflan?

20 MS. SCHWARTZ: Steflan, yes, I have.

21 MR. SEEFER: And who was Edward Steflan?

22 He's a Goldman guy, I can tell you that.

23 MS. SCHWARTZ: No, I don't think he was.

24 MR. SEEFER: Oh.

25 MS. SCHWARTZ: I think Steflan was with a

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331 firm called GSC.

2 MR. SEEFER: I'm sorry. That's right.

3 MS. SCHWARTZ: I don't think he's Goldman.

4 MR. SEEFER: Yes.

5 MS. SCHWARTZ: And so GSC. Peter Ostrem was

6 the person, a banker at Goldman, so I would not have

7 ever seen that E-mail I do not believe, but I don't

8 think he was at -- I think he's not at Goldman.

9 MR. SEEFER: Do you know if GSC was being

10 considered for this deal?

11 MS. SCHWARTZ: I do not know.

12 MR. SEEFER: Okay. Do you know if GSC

13 declined to do the deal?

14 MS. SCHWARTZ: I do not know that.

15 MR. SEEFER: Let me show you something else

16 first and we'll try to go in chronological order.

17 Okay. So let me show you that, and for the record that

18 is a January 11th E-mail internal to Goldman that I

19 believe says GSC is not going to do the deal.

20 (There was a brief pause in the

21 proceedings.)

22 MS. SCHWARTZ: Yeah.

23 MR. SEEFER: Have you seen that E-mail

24 before?

25 MS. SCHWARTZ: No, I have not seen this

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341 E-mail before.

2 MR. SEEFER: Okay. And just to close it

3 out, I think I asked you this, but did you know GSC was

4 looking at potentially being the CDO manager on this

5 deal?

6 MS. SCHWARTZ: No, I did not. I knew that

7 -- I mean, as you can see from my correspondence back

8 and forth Paulson was considering multiple managers. I

9 did not know who.

10 MR. SEEFER: Right. In one of the documents

11 you wrote I think you referred to it as --

12 FEMALE SPEAKER: A beauty pageant.

13 MR. SEEFER: -- a beauty pageant or

14 something, yeah. Okay. Oh, I'm sorry. Okay. We know

15 from the documents that at least in the early time

16 period you too were I guess uncomfortable with the

17 initial collateral and only agreed to like 55 of the

18 123, but eventually you guys came to agreement on what

19 the collateral was going to be, correct?



22 MS. SCHWARTZ: We suggested alternatives.

23 MR. SEEFER: All right. So this was the

24 other E-mail I was going to show you that I thought was

25 Goldman but, in fact, is GSC. Take a look at that.

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351 The bottom part is just announcing the deal with

2 Goldman, and the top part, the line is obviously the

3 one I'm interested in. So my first question is simply

4 have you seen that E-mail before?

5 MS. SCHWARTZ: I have not.

6 MR. SEEFER: Okay. And I don't know if I

7 said it, but for the record it's a February 27, 2007

8 E-mail from Steflan to Ostrem responding to the new

9 issue announcement for the Abacus deal that says I do

10 not have to say how bad it is that you guys are pushing

11 this thing.

12 Did you ever have any discussions with Mr.

13 Steflan about this deal, by any chance?

14 MS. SCHWARTZ: Not that I recall.

15 MR. SEEFER: Okay. Never called up and said

16 what are you guys doing?

17 MS. SCHWARTZ: I don't remember, to be

18 honest. I mean, I spoke to Ed periodically. I don't

19 recall.

20 MR. SEEFER: I'm sorry. I'm trying to keep

21 the documents in chronological order.


23 MR. SEEFER: So down the road after the deal

24 closes and ACA does the 909 million dollar ballpark

25 transaction later on in '07 and '08 the deal obviously

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361 goes south for the long investors. Any discussions

2 between you and Goldman after the deal closes and the

3 deal goes south?

4 MS. SCHWARTZ: No. In fact, I left ACA

5 about the beginning of October of 2007.


7 MS. SCHWARTZ: I do not think it -- you

8 know, I don't think probably at that point there had

9 been any credit event or, et cetera, under the deal at

10 that point. I also think unfortunately almost every

11 deal went bad.

12 MR. SEEFER: Sure. I mean --

13 MS. SCHWARTZ: So I don't think this fund

14 was particularly different from any other deal.

15 MR. SEEFER: Okay. Understanding you left

16 in October, at least the allegation in the SEC

17 complaint is that by October 24th, 2007 83 percent of

18 the RMBS in Abacus had been downgraded and 17 percent

19 were on negative watch.

20 Does it jog any memory bells about whether

21 you heard any -- had any discussion with Goldman about

22 those downgrades or whether you were gone by then?

23 MS. SCHWARTZ: I was definitely gone by

24 October 24th or whatever that date is. No, I do not

25 have any recollection.

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371 MR. SEEFER: Okay. And just, I mean,

2 overall whether you're at ACA or gone and whether it's

3 before or after October of 2007, any discussions with

4 Goldman after the deal goes south?

5 MS. SCHWARTZ: No.

6 MR. SEEFER: Okay. Did you have any

7 discussions with the folks at IKB that invested 150

8 million dollars in the deal?

9 MS. SCHWARTZ: I spoke to IKB as part of my

10 general course of business. They were long-term

11 investors in ACA deals. I do not recall any specific

12 conversations about the Abacus deal. I have met with

13 them repeatedly both in New York at conferences, in

14 their offices.

15 MR. SEEFER: Okay. Putting aside that

16 Paulson was exclusively shorting the deal, was their

17 role just as an investor in terms of selecting the

18 collateral or having a voice in the selection unusual?

19 I mean, you mentioned before that other investors, you

20 know, would comment on the collateral to be included in

21 a deal.

22 MS. SCHWARTZ: No. I mean, it may, you

23 know, have been a little bit more -- more broad at

24 first in that they looked at many, many more of the

25 securities, but even IKB commented on securities.

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381 MR. SEEFER: Okay. I think when I looked at

2 the documents anyway the first mention I see of the

3 collateral I thought actually was either a Paulson

4 E-mail or a Goldman E-mail saying here's the first slug

5 of 120 securities. I can show it to you.

6 MS. SCHWARTZ: I believe it's from Goldman

7 to me.

8 MR. SEEFER: Okay.

9 MS. SCHWARTZ: So the fact is, as I said

10 before, I'm not really sure who generated that initial

11 portfolio, whether it was Paulson or Goldman or why it

12 came through to ACA.

13 MR. SEEFER: And so there's an E-mail back

14 by you guys that says -- by you guys. It might have

15 actually been you.

16 MS. SCHWARTZ: That's fine.

17 MR. SEEFER: I'm sorry.

18 MS. SCHWARTZ: That's fine.

19 MR. SEEFER: It's a term of art, where I

20 think you -- yes, where you, Laura Schwartz, says 55 of

21 the 123 we can live with, and that's the E-mail. Is

22 that -- does that mean you have this preexisting

23 universe and whatever 123 minus 55 weren't in that

24 preexisting universe that you talked about earlier?

25 MS. SCHWARTZ: Well, some of them that we

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391 didn't like them at the recommended attachment point I

2 told you earlier how we could approve things at triple

3 A or double A or triple B, and here they were looking

4 at triple B, so the first exclusion here is we didn't

5 like them at the recommended attachment point, so we

6 might have approved them from a double A perspective

7 but not from the triple B perspective.

8 Then the second there are lower rated

9 tranches that are already on negative watch, so we may

10 have approved them at one point but the minute they've

11 been downgraded or so they've got kicked out of our

12 system as, you know, not up to our quality, and three,

13 there are just some names susceptible to investor

14 pushback, so a combination of lots of different things

15 made us only approve 55.

16 MR. SEEFER: Okay. And when you say there

17 are some names susceptible to investor pushback, what

18 is that? I mean, I know what investor pushback means,

19 but what do you -- what investor names?

20 MS. SCHWARTZ: Well, not investor names,

21 some names of the underlying deals. These weren't the

22 investors. These were the shelves and the mortgage

23 originators and servicers, and I mentioned Long Beach

24 which was the subprime arm of Washington Mutual.

25 We did have some concerns about them because

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401 their deals were some of the first to experience, you

2 know, ratings downgrades, so investors didn't like

3 those names very much, and the same with Freemont. It

4 was a small, very fast growing California originator,

5 so people were concerned about that.

6 MR. SEEFER: And I've seen reference in

7 other documents to push back on New Century. Was that

8 another company that --

9 MS. SCHWARTZ: Correct, because of --

10 MR. SEEFER: -- investors had concerns

11 about?

12 MS. SCHWARTZ: -- the growth.

13 MR. SEEFER: So when you get -- you know,

14 you're under the impression that Paulson is going to go

15 long on the equity tranche, and yet here's 123 issues

16 of which you're only comfortable with 55. Do you

17 recall having any discussion with Paulson saying why

18 would you want these, they're not good?

19 MS. SCHWARTZ: No, not really. I mean, we

20 didn't -- you know, I mean, for us we were selecting

21 the portfolios so they would supply the list, we told

22 them which we were comfortable with and we said what we

23 would do in exchange and they could take it or leave

24 it. It didn't really matter to us why they wanted

25 them.

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411 MR. SEEFER: Was that common, that a list

2 would initially be provided by an investor where over

3 half of it would be rejected by you guys?

4 MS. SCHWARTZ: We didn't do that many purely

5 synthetic deals, so I'd have to go back to Colleige

6 (phonetic) and Millbrook. I mean, they were even older

7 than this. I just don't remember. You know, this has

8 all been jogged --

9 MR. SEEFER: Sure.

10 MS. SCHWARTZ: -- because I get to see it

11 all the time. I don't recall in those deals how those

12 portfolios were created.

13 MR. SEEFER: Okay. And this -- and I

14 apologize. This may require some more remedial

15 education. Why would it make a difference, though, on

16 whether it's collateral that's simply referenced in a

17 synthetic CDO or collateral that actually exists in a

18 cash CDO?

19 MS. SCHWARTZ: Well, the beauty in a way of

20 the synthetic deals is you can look at the entire

21 universe. You don't have to go by the cash bonds. For

22 instance, if we wanted to buy -- I'm just using an

23 example. I mean, if we wanted to buy this Goldman

24 deal, this GSAP deal, for instance, and we wanted to

25 buy 10 million of it in cash, well, the tranche could

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421 have only been 50 million dollars at time of new issue.

2 And there was just no way to ever find the

3 cash paper, whereas the beauty about a synthetic is if

4 we liked this deal we didn't have to worry about if

5 there was a cash bond available. We could write the

6 risks synthetically.

7 MR. SEEFER: I understand that, but what's

8 the difference on -- my initial question was --

9 MS. SCHWARTZ: Portfolio selection where --

10 MR. SEEFER: Right. If you're rejecting

11 over half of the proposed collateral, and I thought

12 maybe I just misunderstood your answer. You said well,

13 this was a synthetic deal versus a cash deal. My

14 question is why does it make a difference.

15 MS. SCHWARTZ: In a synthetic -- in a cash

16 deal you could have never said I want these hundred

17 names because you could only respond to what was coming

18 out in the new issue market. You could only buy

19 securities basically as they were created and issued in

20 the new issue market.

21 So if we were doing a cash deal we would

22 have a six- to twelve-month ramp up period and we would

23 look at every new deal that was issued in the market,

24 and if we liked it we would buy it in cash and put it

25 into a warehouse for a CDO, so that's why you could

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431 never come in and say oh, I want a portfolio of these

2 125 cash names because you wouldn't be able to go get

3 them, whereas you could do that in a synthetic deal.

4 You'd never be able to find these cash bonds.

5 MR. SEEFER: Okay. Okay. Now, in the

6 letter that ACA's counsel sent us anyway --

7 MS. SCHWARTZ: I don't think I've seen that.

8 FEMALE SPEAKER: I think it's a letter from

9 ACA's counsel to (inaudible).

10 MS. SCHWARTZ: No, I haven't seen that.

11 FEMALE SPEAKER: I'm pretty sure you won't.


13 MR. SEEFER: But anyway, what I'd like you

14 to do --

15 MS. SCHWARTZ: Sorry.

16 MR. SEEFER: -- I know who Alan Roseman is,

17 but I don't know who the other people are. Can you

18 just tell me how they were involved in the Goldman

19 Abacus deal, if they were?

20 MS. SCHWARTZ: Sure. Dennis Kraft headed

21 our -- as it says, head of the ABS credit, so every

22 time a new issue deal was available in the market he

23 and his team would do the analysis. They would start

24 with looking at the seller, servicer, originator. They

25 would run stresses.

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441 If they liked the results of the stresses

2 they would do a credit writeup and present it to the

3 credit committee, so he was in charge of approving or

4 sort of starting the process to approve every credit

5 that would be available to be used in our ABS CDOs.

6 Courtney Henry, she did not work on my team

7 or on Dennis's team. She worked for James Rothman in

8 the structured credit group, so they would be

9 responsible for the super-senior part. To be honest, I

10 don't know what her role was or wasn't. She was not

11 very senior.

12 MR. SEEFER: I take it given that she didn't

13 work in your group or Dennis's group she wasn't

14 involved in the portfolio selection process?

15 MS. SCHWARTZ: That's correct.


17 MS. SCHWARTZ: Sorry. Alan Roseman of

18 course was our CEO. Tracy Portnoy was the woman who

19 worked for Dennis in the ABS credit, so she would have

20 been involved in reviewing and approving credits, and

21 so not maybe in the selection of what went on, but

22 absolutely responsible for what was approved by ACA,

23 and actually there you see her name in some of the

24 E-mails as well.


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451 MS. SCHWARTZ: Natalie Rush (phonetic)

2 worked for James Rothman in the structured credit area.

3 Again, wouldn't have been responsible for the

4 underlying assets in the portfolio.

5 MR. SEEFER: Okay. And Rothman's group was

6 responsible for deciding whether or not to invest in

7 the deal?

8 MS. SCHWARTZ: As a super-senior

9 counterparty, correct --


11 MS. SCHWARTZ: -- taking a risk on a

12 super-senior tranche.

13 MR. SEEFER: Okay. And I know --

14 MS. SCHWARTZ: So this document.

15 MR. SEEFER: Right, the committee that you

16 sat on.


18 MR. SEEFER: And understanding that Roseman

19 is the CEO, what was his involvement in this deal, if

20 you know?

21 MS. SCHWARTZ: From my perspective Alan

22 Roseman sat on what was called the commitments

23 committee, which when we wanted to do a new CDO we had

24 to present that opportunity to him and to the rest of

25 the commitments committee, and he had to sign off on

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461 whether he thought it was an acceptable deal for ACA to

2 do.

3 MR. SEEFER: Okay. So --

4 MS. SCHWARTZ: Have you seen that?

5 MR. SEEFER: Have I seen?

6 MS. SCHWARTZ: The committee.

7 MR. SEEFER: I think so.


9 MR. SEEFER: I've been through a lot of

10 documents recently.


12 MR. SEEFER: Mr. Roseman was not involved in

13 your part of the transaction in terms of evaluating and

14 signing off on the collateral that was going to be a

15 part of the deal?

16 MS. SCHWARTZ: No, he was not on the -- that

17 would have been done, you know, on -- each underlying

18 asset went to a credit committee and it had six voting

19 members on that credit committee, but he was not on it.

20 MR. SEEFER: Okay. So let me back up and be

21 more general so again you can provide a little remedial

22 education on how ACA works.

23 You've explained that you've got the folks

24 in your group and Dennis's group that are involved in

25 evaluating the credits and what's going to be included

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471 as reference collateral on a synthetic CDO, and then

2 you've got the structured credit group headed up by Mr.

3 Rothman that decides whether or not ACA is going to

4 invest in any of these deals.

5 Did I state that correctly?

6 MS. SCHWARTZ: You know, I guess we need to

7 make sort of a third distinction. I don't know if I

8 would have characterized the structured credit role as

9 an investment role. There are 950 million dollars.

10 While they were definitely taking what would be

11 considered a long position, they were using the ACA

12 financial guarantee business to do that so they

13 considered it more of an insurance product as opposed

14 to a direct kind of investment.

15 ACA in the portfolio management area, we

16 managed 30 different CDOs. You saw the whole list and

17 a lot of them had reinvestment needs, so we could buy

18 debt off of our own CDOs to put into some of those as

19 well, so there was a third way that ACA could

20 participate in the Abacus deal and we could buy some of

21 those debt tranches in a funded form as well.

22 MR. SEEFER: Okay. So explain to me what

23 the CDO manager job is other than evaluating the credit

24 and then ultimately signing off on what the collateral

25 is going to be. What does ACA do after April 26th,

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481 2007 after the deal closes?

2 MS. SCHWARTZ: On -- well, again, every deal

3 was different, but on this deal we were only

4 responsible for some monitoring overall.

5 We couldn't -- it was a static portfolio, so

6 we couldn't buy or sell or reinvest, but we did do some

7 monitoring and we did work -- there were trustee

8 reports probably issued off the deal, and so we would

9 look at those and tie out on those with the trustee.

10 MR. SEEFER: And the trustee reports are

11 reporting on what, the performance of the underlying

12 collateral?

13 MS. SCHWARTZ: And the waterfall and the

14 transaction, correct.

15 MR. SEEFER: Okay. And when you talk about

16 a static deal I've done a little -- I think I've

17 learned some things over time. The other type of deal

18 is what's known as a dynamic deal; is that correct?

19 MS. SCHWARTZ: I would have called it

20 managed.


22 MS. SCHWARTZ: Managed.

23 MR. SEEFER: And the difference there being

24 as collateral pays down you replace it with other

25 collateral?

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491 MS. SCHWARTZ: Correct, and you could buy or

2 sell, you know, any time you wanted, even if you got

3 principal back and you could reinvest, but you also had

4 the ability to sell if you saw that you didn't like how

5 a bond was doing or performing.

6 MR. SEEFER: Okay. So other than -- if it's

7 a dynamic deal other than helping prepare reports like

8 you do, I assume, on both static and dynamic deals

9 there's also the function of --

10 MS. SCHWARTZ: Reinvestment.

11 MR. SEEFER: -- reinvestment and rebalancing

12 the portfolio, hence the term managed.


14 MR. SEEFER: Other functions besides those

15 two functions of a CDO manager once the deal closes?

16 MS. SCHWARTZ: Always investor relations,

17 continue to answer any investor questions and meet with

18 investors if they want to, offer to meet with them.

19 MR. SEEFER: Okay. Do you -- I may have

20 asked this. Do you recall if Paulson was an investor

21 in any ACA managed deals before this deal?

22 MS. SCHWARTZ: I do not believe they were.

23 MR. SEEFER: Some of these I think I know

24 the answer to, but I just need to show you the document

25 to make sure. Let me show you a document that's an

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501 E-mail thread from February 11th, 2007 that I believe

2 is just internal to Goldman. Let me show you that.

3 It's the last one that -- the last couple of threads

4 that I'm interested in asking if you ever heard Goldman

5 make reference to in conversations with you.


7 proceedings.)

8 MR. SEEFER: Generally -- so no, you haven't

9 seen the E-mail before I take it?

10 MS. SCHWARTZ: No, I have not.

11 MR. SEEFER: And do you generally recall

12 discussions with Goldman where -- to the effect of the

13 CDO business is dead and they were trying to rush to

14 get deals done?

15 MS. SCHWARTZ: No, I do not. No, I think

16 the bottom of this E-mail is talking about one thing

17 very different sort of than the top, right, where

18 they're talking about the index being launched and

19 everything else.

20 MR. SEEFER: The ABX index, right.

21 MS. SCHWARTZ: Yes. Okay. This sort of

22 flows from that to general discussions.

23 MR. SEEFER: I think it changes topics.

24 MS. SCHWARTZ: Yes, I do it all the time.

25 MR. SEEFER: So on this particular deal when

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511 you're having investor relations -- are you having

2 investor relation conversations going forward after the

3 deal is closed in April of '07?

4 MS. SCHWARTZ: I don't recall any specific

5 conversations on this.

6 MR. SEEFER: Okay. Do you have anything you

7 wanted to --

8 MR. MCCARDEN: Just a few follow-up

9 questions. Let me show you yet another document. This

10 is an E-mail from you to a Ms. Kreitman and I'm curious

11 about a couple of things here, in particular if you

12 could glance. The description here is Gail, I

13 certainly hope, and I'm curious about two aspects of

14 this.

15 Firstly you express concern about having

16 come across this, too antagonistic on the call with

17 Fabrice. I assume that's Mr. Tourre?


19 MR. MCCARDEN: And what was the nature, what

20 prompted the antagonist -- or your concern about having

21 been too antagonistic?

22 MS. SCHWARTZ: I don't recall. What we are

23 talking about here is the structure and a downgrade

24 analysis and, you know, in fact you've followed this.

25 Like a couple of days later or a week later they come

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521 back with the results that I was looking for, you know,

2 that they're going to run on this, so it was really

3 just sort of a sensitivity downgrade analysis to the

4 debt tranches.

5 MR. MCCARDEN: Okay. And actually that

6 leads to my next question, which is in the second line

7 it speaks in terms of the structure is difficult from a

8 debt investor perspective. Succinctly what

9 specifically are you concerned about?

10 MS. SCHWARTZ: You know, these are leveraged

11 transactions and the first structure was a zero to nine

12 percent first loss, so then, you know, that's a pretty

13 hefty leverage ratio, and so I was concerned about the

14 tranches being able to sustain downgrades in the

15 underlying bonds.

16 MR. MCCARDEN: So to play this back, would

17 this be a question if there was insufficient

18 subordination of the deal?

19 MS. SCHWARTZ: Yeah, it looked a little

20 leveraged I think.

21 MR. MCCARDEN: Okay. Now, earlier in your

22 conversation with Chris you mentioned that -- and made

23 apparently a distinction between being advised by

24 Paulson and/or Goldman that Paulson would be, quote,

25 solely short. Were you -- in distinction from that

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531 were you ever advised that Paulson would be going short

2 or partially short?

3 MS. SCHWARTZ: No, I don't recall any

4 specific discussion on what Goldman would or wouldn't

5 -- I mean what Paulson would or wouldn't be doing. I

6 think it was just generally known in the market that

7 people did protect their long positions. If they were

8 going long they did try to protect themselves somewhat

9 by shorting some to protect themselves.

10 MR. MCCARDEN: And given the structure of

11 this deal and the kinds of assets that were going into

12 the deal, what was your understanding of how Paulson

13 would make money out of this deal as the transaction

14 sponsor?

15 MS. SCHWARTZ: Well, if you were an equity

16 investor in this deal this deal wound up being, you

17 know, 10 to 1 leveraged. This contemplation, 0 to 9,

18 is like an 11 to 1 leverage, but I think it wound up a

19 10 to 1 leverage and the assets, you know, paid --

20 one's for 800 or something and you paid out your

21 liabilities and the assets all flowed through to the

22 equity.

23 So they would get an equity return and

24 that's how I thought they were going to make money, and

25 if they were going to short in addition to their long

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541 they would give up some of that in return to protect

2 themselves on the downside, use some of that to protect

3 themselves.

4 MR. MCCARDEN: And if you can put yourself

5 back in time to the point of putting this deal

6 together, given at least some of the bad news in the

7 market, did that approach -- would that assumption

8 about the potential profitability make sense to you at

9 the time?

10 MS. SCHWARTZ: No, they still don't. I

11 mean, the spreads on the underlying assets have

12 actually widened at this point so that on a leverage

13 basis if you thought that they were going to perform it

14 could be yielding. If you didn't think they were going

15 to perform that would be another matter, but lots of

16 investors thought they were going to perform and you

17 could make a decent equity return.

18 MR. MCCARDEN: From the past reports it

19 looks like you worked on something called Magnetar

20 transactions, or at least some of them; is that

21 correct?

22 MS. SCHWARTZ: I believe I worked on one.

23 MR. MCCARDEN: And can you compare the

24 Magnetar transaction you worked on with Abacus AC-1?

25 MS. SCHWARTZ: Again, the Magnetar

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551 transaction was done nine months before the Abacus

2 deal. I believe it was both cash and synthetic, so it

3 had, you know, that kind of component as well.

4 So we were buying not only, you know, being

5 able to look at the universe, but also looking at new

6 bonds that were coming out for sale in the market and,

7 you know, again I believe that they were going long in

8 the equity there.

9 MR. MCCARDEN: Okay. Now, after the fact

10 it's been suggested that the Magnetar deals were

11 structures for going massively short. Was that -- did

12 you have any sense of that while you were working on

13 the Magnetar deal you worked on?

14 MS. SCHWARTZ: No, I think they were going

15 long and short, you know, but I never thought they were

16 just going massively short.

17 MR. MCCARDEN: All right. Those are my

18 questions. Thank you.

19 MR. SEEFER: So I do have one more. I'll

20 show you a document. If you haven't seen it you've

21 read about it in the press. I'll try to make this

22 easier. Well, it's not going to be that much easier.

23 FEMALE SPEAKER: They cannot make a

24 three-ring binder that doesn't do that to your

25 documents.

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561 MR. SEEFER: Why don't I do this, I can fix

2 that in a minute. So this for the record is an E-mail

3 from January 6th, 2007, internal to Goldman where Mr.

4 Tourre writes in one thing about a meeting last Friday

5 which presumably would have been January 5th, 2007

6 which he said was surreal, which I'm sure you've seen.

7 But my question is were you at the meeting

8 that he's describing, do you recall?

9 MS. SCHWARTZ: It sounds -- can I?

10 MR. SEEFER: Yeah, go back and --

11 FEMALE SPEAKER: I have asked if any of the

12 attorneys have seen this.

13 MS. SCHWARTZ: This has not been released.

14 FEMALE SPEAKER: This has not been released,

15 so I need to --

16 MR. SEEFER: It's my document so it's been

17 released.


19 FEMALE SPEAKER: We haven't --

20 MR. SEEFER: Recently released.


22 proceedings.)

23 MR. SEEFER: So the first question is do you

24 know whether or not you were at the Friday meeting that

25 presumably was the 5th since that E-mail was the 6th?

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571 MS. SCHWARTZ: I don't think that's my

2 meeting.

3 MR. SEEFER: Okay.

4 MS. SCHWARTZ: We don't have the jobs, but I

5 don't think that's my meeting because I don't think

6 Cass (phonetic) Wilson and David were all at my

7 meeting. You would have the -- there's an E-mail where

8 I say -- I've seen it a million times, that says I

9 wouldn't say the meeting was either good or bad, it

10 just didn't help that I didn't understand how Paulson

11 wants to participate. Do you recall that E-mail? That

12 would help us with the dates.

13 MR. SEEFER: Do you have that E-mail?

14 MS. SCHWARTZ: So that's Monday, the 8th. I

15 can't tell.

16 MR. SEEFER: So that could have been the

17 previous Friday that --

18 MS. SCHWARTZ: Maybe the meeting -- maybe my

19 meeting was the 8th.

20 FEMALE SPEAKER: I don't know. I just -- do

21 you have any recollection of either of these sides

22 being there?


24 MR. SEEFER: Okay. But just for the record

25 on Monday, January 8th, 2007 at 7:05 p.m. you write to

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581 Gail Kreitman.

2 MS. SCHWARTZ: I'm pretty sure the meeting

3 was that day. Upon reading that E-mail I'm pretty sure

4 my meeting was that day.

5 MR. SEEFER: Okay. So --

6 MS. SCHWARTZ: That would -- I'm not sure

7 that's my meeting. I can't -- I can't be sure that's

8 my meeting. We can go back and --

9 MR. SEEFER: If only there weren't

10 redactions.

11 MS. SCHWARTZ: I know, right. I just -- I

12 mean --

13 MR. SEEFER: We'll ask PSI to give us the

14 documents without redactions.

15 MS. SCHWARTZ: I mean, it sort of fits that

16 I know I went with one of my team members, and like

17 maybe ACA could fit there but GSC could also fit.

18 MR. SEEFER: Right.

19 MS. SCHWARTZ: TCW could -- I mean, there

20 are a lot of people that could also fit there.

21 MR. SEEFER: Uh-huh. And I think actually

22 --

23 MS. SCHWARTZ: And they said with John

24 Paulson. I never met John Paulson in connection with

25 this, so I'm not sure this is my meeting.

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591 FEMALE SPEAKER: There's also another E-mail

2 from Tourre where he says I'm sitting here and it's

3 surreal. I think he uses surreal in another E-mail in

4 connection with your meeting, I think.

5 MS. SCHWARTZ: I don't think this was my

6 meeting.

7 FEMALE SPEAKER: I mean, if that helps.

8 There's another Tourre E-mail where he's typing it in

9 real time.

10 MS. SCHWARTZ: I mean, he's saying the

11 meeting is through -- I'm not --

12 FEMALE SPEAKER: It's referenced in the SEC

13 complaint, the one I'm referring to, and I think it is

14 different from this one here.

15 MS. SCHWARTZ: He specifically says he met

16 with John Paulson and team. John was never in a

17 meeting with me on this, so I don't think that's my

18 meeting.

19 MR. SEEFER: Okay. Paragraph 32 of the SEC

20 complaint talks about a February 2nd, 2007 meeting in

21 New York.

22 MS. SCHWARTZ: That was in my office. That

23 was --

24 MR. SEEFER: At ACA's offices --

25 MS. SCHWARTZ: Right.

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601 MR. SEEFER: -- in New York City to discuss

2 the referenced portfolio?

3 MS. SCHWARTZ: I met with Paolo three times,

4 first in his office, which my gut is we met Monday the

5 8th. I don't think it was my meeting on Friday.

6 MR. SEEFER: I don't know if I have --

7 MS. SCHWARTZ: There is actually an E-mail

8 back and forth on the Sunday setting up the meeting.

9 There's another E-mail -- again, I've looked at these

10 too many times.

11 MR. SEEFER: Sure.

12 MS. SCHWARTZ: There is a meeting -- there's

13 an E-mail on that Sunday. I think it's -- now looking

14 at this it's probably Sunday the 7th --

15 FEMALE SPEAKER: The 7th.

16 MS. SCHWARTZ: -- where we are setting up

17 Monday's meeting.

18 FEMALE SPEAKER: I think that's that right.

19 MS. SCHWARTZ: So this meeting, I don't

20 think that's my meeting.

21 MR. MCCARDEN: If that's not your meeting

22 who might that meeting be with?

23 MS. SCHWARTZ: No, it's not an ACA meeting,

24 nobody at ACA. It's not an ACA meeting at all. This

25 is not an ACA meeting.

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2 MS. SCHWARTZ: This is not -- this is

3 another -- somebody else.

4 MR. SEEFER: Go ahead.

5 MR. GANZ: Hi. This is Scott. Just

6 stepping back, I mean, given the revelation that many

7 investors were actually net short does that call into

8 question the model of the synthetic CDO? Is there

9 something about the market that was structured wrong?

10 MS. SCHWARTZ: Was the market structured

11 wrong? No, I think just like in the equity markets

12 investors are -- you know, can take a position and, you

13 know, put into practice their investment philosophy.

14 Could disclosure be better? Yes.

15 MR. GANZ: Uh-huh.

16 MS. SCHWARTZ: You know, absolutely. Do I

17 think investors have the right to take a position?

18 Yes.

19 MR. GANZ: And I guess given that ACA, you

20 know, lost a lot of money ultimately on this do you

21 think it was a risk management breakdown at ACA? What

22 do you attribute that to?

23 MS. SCHWARTZ: Again, ACA's structured

24 credit business lost a significant amount of money on

25 almost all of the super-senior protection it wrote, I

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621 believe, right.

2 MR. GANZ: Uh-huh.

3 MS. SCHWARTZ: I haven't been completely

4 involved. I think it was a breakdown of several things

5 as a single A counterparty, you know, why were we able

6 to write all of that protection.

7 MR. GANZ: Uh-huh.

8 MS. SCHWARTZ: That's why we're, you know,

9 triple A counterparties willing to take a single A

10 insurance risk --


12 MS. SCHWARTZ: -- that kind of thing, you

13 know, when you point to this one deal.

14 MR. GANZ: Right, right.

15 MS. SCHWARTZ: And synthetic as being the

16 same issue, the same issue as AIG, right, being able to

17 write all this protection. ACA was a much smaller

18 scale but it's the same issue.


20 MS. SCHWARTZ: Ambac, right, I mean, it's

21 the same issue.

22 MR. GANZ: Uh-huh. So, I mean, so how did

23 the market change in '06, '07 versus before? I mean,

24 this seems like there were some aspects of the market

25 that changed. There was more synthetics as opposed to

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631 cash. There was more leveraging deals.

2 MS. SCHWARTZ: Well, we did more cash deals

3 in 2007. I think what happened is that you saw -- with

4 the downgrades on the underlying residential securities

5 starting with some losses starting to come through at

6 the bottom of the capital structure, some residential

7 transactions, I think you saw investors getting cold

8 feet about continuing to play until they knew what the

9 ultimate losses and models they should be running, lost

10 models they should be running.


12 MS. SCHWARTZ: So I think that slowed the

13 CDO market and the market in general.

14 MR. GANZ: So that would have been spring

15 '07 or even --

16 MS. SCHWARTZ: Yes, spring to summer, 2007.

17 I think sort of August -- July to August 2007 are when

18 the rating agencies came out with the beginning of the

19 downgrades of the underlying residential.

20 MR. GANZ: And did ACA start to take a view

21 around them, they didn't want to be in this position

22 anymore?

23 MS. SCHWARTZ: I don't think ACA -- I mean,

24 from a structured credit perspective I can't really --

25 MR. GANZ: Right.

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641 MS. SCHWARTZ: -- say, but from the CDO

2 asset management I don't think we took a perspective

3 that we didn't want to be in the business.

4 MR. GANZ: Uh-huh.

5 MS. SCHWARTZ: I think we took the

6 perspective that it was going to be very difficult to

7 do the business because, you know, it would not be as

8 easy to structure transactions in the market for

9 investors, and that was across all of our products, not

10 only the asset but leveraged loans and corporate

11 credits, all of it.

12 MR. GANZ: Uh-huh. I mean, the way you talk

13 about the solely equity versus -- solely short versus

14 both, I mean, was it very common for equity investors

15 to take a short position in the same deal?

16 MS. SCHWARTZ: No, they didn't take it in

17 the deal necessarily, right. I mean, you could go long

18 equity in a CDO and then you could short the index.


20 MS. SCHWARTZ: You could short individual

21 names in credit default swaps, but those individual

22 names were the underlying references. I don't think

23 you generally shorted the CDO. I don't think there was

24 a very big CDO credit default swap market. I think you

25 had to go on to the underlying referenced obligations

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651 to the residential mortgage backed securities if you

2 wanted to short.

3 MR. GANZ: Tell me, just to understand the

4 market, so even for cash CDOs even in '06 and earlier

5 the equity investors would often be hedging themselves

6 --

7 MS. SCHWARTZ: I think so.

8 MR. GANZ: -- one way or the other?

9 MS. SCHWARTZ: I mean, as I stated before,

10 ACA hedged itself through the ABS investors forum.

11 MR. GANZ: Uh-huh. I don't have anything

12 else.

13 MR. SEEFER: Carl, anything, Tom?

14 MR. MCCARDEN: No.

15 MR. SEEFER: Ms. Schwartz, thank you very

16 much for your time.

17 MS. SCHWARTZ: Thank you.

18 (The recorded interview was concluded.)

19

20

21

22

23

24

25

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661 CERTIFICATE OF TRANSCRIBER

2 I, Bonnie K. Panek, do hereby certify that

3 the foregoing transcript is a true and correct record

4 of the recorded proceedings; that said proceedings were

5 transcribed to the best of my ability from the audio

6 recording as provided; and that I am neither counsel

7 for, related to, nor employed by any of the parties to

8 this case and have no interest, financial or otherwise,

9 in its outcome.

10

11

12

13 BONNIE K. PANEK

14

15

16

17

18

19

20

21

22

23

24

25

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

67

A

Abacus 2:15 5:9

6:2 8:5 9:3 11:7

12:1 20:2 23:6

23:14,24,25

25:25 26:22

30:25 35:9

36:18 37:12

43:19 47:20

54:24 55:1

ability 49:4 66:5

able 5:22 43:2,4

52:14 55:5 62:5

62:16

ABS 4:15,16,18

8:14 43:21 44:5

44:19 65:10

absolutely 17:22

44:22 61:16

ABX 50:20

ACA 1:11 2:13,18

3:21,22 4:8,10

4:12 5:4,25 8:6

9:6,11 10:2,6

11:1,8 12:4,7,10

12:14,16,17,20

13:4,6 14:5,15

14:16,17 15:11

15:14,25 16:5

16:24 20:18,20

21:1,8 22:23

24:25 25:16

29:4 35:24 36:4

37:2,11 38:12

44:22 46:1,22

47:3,11,15,19

47:25 49:21

58:17 60:23,24

60:24,25 61:19

61:21 62:17

63:20,23 65:10

ACA's 2:20 8:22

21:1 43:6,9

59:24 61:23

acceptable 46:1

accounts 26:23

accurate 12:12

13:8

actively 10:3,7

AC-1 2:21 12:1

30:25 54:24

addition 53:25

administration

3:5

advised 52:23

53:1

agencies 63:18

agent 13:21 20:19

31:4

ago 14:12 17:7

20:10

agreed 13:20

34:17

agreement 25:5,6

25:11 34:18

ahead 61:4

AIG 62:16

Alan 43:16 44:17

45:21

allegation 11:24

36:16

allegations 16:23

alleged 13:3

alleges 12:8

allowed 12:11

alternatives 34:22

Ambac 62:20

amount 61:24

analysis 43:23

51:24 52:3

and/or 52:24

announcement

32:15 35:9

announcing 35:1

answer 42:12

49:17,24

antagonist 51:20

antagonistic

51:16,21

anybody 12:6

18:22 24:6

29:25

anymore 63:22

anyway 8:4 38:2

43:6,13

apologize 23:19

41:14

apparently 15:23

52:23

appreciate 8:4

approach 54:7

approached 21:9

appropriate 5:19

approve 6:5

13:15 39:2,15

44:4

approved 5:23,25

6:3,7 7:9,11,17

7:21 9:19,20

12:16 22:9,11

22:15,18 39:6

39:10 44:22

approving 5:15

6:9 44:3,20

April 25:25 32:6

47:25 51:3

area 45:2 47:15

areas 5:4

arm 39:24

art 38:19

articles 25:24

aside 37:15

asked 12:22 34:3

49:20 56:11

asking 7:25 50:4

aspects 51:13

62:24

asset 3:14 4:14,22

4:23 5:4 8:8

10:8 15:14 21:2

46:18 64:2,10

assets 9:12 26:6

29:16 45:4

53:11,19,21

54:11

assistance 2:13,17

assume 49:8

51:17

assuming 19:8

assumption 54:7

attachment 7:7

39:1,5

attention 14:14

attorney 24:11

attorneys 56:12

attribute 61:22

audio 66:5

August 3:20

63:17,17

autos 3:15

available 42:5

43:22 44:5

aware 21:21

B

B 6:24 7:9,10,18

31:2,7 39:3,4,7

back 14:12,13

17:6,7 20:8 29:7

31:14,15 34:7

38:13 40:7 41:5

46:20 49:3 52:1

52:16 54:5

56:10 58:8 60:8

61:6

backed 3:14,14

3:18 4:24 5:17

5:18 6:16 65:1

background 2:25

3:1

backs 6:17

bad 35:10 36:11

54:6 57:9

ballpark 35:24

bank 27:9

banker 3:18 33:6

banks 27:18

based 5:24 31:13

basically 8:13

14:14 20:17

22:5,10,17

42:19

basis 6:9,12 10:4

54:13

Beach 39:23

Bear 26:16

beauty 34:12,13

41:19 42:3

beginning 3:23

36:5 63:18

believe 4:19 10:12

12:6 13:1 16:3

17:4 18:7 20:16

30:3 32:12 33:7

33:19 38:6

49:22 50:1

54:22 55:2,7

62:1

believed 17:2

31:6

bells 36:20

benefit 21:6

best 15:10 66:5

bet 21:7

better 61:14

betting 12:19

bid 22:14 23:6

big 22:5 64:24

binder 55:24

bit 37:23

BlackRock 19:11

19:12

blurb 2:4

bond 42:5 49:5

bonds 4:24 5:18

41:21 43:4

52:15 55:6

Bonnie 1:25 66:2

66:13

book 23:11 24:14

24:15

boss 4:20

bottom 35:1

50:16 63:6

breakdown 61:21

62:4

brief 2:25 33:20

50:6 56:21

broad 37:23

broadly 22:4 23:2

broker 4:1 22:24

business 2:20 3:5

4:14 5:5 8:14

13:14,14 14:17

15:13,14 17:19

23:19 24:24

37:10 47:12

50:13 61:24

64:3,7

buy 41:22,23,25

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

68

42:18,24 47:17

47:20 48:6 49:1

buying 55:4

C

C 2:1

California 40:4

call 51:16 61:7

called 33:1 35:15

45:22 48:19

54:19

can't 12:4 57:15

58:7,7 63:24

capacity 3:25

4:17

capital 1:11 63:6

cards 3:15

Carl 65:13

case 66:8

cash 11:12,12,13

29:16,16 41:18

41:21,25 42:3,5

42:13,15,21,24

43:2,4 55:2 63:1

63:2 65:4

Cass 57:6

causes 2:7

CDO 4:14 8:14

14:9,21 17:19

19:17 27:6

30:24 31:1 34:4

41:17,18 42:25

45:23 47:1,23

49:15 50:13

61:8 63:13 64:1

64:18,23,24

CDOs 2:14 4:15

4:16,18 8:17

14:20 44:5

47:16,18 65:4

CDS 10:6 29:24

Century 40:7

CEO 44:18 45:19

certain 11:19

14:25

certainly 51:13

CERTIFICATE

66:1

certify 66:2

cetera 36:9

chance 35:13

change 62:23

changed 62:25

changes 50:23

characterized

47:8

charge 5:14,21

8:14 44:3

Chris 52:22

chronological

33:16 35:21

City 60:1

clarify 20:13

clear 12:23 16:17

29:8

clearly 17:22

CLO 10:14,15,16

11:2

close 34:2

closed 10:13

25:25 51:3

closes 23:25 35:24

36:2 48:1 49:15

closing 9:21 10:2

cold 63:7

collateral 5:9

8:16 11:9 12:12

12:21 20:1,2,15

20:21 25:5,6,11

25:17 34:17,19

37:18,20 38:3

41:16,17 42:11

46:14 47:1,24

48:12,24,25

colleagues 23:23

college 3:1

Colleige 41:5

combination

11:12 39:14

come 22:22 43:1

51:16,25 63:5

comfortable 7:8

40:16,22

coming 2:2 42:17

55:6

comment 37:20

commented 37:25

commercial 3:11

3:14,18 5:17

COMMISSION

1:8

commitments

45:22,25

committee 5:16

5:20,20 6:4,14

13:13,16 14:4,7

15:1,5 16:4

32:13 44:3

45:15,23,25

46:6,18,19

common 24:10,12

30:10 41:1

64:14

company 3:9 40:8

compare 54:23

complaint 12:9

13:4 36:17

59:13,20

completed 26:1

completely 62:3

component 55:3

concern 21:4

51:15,20

concerned 40:5

52:9,13

concerns 39:25

40:10

concluded 65:18

conferences 37:13

confirm 30:20

connection 58:24

59:4

cons 11:20

considered 7:11

25:12 33:10

47:11,13

considering 34:8

constructed 9:20

contact 19:22

27:24

contacted 2:18,18

contemplation

53:17

context 2:24

20:12

continue 49:17

continued 4:25

9:22

continuing 63:8

continuously

31:17

conversation

52:22

conversations

37:12 50:5 51:2

51:5

corporate 4:24

5:18 10:4 64:10

correct 15:8

18:20 19:11

20:3,15 24:2,3

25:7 30:7 34:19

40:9 44:15 45:9

48:14,18 49:1

49:13 51:18

54:21 66:3

correctly 47:5

correlation 23:8,9

23:13

correspondence

34:7

couldn't 48:5,6

counsel 8:22 43:6

43:9 66:6

counterparties

22:9,25 62:9

counterparty

22:18 45:9 62:5

Countrywide 6:9

6:20

couple 30:20 50:3

51:11,25

course 2:14,20

9:18 26:20 27:9

37:10 44:18

Courtney 44:6

cover 11:24

created 41:12

42:19

credit 3:15 4:18

4:25 5:1,2,3,11

5:14,16,18,19

5:20 6:4,4 7:2,7

9:18 13:12,24

14:20,21,25

15:1,15 23:7

25:13 28:19

29:1,5 32:13

36:9 43:21 44:2

44:3,4,8,19 45:2

46:18,19 47:2,8

47:23 61:24

63:24 64:21,24

credits 5:23,24

6:5 9:21 11:22

44:20 46:25

64:11

crisis 1:8 2:7

criteria 13:15

20:18

curious 51:10,13

CUSIP 6:8,8,11

6:11 7:12,12,15

7:22

D

D 2:1

date 32:12 36:24

dated 19:6

dates 57:12

David 57:6

day 3:21 58:3,4

days 22:19 51:25

day-to-day 13:13

dead 50:13

deal 2:21 6:2,15

6:19 7:3 8:6 9:3

9:5,22 10:3,13

10:21 11:2,7

12:1,18 13:5,6,7

13:10 14:5

15:19 16:1,6,7

16:10,13 17:1

18:16 20:2,22

21:9,11,24

23:14,24,25

24:2,3,18 25:16

25:25 27:25

29:16 32:7,16

33:10,13,19

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

69

34:5 35:1,9,13

35:23,25 36:2,3

36:9,11,14 37:4

37:8,12,16,21

41:24,24 42:4

42:13,13,16,21

42:23 43:3,19

43:22 45:7,19

46:1,15 47:20

48:1,2,3,8,16,17

48:18 49:7,15

49:21 50:25

51:3 52:18

53:11,12,13,16

53:16 54:5 55:2

55:13 62:13

64:15,17

dealer 4:1

dealers 22:24

deals 8:7,25 9:3

9:12 10:4 11:8

11:11,13,16

12:20,24 19:18

21:14,20 24:11

37:11 39:21

40:1 41:5,11,20

47:4 49:8,21

50:14 55:10

63:1,2

debt 6:23 24:21

24:22,23 47:18

47:21 52:4,8

decent 54:17

decides 47:3

deciding 45:6

decision 14:6

declined 33:13

default 14:20

23:7 28:19 29:2

29:5 64:21,24

defined 17:22

definitely 36:23

47:10

definitively 26:24

Dennis 43:20

44:19

Dennis's 44:7,13

46:24

department 5:15

13:12

derivatives 2:11

22:9

describing 56:8

description 2:25

4:10 8:9 28:12

51:12

desk 23:8,9,14

determine 7:3

didn't 6:5 7:14

22:22 24:7

27:23 28:7 29:7

31:12 32:4 39:1

39:4 40:2,20,24

41:4 42:4 44:12

49:4 54:14

57:10,10 63:21

64:3,16

difference 26:12

41:15 42:8,14

48:23

different 3:9 5:14

7:6 8:1 13:10

15:12,13 26:23

36:14 39:14

47:16 48:3

50:17 59:14

differently 12:14

difficult 52:7 64:6

direct 47:14

directly 27:19

disclosed 21:10

disclosure 61:14

discuss 60:1

discussion 6:16

11:21 36:21

40:17 53:4

discussions 26:8

32:7 35:12 36:1

37:3,7 50:12,22

distinction 8:9,11

47:7 52:23,25

distributed 24:23

distributing

24:21

document 8:22

14:3 15:3,4 18:2

19:2,6 32:12,15

45:14 49:24,25

51:9 55:20

56:16

documentation

17:8 18:18 20:4

20:6

documents 5:8

14:2 16:23

19:15 30:20

34:10,15 35:21

38:2 40:7 46:10

55:25 58:14

doesn't 55:24

doing 9:16 12:17

21:5 24:16 32:6

35:16 42:21

49:5 53:5

dollar 35:24

dollars 37:8 42:1

47:9

don't 4:20 9:14

13:19,25 15:2

17:21 20:11

21:4,13,15

24:13,19 25:19

25:19 26:14,15

28:21 32:4,7,23

33:3,7 35:6,17

35:18 36:8,13

41:7,11,21 43:7

43:17 44:10

47:7 51:4,22

53:3 54:10 56:1

57:1,4,5,5,20

59:5,17 60:5,6

60:19 63:23

64:2,22,23

65:11

double 6:24 7:18

39:3,6

downgrade 51:23

52:3

downgraded

36:18 39:11

downgrades

36:22 40:2

52:14 63:4,19

downside 54:2

draw 8:9

DS 10:2

dynamic 48:18

49:7,8

E

E 2:1,1

earlier 8:23 38:24

39:2 52:21 65:4

early 34:15

earn 24:21

easier 55:22,22

easy 64:8

Ed 35:18

education 23:24

41:15 46:22

educational 2:24

Edward 32:16,19

32:21

effect 12:9 50:12

eight 22:10,13,25

either 11:11

15:24 18:25

26:25 29:13

32:18 38:3 57:9

57:21

eligible 7:10

employed 66:7

enhance 21:5

entire 5:23 10:8

41:20

equities 18:4

equity 17:12,14

17:19 18:15,19

18:19,23 19:10

19:17 24:23

26:21 27:4 28:6

28:18 29:6,23

30:1,9 31:2,7,18

31:18 40:15

53:15,22,23

54:17 55:8

61:11 64:13,14

64:18 65:5

essentially 9:4

established 2:6

estate 3:7 26:2,3,5

et 36:9

evaluating 46:13

46:25 47:23

event 36:9

eventually 3:12

34:18

everybody 2:4,23

12:5

everyday 14:17

14:22

evolved 3:12

example 41:23

exceptional 2:17

exchange 22:19

40:23

exclusion 39:4

exclusively 20:22

21:10 37:16

exist 28:8,8

existing 8:16

exists 41:17

experience 40:1

explain 14:5

47:22

explained 46:23

exposure 26:5

express 51:15

E-mail 17:8 18:6

18:10,12,13,14

19:3,8,14 20:9

31:15 32:14

33:7,18,23 34:1

34:24 35:4,8

38:4,4,13,21

50:1,9,16 51:10

56:2,25 57:7,11

57:13 58:3 59:1

59:3,8 60:7,9,13

E-mails 20:12

44:24

F

Fabrice 51:17

fact 6:14 12:14,25

13:2 14:16

27:24 34:25

36:4 38:9 51:24

55:9

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

70

failed 2:12,12

fast 40:4

FCIC 2:3

February 4:4

30:24 32:14

35:7 50:1 59:20

fee 24:24

feet 63:8

FEMALE 9:7,24

10:10,15,17,20

16:17 18:3

20:13 21:16

34:12 43:8,11

55:23 56:11,14

56:19 57:20

59:1,7,12 60:15

60:18

figure 2:6 28:4

filed 15:22

final 13:17

financial 1:8 2:7

47:12 66:8

find 14:2 27:23

27:23 42:2 43:4

fine 38:16,18

firm 22:16 23:9

33:1

firms 22:10

first 9:24 10:1

17:1,10,11

20:14,17 23:1

24:1 31:9,16

33:16 35:3

37:24 38:2,4

39:4 40:1 52:11

52:12 56:23

60:4

Firstly 51:15

fit 58:17,17,20

fits 58:15

five-year 4:11

fix 56:1

flowed 53:21

flows 50:22

focusing 4:15

folks 11:8 16:24

37:7 46:23

followed 51:24

follow-up 51:8

foregoing 66:3

form 29:1 47:21

forth 20:8 31:15

34:8 60:8

forum 65:10

forward 51:2

found 27:20

four 24:22

frame 25:24

Freemont 40:3

Friday 56:4,24

57:17 60:5

front 16:4

function 9:5 49:9

functions 5:11

49:14,15

fund 28:15 36:13

funded 28:9,14

28:25 29:6,19

47:21

funding 28:18

funds 31:20

G

G 2:1

Gail 51:12 58:1

GANZ 61:5,15,19

62:2,7,11,14,19

62:22 63:11,14

63:20,25 64:4

64:12,19 65:3,8

65:11

general 4:10 9:11

31:20,21 37:10

46:21 50:22

63:13

generally 2:19

6:19 9:10 11:6

17:12,19 21:3

22:2 24:20 25:8

25:12,14,16

32:8 50:8,11

53:6 64:23

generated 13:14

38:10

getting 63:7

give 2:4,4,24 4:9

54:1 58:13

given 8:24 20:20

44:12 53:10

54:6 61:6,19

glance 51:12

go 5:23 11:2

14:11 15:19

21:19 22:4,8,14

23:1,20 25:6

29:13,18 33:16

40:14 41:5,21

43:2 56:10 58:8

61:4 64:17,25

goes 36:1,3 37:4

going 12:1,24

13:1 14:11

15:19 16:1,5,7

16:10,13,25

18:8,15,22 19:9

19:17 20:21

24:5,8,13 25:17

25:20 26:2,14

27:18,19 28:5

30:4 31:6,14

32:9 33:19

34:19,24 40:14

46:14,25 47:3

47:25 51:2 52:2

53:1,8,11,24,25

54:13,14,16

55:7,11,14,16

55:22 64:6

Goldman 2:15,16

9:3 10:12,21

11:2,7 16:9

18:14 23:15,16

23:17 24:1,5,8

24:17 25:10

26:1,4 31:16,24

32:15,22 33:3,6

33:8,18 34:25

35:2 36:2,21

37:4 38:4,6,11

41:23 43:18

50:2,4,12 52:24

53:4 56:3

good 11:4 25:13

40:18 57:9

gotten 13:22

government 2:13

2:17

graduated 3:3

great 9:15

group 3:7 15:11

15:12,15,15

44:8,13,13 45:5

46:24,24 47:2

growing 40:4

growth 40:12

GSAP 41:24

GSC 33:1,5,9,12

33:19 34:3,25

58:17

guarantee 13:11

25:11 47:12

guess 18:12 22:18

26:22 28:2,8

34:16 47:6

61:19

gut 13:18,25 60:4

guy 32:16,22

guys 24:18 34:18

35:10,16 38:14

38:14 41:3

H

half 3:8 20:9 41:3

42:11

happen 24:13

happened 63:3

hard 12:17 20:10

haven't 43:10

50:8 55:20

56:19 62:3

head 4:22 8:8

23:20 43:21

headed 43:20

47:2

heard 19:15

31:25 32:18

36:21 50:4

hearings 25:23

heart 6:16

hedge 31:20

hedged 65:10

hedging 24:14

65:5

hefty 52:13

help 57:10,12

helping 49:7

helps 59:7

Henry 44:6

here's 38:4 40:15

he's 32:22 33:3,8

56:8 59:8,10

Hi 61:5

hired 4:12,13,15

10:19

HOLDINGS 1:11

honest 35:18 44:9

hope 51:13

hundred 28:22

30:12 42:16

I

identifies 17:9

IKB 25:3 28:9,9

28:21 37:7,9,25

implied 29:24

impression 16:25

40:14

inaudible 43:9

include 11:18

included 4:23

8:15 37:20

46:25

index 50:18,20

64:18

indicate 16:23

indicated 19:15

individual 64:20

64:21

Individuals 22:22

inference 18:1,5

inferring 17:13

information 8:3

27:16

initial 34:17

38:10 42:8

initially 29:19

41:2

INQUIRY 1:8

instance 6:2,20

18:18 24:1

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

71

41:22,24

institution 2:11

institutional 21:3

institutions 2:16

insufficient 52:17

insurance 3:6,9

47:13 62:10

interest 66:8

interested 35:3

50:4

internal 19:3,8

33:18 50:2 56:3

interrupt 31:13

interview 1:9 2:5

65:18

invest 14:7 45:6

47:4

invested 13:6,7

27:25 37:7

investing 2:14

11:21 14:20

investment 3:7,9

13:10 14:4 27:9

27:18 47:9,14

61:13

investor 12:23

13:19 17:14

19:10,17 21:10

26:22 27:4 31:1

31:6,18 37:17

39:13,17,18,19

39:20 41:2

49:16,17,20

51:1,2 52:8

53:16

investors 11:10

11:17,18,22

13:1 21:3 25:2

27:13,14,19,24

36:1 37:11,19

39:22 40:2,10

49:18 54:16

61:7,12,17 63:7

64:9,14 65:5,10

involve 5:12

20:14

involved 2:13 5:8

9:16 11:8 12:11

13:13 14:6

24:25 25:14,16

43:18 44:14,20

46:12,24 62:4

involvement

45:19

issue 6:23 35:9

42:1,18,20

43:22 62:16,16

62:18,21

issued 7:4 42:19

42:23 48:8

issues 40:15

it's 11:2 13:3 18:9

19:2,8,8 20:9,10

28:13 29:8 35:7

37:2 38:6,19

41:16 43:8 49:6

50:3 55:10,22

56:16,16 59:2

59:12 60:13,14

60:23,24 62:18

62:20

I'd 28:3 41:5

43:13

I'll 11:2 14:2

55:19,21

I'm 8:2,2 10:1,6

11:1 14:11

23:19 29:21

31:12 33:2

34:14 35:3,20

35:20 38:10,17

41:22 43:11

50:4 51:10,13

56:6 58:2,3,6,25

59:2,11,13

I've 3:24 12:21

14:1 16:23

26:22 40:6 43:7

46:9 48:16,16

57:8 60:9

J

James 44:7 45:2

January 3:6 18:9

19:3,6 33:18

56:3,5 57:25

job 1:23 3:13 4:10

5:10 8:10 47:23

jobs 57:4

jog 36:20

jogged 41:8

John 58:23,24

59:16,16

join 4:2

joined 3:21 10:5

July 3:20 63:17

K

K 66:2,13

keep 35:20

kicked 39:11

kind 3:16 7:5

24:11 47:14

55:3 62:12

kinds 53:11

knew 12:4,7

23:11 34:6 63:8

know 2:13,15,19

2:23 3:15 5:7

8:5 9:2 10:24

11:19,25 12:2,3

12:4,23,25 13:2

13:16,20,25,25

14:1,11,15,22

15:2 17:12,22

18:2 20:25 22:5

24:4,7,13,14,21

25:16,23 26:4

26:14 27:6,18

27:20 28:14,21

31:14,19,21

32:1,4,4,8 33:9

33:11,12,14

34:3,9,14 35:6

36:8 37:20,23

39:12,18 40:2

40:13,20 41:7

43:16,17 44:10

45:13,20 46:17

47:6,7 49:2,23

51:24 52:1,10

52:12 53:17,19

55:3,4,7,15

56:24 57:20

58:11,16 60:6

61:12,13,16,20

62:5,8,13 64:7

knowledge 15:10

19:19 24:8

known 12:10,19

13:4,19 17:12

48:18 53:6

knows 23:10

Kraft 43:20

Kreitman 51:10

58:1

L

Labor 3:21

late 25:24 32:6

Laughter 7:24

launched 30:25

50:18

Laura 1:10 3:2

38:20

lawsuit 15:22

leads 52:6

learned 48:17

leave 40:23

led 30:2

left 3:16 4:21 5:5

10:11,13 36:4

36:15

lending 19:16

letter 43:6,8

let's 6:16

leverage 52:13

53:18,19 54:12

leveraged 4:24

52:10,20 53:17

64:10

leveraging 63:1

Levin's 16:4

liabilities 53:21

life 3:6,8,16 4:3

11:5

liked 7:3 42:4,24

44:1

line 15:14,17 35:2

52:6

lines 15:13

list 22:5 27:13,13

40:21 41:1

47:16

listing 8:24

little 7:25 20:25

37:23 46:21

48:16 52:19

live 38:21

loans 3:12 4:24

64:10

long 11:13 12:17

14:4,16 16:25

18:8,15,23

20:22 21:25

23:1 24:15 25:1

25:18 26:2,14

36:1 39:23

40:15 47:11

53:7,8,25 55:7

55:15 64:17

long-term 21:2

37:10

look 2:9,10,11 7:2

11:11 26:18

28:3 34:25

41:20 42:23

48:9 55:5

looked 29:7 32:3

37:24 38:1

52:19 60:9

looking 14:23

17:6,7 31:15

34:4 39:3 43:24

52:1 55:5 60:13

looks 19:3 54:19

loss 17:10,11 31:9

31:17 52:12

losses 63:5,9

lost 17:1 61:20,24

63:9

lot 46:9 47:17

58:20 61:20

lots 3:9 23:5

24:16 39:14

54:15

lower 39:8

lowest 7:7

Lynch 3:17

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

72

M

Magnetar 54:19

54:24,25 55:10

55:13

main 19:22

major 22:24 23:9

making 3:11

managed 9:22

10:3,7 47:16

48:20,22 49:12

49:21

management 4:14

4:18,23 5:1,3,5

5:11,22 8:8 10:8

15:15 47:15

61:21 64:2

manager 4:13,16

12:21 21:2 27:6

34:4 47:23

49:15

managers 34:8

managing 2:14

14:19

market 21:2

22:20 28:3

42:18,20,23

43:22 53:6 54:7

55:6 61:9,10

62:23,24 63:13

63:13 64:8,24

65:4

marketing 11:15

markets 61:11

massively 55:11

55:16

master 3:4

matter 20:21 29:7

40:24 54:15

mattered 21:1

may 4:19 6:1

26:19 37:22

39:9 41:14

49:19

MCCARDEN

17:16,18,24

21:20 22:1,7,12

22:15,21 23:4

26:19,21 27:2,5

27:11,21 28:2

28:16,20,24

29:3,9,14,17,21

30:6,8,13,17

51:8,19 52:5,16

52:21 53:10

54:4,18,23 55:9

55:17 60:21

65:14

mean 8:21 11:23

12:14 13:18

14:5 16:18

17:19 20:5,7

22:15 23:10,14

23:16 25:4

26:14,23 28:13

30:20,21 31:12

34:7 35:18

36:12 37:1,19

37:22 38:22

39:18 40:19,20

41:6,23 53:5

54:11 58:12,15

58:19 59:7,10

61:6 62:20,22

62:23 63:23

64:12,14,17

65:9

means 39:18

meat 2:5

media 15:23

meet 19:10 49:17

49:18

meeting 19:25

20:7,14,17 56:4

56:7,24 57:2,5,7

57:9,18,19 58:2

58:4,7,8,25 59:4

59:6,11,17,18

59:20 60:5,8,12

60:17,19,20,21

60:22,23,24,25

meetings 20:11

members 46:19

58:16

memo 15:1

memorandum

29:8

memory 11:4

36:20

mention 38:2

mentioned 6:20

31:24 37:19

39:23 52:22

Merrill 3:17,20

4:8

Merrills 25:10

met 19:12 37:12

58:24 59:15

60:3,4

Michigan 3:3

Millbrook 41:6

million 13:7 25:3

35:24 37:8

41:25 42:1 47:9

57:8

minus 38:23

minute 39:10

56:2

misunderstood

42:12

model 61:8

models 63:9,10

Monday 19:6

57:14,25 60:4

Monday's 60:17

money 53:13,24

61:20,24

monitoring 48:4

48:7

monthly 27:25

months 55:1

mortgage 3:12,14

3:18 5:17,18

6:15,17 26:6

39:22 65:1

mortgages 6:10

motive 21:22

multiple 7:6 34:8

municipal 15:17

Mutual 39:24

N

N 2:1

name 3:2 6:21

12:15 44:23

named 32:16

names 11:19

39:13,17,19,20

39:21 40:3

42:17 43:2

64:21,22

Natalie 45:1

nature 51:19

necessarily 7:11

64:17

need 23:22 47:6

49:24 56:15

needs 47:17

negative 36:19

39:9

neither 66:6

net 26:2,2 61:7

never 19:5 23:11

26:25 28:15

31:25 35:15

42:16 43:1,4

55:15 58:24

59:16

new 3:6,8,16 4:2

35:8 37:13 40:7

42:1,18,20,23

43:22 45:23

55:5 59:21 60:1

news 25:24 54:6

newsletter 28:1

nine 31:2 52:11

55:1

Nobody's 28:22

note 29:1,23

notes 26:18 28:4

nuance 6:1

NYU 3:4,5

O

O 2:1

obligations 64:25

obviously 14:14

35:2,25

October 3:23 5:6

36:5,16,17,24

37:3

offer 49:18

offering 29:8

office 59:22 60:4

offices 37:14

59:24

oh 9:6,11 27:24

32:24 34:14

43:1

Okay 4:2,9 5:7

8:2,12,21 9:13

10:23,25 11:23

12:3,8,20 13:3

13:23 15:9,18

15:21 16:3,12

16:15 17:4,15

18:13,21 19:1,7

19:21,25 24:4

25:15,22 26:16

30:8,17,22

31:19,23 32:5

32:11 33:12,17

34:2,14,14,21

35:6,15 36:15

37:1,6,15 38:1,8

39:16 41:13

43:5,5,12 44:16

45:5,10,13 46:3

46:8,20 47:22

48:15,21 49:6

49:19 50:21

51:6 52:5,21

55:9 56:18 57:3

57:24 58:5

59:19 61:1

older 41:6

once 10:8 49:15

ones 9:16

one's 53:20

ongoing 10:4,8

opportunity

45:24

opposed 29:1

47:13 62:25

order 33:16 35:21

originator 40:4

43:24

originators 39:23

Ostrem 32:17,19

33:5 35:8

outcome 66:9

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

73

overall 7:3 23:7

24:22 37:2 48:4

P

P 2:1

page 9:1

pageant 34:12,13

paid 25:1 53:19

53:20

Panek 1:25 66:2

66:13

Paolo 15:23 60:3

paper 27:16 42:3

Paragraph 59:19

paramount 21:4

paren 31:2

part 8:15 14:9,22

23:17 35:1,2

37:9 44:9 46:13

46:15

partially 53:2

participant 28:3

participate 24:5

47:20 57:11

particular 7:22

50:25 51:11

particularly

36:14

parties 66:7

partners 22:20

party 21:21 25:10

passed 2:6

Paulson 11:25

12:11 13:4

15:18,25 16:5,6

16:10,13,25

17:9,14 18:7,15

18:22 19:4,16

19:22 20:21

31:9,17,20 34:8

37:16 38:3,11

40:14,17 49:20

52:24,24 53:1,5

53:12 57:10

58:24,24 59:16

pause 33:20 50:6

56:21

pays 48:24

Pellegrini 15:23

15:25 19:9,11

19:22 32:8

people 23:5 40:5

43:17 53:7

58:20

percent 11:16

28:22 30:12

31:3 36:17,18

52:12

percentage 24:22

perform 54:13,15

54:16

performance

48:11

performing 8:5,6

9:4 49:5

period 4:11 11:14

34:16 42:22

periodically

35:18

person 33:6

personally 9:16

perspective 12:18

18:19 21:1

31:18 39:6,7

45:21 52:8

63:24 64:2,6

Peter 32:17,18

33:5

phase 23:8

philosophy 61:13

phonetic 32:16

41:6 45:1 57:6

piece 15:1 17:10

17:11

pieces 14:25

place 14:13

placement 24:24

platform 10:9

play 19:9 52:16

63:8

point 7:7 14:25

17:2 36:8,10

39:1,5,10 54:5

54:12 62:13

pointing 9:24

10:6 11:1

points 24:22

portfolio 3:13

4:13,16,18 5:1,3

5:11,21,22,24

11:11,16 12:15

12:16 20:18

23:7 31:3 38:11

42:9 43:1 44:14

45:4 47:15 48:5

49:12 60:2

portfolios 7:19

9:20 40:21

41:12

Portnoy 44:18

position 14:16

24:6 47:11

61:12,17 63:21

64:15

positions 14:21

53:7

potential 19:10

54:8

potentially 34:4

practice 61:13

practices 2:10

precommitted

17:10,11 18:4

31:16

preexisting 38:22

38:24

premise 14:17

prepare 49:7

present 44:2

45:24

presentation 14:3

32:13

presented 5:20

9:19 15:4

presenting 5:16

20:18

press 55:21

presumably 56:5

56:25

pretty 25:9 29:18

31:17 43:11

52:12 58:2,3

previous 57:17

primarily 4:14

principal 49:3

prior 5:10

probably 2:3 4:4

4:21 5:1 22:25

25:23 28:5 36:8

48:8 60:14

proceedings

33:21 50:7

56:22 66:4,4

proceeds 25:1,2

25:18,21

process 14:10,22

26:1,1,5,13 44:4

44:14

produced 15:11

15:12

product 3:13

13:17 47:13

products 3:16,25

4:14,23 64:9

profitability 54:8

prompted 51:20

proposed 42:11

proprietary 27:16

pros 11:20

protect 53:7,8,9

54:1,2

protection 61:25

62:6,17

provide 46:21

provided 41:2

66:6

PSI 58:13

public 14:14

purchased 11:17

25:18

purely 41:4

push 40:7

pushback 39:14

39:17,18

pushing 35:10

put 7:14 27:25

42:24 47:18

54:4 61:13

putting 37:15

54:5

p.m 57:25

Q

quality 39:12

question 31:5

35:3 42:8,14

52:6,17 56:7,23

61:8

questions 17:16

49:17 51:9

55:18

quote 52:24

R

R 2:1

ramp 42:22

ramped 11:14

ran 5:4 23:10

rated 6:23 39:8

rating 63:18

ratings 40:2

ratio 52:13

read 55:21

reading 58:3

real 3:7 8:11 26:2

26:2,5 59:9

really 6:3 8:4 9:2

21:4,6 23:11

26:15 28:7,15

29:7 38:10

40:19,24 52:2

63:24

rebalancing

49:11

recall 16:16 18:17

18:20,21,24

20:10,11,11,17

21:12,13,17,19

25:20 32:4,7

35:14,19 37:11

40:17 41:11

49:20 50:11

51:4,22 53:3

56:8 57:11

receipt 2:12

received 2:17

receiving 29:23

recollection 36:25

57:21

recommend 7:7

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

74

recommended

39:1,5

recommending

14:4

record 12:22

14:15 18:9 19:2

19:8 32:14

33:17 35:7 56:2

57:24 66:3

recorded 1:9

65:18 66:4

recorder 18:9

recording 66:6

redactions 58:10

58:14

reducing 26:5

refer 18:19

reference 40:6

47:1 50:5

referenced 20:2

41:16 59:12

60:2 64:25

references 64:22

referred 34:11

referring 18:7

31:17 59:13

regional 3:25

reinvest 48:6 49:3

reinvestment

47:17 49:10,11

rejected 41:3

rejecting 21:14

42:10

related 66:7

relation 51:2

relations 49:16

51:1

released 56:13,14

56:17,20

remedial 23:23

41:14 46:21

remember 4:20

14:15 15:2

17:13 20:7

25:19 27:15

35:17 41:7

remembering

25:20

repeatedly 37:13

replace 48:24

report 15:22

reporting 8:19

48:11

reports 48:8,10

49:7 54:18

representing

19:16

reputation 21:4,5

reputational

12:18

request 8:22

require 41:14

residential 3:18

5:17 6:15,17

63:4,6,19 65:1

respond 42:17

responded 8:22

responding 35:8

responds 19:11

responsibilities

4:10 5:10 8:10

responsibility

8:20

responsible 5:15

9:23 10:3,7

15:16 23:17

44:9,22 45:3,6

48:4

rest 45:24

results 44:1 52:1

return 53:23 54:1

54:17

revelation 61:6

reviewed 5:19 6:3

9:19 12:16

reviewing 5:15,19

44:20

right 3:21 10:17

10:20 14:8 20:8

23:16,17,18,20

28:15 30:15,15

33:2 34:10,23

42:10 45:15

50:17,20 55:17

58:11,18 59:25

60:18 61:17

62:1,14,14,16

62:20 63:25

64:17

risk 24:9 28:18

29:12 30:1 31:2

45:11 61:21

62:10

risks 25:13 42:6

RMBS 36:18

road 35:23

Robin 2:3 8:23

role 4:22 8:5

19:10 31:3

37:17 44:10

47:8,9

roles 3:10,11 8:6

Roseman 43:16

44:17 45:18,22

46:12

Rothman 44:7

45:2 47:3

Rothman's 45:5

run 4:25 7:6

24:13 43:25

52:2

running 3:13 4:17

63:9,10

rush 45:1 50:13

S

S 2:1

sale 55:6

sales 3:24

sat 13:12 14:4

45:16,22

saw 47:16 49:4

63:3,7

saying 38:4 40:17

59:10

says 30:24 31:1

33:19 35:9

38:14,20 43:21

57:8 59:2,15

scale 62:18

Schwartz 1:10

3:2,2 4:4,7,12

5:13 6:11,14,19

6:23 7:2,14,17

7:21 8:2,11,13

8:18 9:6,9,11,14

9:18 10:1,12,16

10:18,21,24

11:1,5,10 12:2,6

12:13,25 13:9

13:24 14:8,11

14:19 15:6,8,10

15:20 16:2,8,11

16:14,16,19,21

17:3,6,21,25

18:4,11,17,24

19:5,19,24 20:4

20:7,16,24

21:12,15,18,24

22:2,8,13,17,22

23:5,16,21 24:3

24:7,12,19 25:4

25:8,19 26:7,10

26:13,17,24

27:3,8,12,22

28:13,17,21,25

29:4,11,15,18

30:2,7,11,14,18

30:22 31:8,11

31:14,22,24

32:3,10,20,23

32:25 33:3,5,11

33:14,22,25

34:6,20,22 35:5

35:14,17,22

36:4,7,13,23

37:5,9,22 38:6,9

38:16,18,20,25

39:20 40:9,12

40:19 41:4,10

41:19 42:9,15

43:7,10,12,15

43:20 44:15,17

45:1,8,11,14,17

45:21 46:4,6,8

46:11,16 47:6

48:2,13,19,22

49:1,10,13,16

49:22 50:10,15

50:21,24 51:4

51:18,22 52:10

52:19 53:3,15

54:10,22,25

55:14 56:9,13

56:18 57:1,4,14

57:18,23 58:2,6

58:11,15,19,23

59:5,10,15,22

59:25 60:3,7,12

60:16,19,23

61:2,10,16,23

62:3,8,12,15,20

63:2,12,16,23

64:1,5,16,20

65:7,9,15,17

Scott 61:5

script 19:13

SEC 12:8 13:4

15:24 36:16

59:12,19

second 9:1 39:8

52:6

sector 23:1

securities 3:19

4:24 25:5,12

37:25,25 38:5

42:19 63:4 65:1

securitization

2:10

see 11:17 20:8,12

34:7 38:2 41:10

44:23

SEEFER 2:2 4:2

4:6,9 5:7 6:8,13

6:18,22 7:1,13

7:16,20,23,25

8:3,12,15,21

9:10,13,15

10:14,23,25

11:4,6,23 12:3,8

12:20 13:3,23

14:1,9,18 15:3,7

15:9,18,21 16:3

16:9,12,15,20

16:22 17:4,15

17:17 18:6,12

18:21 19:1,7,21

19:25 20:5,20

21:8,13 23:13

23:18,22 24:4

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

75

24:10,17,25

25:7,15,22 26:8

26:11,16,18,20

30:19,23 31:10

31:12,19,23

32:2,5,11,21,24

33:2,4,9,12,15

33:23 34:2,10

34:13,21,23

35:6,15,20,23

36:6,12,15 37:1

37:6,15 38:1,8

38:13,17,19

39:16 40:6,10

40:13 41:1,9,13

42:7,10 43:5,13

43:16 44:12,16

44:25 45:5,10

45:13,15,18

46:3,5,7,9,12,20

47:22 48:10,15

48:21,23 49:6

49:11,14,19,23

50:8,11,20,23

50:25 51:6

55:19 56:1,10

56:16,20,23

57:3,13,16,24

58:5,9,13,18,21

59:19,24 60:1,6

60:11 61:1,4

65:13,15

seeing 13:16

19:14

seen 5:8 14:1

15:21 16:23

19:2,5,15 26:22

26:25 32:12

33:7,23,25 35:4

40:6 43:7,10

46:4,5 50:9

55:20 56:6,12

57:8

select 5:24 6:5

selected 6:6 9:12

12:15 25:6

selecting 5:9 8:16

8:18 11:9 20:20

37:17 40:20

selection 9:7

12:11 13:21

14:9 20:18 31:4

37:18 42:9

44:14,21

sell 27:16 48:6

49:2,4

seller 43:24

senate 27:1 30:3

senior 32:13

44:11

sense 28:11 29:20

54:8 55:12

sensitivity 52:3

sent 43:6

separated 5:2,11

September 3:22

5:5

servicer 7:5 43:24

servicers 39:23

setting 60:8,16

share 27:14

sharing 27:17

shelf 6:20 7:4

shelves 39:22

She's 9:24

short 12:1,24

13:1 15:19 16:1

16:6,7,10,13,18

16:18,19,21

18:2 20:22

21:10,19,21

22:2,8,14 23:2

24:1,6,16 26:2

26:14 32:9

52:25 53:1,2,25

55:11,15,16

61:7 64:13,15

64:18,20 65:2

shorted 64:23

shorting 13:5,19

37:16 53:9

show 8:25 30:19

30:23 31:5

33:15,17 34:24

38:5 49:24,25

50:2 51:9 55:20

showing 31:16

Shu 19:24,24

side 22:3,6,23

23:10,12 24:1

29:23 30:5

sides 57:21

sign 45:25

significant 61:24

signing 46:14

47:24

Sihan 19:24,24

simply 35:3 41:16

single 7:15 9:9,12

62:5,9

sitting 13:16 59:2

six 42:22 46:18

slight 6:1

slightly 5:14

slowed 63:12

slug 38:4

small 40:4

smaller 3:25

62:17

solely 12:19,24

13:1 16:18,19

16:21 21:6

52:25 64:13,13

somebody 12:19

21:6 29:22 30:4

61:3

somewhat 53:8

sorry 8:2,2 9:14

10:1 11:1 21:15

30:18 31:12

33:2 34:14

35:20 38:17

43:15 44:17

sort 11:13 13:9,16

16:4 17:22

20:10,25 22:25

23:2 27:15 44:4

47:7 50:17,21

52:3 58:15

63:17

sounds 19:21 56:9

south 36:1,3 37:4

speak 12:4

SPEAKER 9:7,24

10:10,15,17,20

16:17 18:3

20:13 21:16

34:12 43:8,11

55:23 56:11,14

56:19 57:20

59:1,7,12 60:15

60:18

speaks 52:7

specific 17:8

18:17 20:11

26:25 30:8

37:11 51:4 53:4

specifically 2:21

24:20 52:9

59:15

specifics 15:2

20:10

spent 3:7

spoke 28:2 35:18

37:9

sponsor 17:9,18

18:8 31:16

53:14

spreads 54:11

spring 63:14,16

stand 20:25

standard 25:9

stands 12:14

start 43:23 63:20

started 3:5,6,11

11:15

starting 44:4 63:5

63:5

starts 8:25

state 47:5

stated 65:9

states 19:9

static 48:5,16

49:8

statute 2:6,9

Steflan 32:16,19

32:20,21,25

35:8,13

stepping 61:6

stick 19:12

street 25:9

stresses 7:6 43:25

44:1

string 18:12

32:15

structure 29:10

51:23 52:7,11

53:10 63:6 64:8

structured 3:13

3:16,25 4:13

13:12,24 14:21

14:25 15:15

44:8 45:2 47:2,8

61:9,10,23

63:24

structures 55:11

subordination

52:18

subprime 39:24

Succinctly 52:8

suggested 34:22

55:10

summer 63:16

Sunday 60:8,13

60:14

super-senior

13:11 28:10

44:9 45:8,12

61:25

supply 40:21

support 5:3

supported 29:16

sure 12:22 29:21

36:12 38:10

41:9 43:11,20

49:25 56:6 58:2

58:3,6,7,25

60:11

surreal 56:6 59:3

59:3

susceptible 39:13

39:17

sustain 52:14

swap 23:7 28:19

29:2,5 64:24

swaps 14:20

64:21

syndicated 23:3

synthetic 2:14

8:17 11:12,13

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

76

12:24 19:17

21:20 24:2 28:7

28:14 29:12,15

30:12 41:5,17

41:20 42:3,13

42:15 43:3 47:1

55:2 61:8 62:15

synthetically

21:25 42:6

synthetics 24:14

62:25

system 39:12

T

take 6:16 8:19

22:6,23 28:18

29:12 34:25

40:23 44:12

50:9 61:12,17

62:9 63:20

64:15,16

taken 14:16 29:5

talk 2:19,20 11:19

20:14 48:15

64:12

talked 8:23 38:24

talking 20:1

50:16,18 51:23

talks 17:10 59:20

tape 18:9

targeted 11:11

TCW 19:11,13

58:19

team 5:20,22 6:4

7:2 8:18 9:16,18

14:24 30:24

43:23 44:6,7

58:16 59:16

team's 4:25

tell 15:24,25 16:6

16:9,12 18:14

24:17 32:22

43:18 57:15

65:3

telling 18:25

tells 2:9,10,11

ten 22:25

term 17:18 38:19

49:12

terms 23:20 25:4

37:17 46:13

52:7

testified 15:23

16:4

testimony 27:1

30:3

thank 2:2 7:23

55:18 65:15,17

that's 2:18,18 9:7

9:15 10:12,14

10:16 11:25

13:25 15:4,6,8

22:24 24:23,23

24:24 27:15,15

30:11,14 33:2

38:16,18,21

41:16 42:25

44:15 49:25

51:17 52:12

53:24 57:1,5,14

58:7,7 59:17

60:18,20,21

62:8

theoretical 29:25

30:9,14

there's 16:22

38:13 49:9 57:7

59:1,8 60:9,12

they're 40:18

50:18 52:2

they've 8:24

39:10,11

thing 30:9 35:11

50:16 56:4

62:12

things 7:5 13:10

22:20 24:16

25:22 39:2,14

48:17 51:11

62:4

think 4:21 8:23

12:13,14,17

13:6,9,18,20,21

14:3 15:4 17:21

21:5,16,18

24:12,19 28:5

29:24 30:21

31:25 32:23,25

33:3,8,8 34:3,11

36:7,8,10,13

38:1,20 43:7,8

46:7 48:16

49:23 50:15,23

52:20 53:6,18

54:14 55:14

57:1,5,5 58:21

59:3,4,5,13,17

60:5,13,18,20

61:11,17,21

62:4 63:3,7,12

63:17,23 64:2,5

64:22,23,24

65:7

third 15:16 47:7

47:19

thought 12:17

34:24 38:3

42:11 46:1

53:24 54:13,16

55:15

thread 50:1

threads 50:3

three 4:17 14:12

15:13 17:7 20:9

20:9 24:22

31:14 39:12

60:3

three-ring 55:24

tie 48:9

till 4:6,7

time 4:11,21 9:22

11:15 22:10

25:24 26:9 27:6

27:20,23 30:6

31:20 32:3,5,6

34:15 41:11

42:1 43:22

48:17 49:2

50:24 54:5,9

59:9 65:16

times 11:18 57:8

60:3,10

tiny 20:24

told 2:3 15:19

16:5 18:18,22

26:24 28:23

39:2 40:21

Tom 65:13

top 14:21 35:2

50:17

topics 50:23

Tourre 16:3,6

18:14 51:17

56:4 59:2,8

Tracy 44:18

training 3:24

tranche 7:9 17:12

17:19 18:16,23

28:6,7 29:14

31:3,7,7,11

40:15 41:25

45:12

tranches 6:25

17:1 28:8 39:9

47:21 52:4,14

transaction 2:15

5:9 14:23 17:9

21:6,22 29:11

30:11 31:16

35:25 46:13

48:14 53:13

54:24 55:1

transactions

52:11 54:20

63:7 64:8

transcribed 1:25

66:5

TRANSCRIBER

66:1

transcript 66:3

transparent

21:23

triple 6:24 7:9,10

7:17,18,22 29:6

31:2,7 39:2,3,4

39:7 62:9

true 17:2 19:23

66:3

trustee 48:7,9,10

try 14:2 27:13

33:16 53:8

55:21

trying 2:7 8:8

35:20 50:13

twelve-month

42:22

two 10:4 13:9

49:15 51:13

type 9:4 25:17

48:17

typing 59:8

U

uh-huh 6:13,18

6:22 7:1,1,13,16

7:20,23 14:18

17:24 22:1,7,12

22:21 23:4

26:17 27:2,11

27:21 28:16,20

28:24 29:3,17

30:13 35:22

36:6 44:25

45:17 46:11

58:21 61:15

62:2,7,11,19,22

63:11 64:4,12

64:19 65:11

ultimate 63:9

ultimately 8:19

47:24 61:20

uncomfortable

34:16

underlying 5:17

6:5 39:21 45:4

46:17 48:11

52:15 54:11

63:4,19 64:22

64:25

understand 29:22

42:7 57:10 65:3

understanding

23:25 25:15

27:1 30:4 31:8

31:13 36:15

45:18 53:12

underwriter 7:5

11:3 27:10

underwriters

27:9

LAURA SCHWARTZ


(202) 861-3410 (800) 292-4789 (301) 762-8282 (703) 288-0026 (410) 539-3664Merrill LAD

77

underwriting

24:21

unfortunately

36:10

unfunded 28:6,10

28:14 29:4,5,6

30:15,16

uninformed

24:11

universe 5:23 6:6

8:16 38:23,24

41:21 55:5

University 3:3

unrated 6:25

unusual 29:10

37:18

use 5:22 7:18 54:2

uses 59:3

usually 27:7

V

vacuum 20:25

valuable 8:3

value 25:11

various 8:24

25:23

versus 11:20

42:13 62:23

64:13,13

view 63:20

voice 37:18

Volume 1:24

voting 46:18

W

want 2:19,20 9:2

12:22 21:19

27:17 30:19

40:18 42:16

43:1 49:18

63:21 64:3

wanted 8:4 11:17

21:2,10 24:18

27:20 40:24

41:22,23,24

45:23 49:2 51:7

65:2

wants 22:5,8

57:11

warehouse 42:25

warehousing

11:14

Washington

39:24

wasn't 7:11 22:18

23:11 29:25

44:10,13

watch 36:19 39:9

waterfall 48:13

way 6:24 13:22

23:2 26:25

29:13 32:18

41:19 42:2

47:19 64:12

65:8

ways 22:3

websites 28:6

29:24

week 51:25

weigh 11:20

went 3:3,4,17

21:25 22:5 25:4

25:13 36:11

44:21 46:18

58:16

weren't 14:6

25:16 38:23

39:21 58:9

we'll 33:16 58:13

we're 2:3,7 16:17

32:8 62:8

we've 5:8 8:21

what's 24:13 42:7

46:25 48:18

widened 54:12

willing 62:9

Wilson 57:6

woman 44:18

won't 43:11

worded 12:13

words 12:9 28:7

work 2:25 10:10

27:7 44:6,13

48:7

worked 3:22,24

4:16 14:24 44:7

44:19 45:2

54:19,22,24

55:13

working 3:5

55:12

works 14:6 46:22

worry 42:4

wouldn't 27:17

43:2 45:3 53:4,5

57:9

wound 53:16,18

write 42:5 57:25

62:6,17

writes 56:4

writeup 44:2

writing 32:16

wrong 61:9,11

wrote 21:24 34:11

61:25

Y

yeah 9:10 33:22

34:14 52:19

56:10

year 2:6 8:24

years 3:8,8,23

4:17 14:12 17:7

20:9,10 31:15

yesterday 30:25

yielding 54:14

York 3:6,8,16 4:3

37:13 59:21

60:1

You'd 43:4

you're 19:9 32:6

37:2 40:14,16

42:10 51:1

you've 32:11

46:23,23 47:2

51:24 55:20

56:6

Z

zero 31:2 52:11

0

0 53:17

0163-194913 1:23

02 4:8,8

04 4:20,21

05 4:19

06 25:24 32:6

62:23 65:4

07 4:8 25:25 32:6

35:25 51:3

62:23 63:15

08 35:25

1

1 1:24,24 53:17

53:18,19

10 41:25 53:17,19

10th 18:10

11 53:18

11th 33:18 50:1

120 38:5

123 34:18 38:21

38:23 40:15

125 43:2

14 3:7,8

150 25:2 37:7

17 36:18

1984 3:6 4:4,5

1998 3:17

2

2nd 59:20

2001-1 10:6

2002 3:20,21,21

2002-1 10:2,6

2004 8:7

2006 5:1,2,10 8:7

2007 2:21 3:23

5:6 10:11,11

12:1 18:10 19:3

19:6 30:24,25

32:14 35:7 36:5

36:17 37:3 48:1

50:1 56:3,5

57:25 59:20

63:3,16,17

2007-1 9:3 11:2

24th 36:17,24

26th 47:25

27 35:7

27th 32:14

28th 30:24

29th 19:3,6

3

30 47:16

32 59:19

5

5 3:23

5th 56:5,25

50 42:1

55 34:17 38:20,23

39:15 40:16

6

6th 56:3,25

7

7th 60:14,15

7:05 57:25

70 11:16

8

8th 57:14,19,25

60:5

800 53:20

83 36:17

9

9 53:17

909 13:7 35:24

950 47:9

98 4:6,7,8

1 6 7 11 aca capital holdings, inc.€¦ · 01/06/2011 · 1 1 2 3 4 5 6 7 8 financial crisis...

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