GOLDMAN SACHS ABACUS 2007 AC1

An outline of the financial crisis

Easy credit conditions

In the wake of the dot com burst and the 9/11 attacks, the Federal Reserve chairman Alan
Greenspan initiated a series of interest cuts that brought down the Federal Funds rate to 1% in
2004 in order to keep the economy strong. In addition, between 1996 and 2004, the USA
current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP. Financing these
deficits required U.S. to borrow large sums from abroad, much of it from countries running
trade surpluses. Large and growing amounts of foreign funds (capital) flowed into the USA to
finance its imports. This created demand for various types of financial assets, raising the prices
of those assets while lowering interest rates. This created easy credit conditions for a number
of years prior to the crisis, fueling a housing construction boom and encouraging debt financed
consumption. The combination of easy credit and money inflow contributed to the United
States housing bubble. Loans of various types (e.g., mortgage, credit card, and auto) were easy
to obtain and consumers assumed an unprecedented debt load.

Sub prime lending

The general notion in the U.S. was that the housing prices are always rising. This belief that
housing is a safe and good investment led to mania for home ownership. People who already
had a home were prepared to buy another. Those who could not afford a house contacted a
mortgage broker who got them in touch with a mortgage lender.

The investment banker then borrows millions of dollars and offers to buy the mortgages,
converts them into Collateralized Debt Obligation (“CDO”) which contains 3 tranches-
unsecured (risky), Mezzanine (okay) and Senior Secured (safe). As the payments on the
mortgages come in, the safe tranche fills up flowing down to the okay tranche and then finally
to the risky tranche. If some borrowers default on their mortgages, less money comes in and
the bottom tranche may not get filled. To compensate for the additional risk, the interest was
higher in the bottom tranche. The investment banker sold these tranches to investors, hedge
funds, pension funds etc. In the beginning, these tranches were overflowing and everyone was
getting great returns. So the investors asked for more tranches from the banker who asked for
more mortgages from the lender. But all those who qualified for a mortgage already had one.
This gave rise to sub prime lending. In the event of a default in mortgage payments, the house
ownership passes on to the bank. The bankers thought that since the housing prices are always
rising, this would be great for them.

Sub prime lending required no down payment or proof of income. The lenders start writing up
riskier mortgages. These mortgages became riskier to the point where one could get a
mortgage without presenting any document at all! This was the turning point.

As one would expect, the sub prime borrowers defaulted on their loans and the banks get their
houses which were rising in value. As more and more sub-prime mortgages default, the value of
these houses gradually start to plummet as the supply now far exceeded the demand. This led
to a series of foreclosures. The prime borrowers now faced a strange situation. They found out
that their mortgage payments were now greater than the value of the house they owned so
they also put the house on sale. The mortgage pool was now running dry as the mortgage
payments were not coming in. The investment banker now held hundreds of worthless CDOs
which he needed to sell to pay back the huge sums he borrowed to buy the mortgages. But the
investors do not want it as they already own CDOs that are plunging in value. So the banks now
stop buying or lending anything. This adverse condition of the banks was also accentuated by
increased debt burden and over leveraging.

In 2004, the U.S. the Securities and Exchange Commission relaxed the net capital rule which
enabled investment banks to substantially increase the level of debt they were taking on,
fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC has
conceded that self-regulation of investment banks contributed to the crisis

Each of the five largest investment banks took on greater risk leading up to the subprime crisis.
This is summarized by their leverage ratio, which is the ratio of total debt to total equity. A
higher ratio indicates more risk. From fiscal years 2003-2007, these firms significantly increased
their leverage ratios. A ratio of 10-15 is more typical of a conservative bank. These firms had
ratios closer to 30.

A highly leveraged institution can have its equity wiped out due to relatively minor swings in
the value of its assets. For example, let's suppose an investment bank has $310 in assets, $300
in debt and $10 in equity capital. This is a leverage ratio of 300/10 or 30-to-1. It is an accounting
identity (a rule that must be true by definition) that assets equals the sum of liabilities and
equity. Now suppose the value of the assets declines by about 3% to $300. The institution still
owes its debt holders $300, so equity must be zero. Many financial institutions were facing this
scenario. To get more equity or capital, they typically issue new common stock shares to the
public in exchange for funds. However, this dilutes the ownership of current shareholders,
placing downward pressure on the stock price. When share prices have been reduced as was
the case in 2008, a larger and more dilutive issuance of shares is required.

ABACUS 2007 AC1

The deal became a subject of controversy when the Securities and Exchange Commission
(“SEC”) filed a civil fraud lawsuit against the investment bank on grounds of misrepresenting
material facts in the offering document. The SEC contends that the firm did not disclose the role
of Paulson, a hedge fund manager, to potential investors. Paulson- now recognized as a heavy
bettor against the subprime market- was allegedly involved in the selection of the securities
that went into the deal.

PARTIES INVOLVED AND MOTIVATION OF DIFFERENT PARTIES

Goldman Sachs- The Goldman Sachs Group, Inc. is a global investment banking and securities
firm which engages in investment banking, securities, investment management, and other
financial services primarily with institutional clients. Their main business is trading for their own
accounts and creating trading opportunities for clients for which they get a fee. Goldman
Sachs's duty was to serve as a market maker whose job was to structure and execute a
transaction to meet multiple client needs.

Securities and Exchange Commission (“SEC”) - SEC is a federal agency which holds primary
responsibility for enforcing the federal securities laws and regulating the securities industry.
The agency charged a case against Goldman for fraud. It was under pressure after it was
accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud.

Paulson- John Paulson is the founder and president of Paulson & Co., a New York-based fund,
Hedge fund manager. Approached Goldman to structure the deal through which he could
monetize his views on the sub-prime mortgage market.
Beginning in 2006, Paulson created the Paulson Credit Opportunities Funds, which took a
bearish view on subprime mortgage loans by purchasing protection through credit default
swaps (“CDSs”) on various debt securities. These funds earned substantial profits, and have
recently received significant media attention.

ACA Management –ACA was the asset management subsidiary of ACA Capital Holdings, Inc.,
and provided asset management services and credit protection products to investors. ACA
acted as the Portfolio Selection Agent for the 2007-AC1 transaction, invested $42 million in the
2007-AC1 notes, and sold protection to Goldman Sachs on the $909 million notional amount
super senior tranche of the transaction.

IKB Deutsche Industriebank -IKB is a German Bank founded in 1924. In January of 2007, IKB
launched Rhinebridge Plc, a structured investment vehicle that invested heavily in the United
States subprime market. Goldman Sachs was working with IKB on a number of transactions,
including multiple ABACUS transactions.

ABN Amro- Between 1991 and 2007, ABN AMRO was one of the largest banks in Europe and
had operations in about 63 countries around the world. In the biggest banking takeover in
history, a consortium comprising RBS, Fortis, and Banco Santander acquired ABN AMRO in
2007.

ABN Amro assumed the credit risk tied to the highest-quality parts of the Abacus CDO, through
credit default swaps.

Credit rating agencies- A credit rating agency is a company that assigns credit ratings for
issuers of certain types of debt obligations as well as the debt instruments themselves. The deal
had received the highest possible credit rating - stamped triple-A - by the top two agencies,
Moody's and Standard & Poor's, meaning it should have been a safe investment.

PAULSON’S STRATEGY

Paulson’s funds bet aggressively against the mortgage market.

In late 2006 and early 2007, Paulson performed an analysis of recent-vintage Triple B RMBS and
identified over 100 bonds it expected to experience credit events in the near future. Paulson’s
selection criteria favored RMBS that included a high percentage of adjustable rate mortgages,
relatively low borrower FICO scores, and a high concentration of mortgages in states like
Arizona, California, Florida and Nevada that had recently experienced high rates of home price
appreciation.

OTHER WAYS TO MONETIZE ONE’S VIEWS

ABX.HE index-
The ABX.HE index tracks the prices of CDS contracts written on a fixed basket of twenty. The
protection buyer of an ABX.HE index of a given credit rating pays the protection seller a one-
time up-front fee of par minus the observed market price of the ABX.HE index plus a monthly
premium, called the fixed leg. The premium rate for an ABX.HE index of a given vintage and
credit rating is fixed until the vintage expiry date when the notional balances of the referenced
obligations have fully amortized, defaulted, and/or have been pre-paid equally weighted U.S.
subprime RMBS pools.

The ABX.HE indexed CDS allows short-sellers to either take large directional bets on the
mortgage sector or individual banks in the sector, a bet on the portfolio performance, and/or
bets on baskets of named securities since the referenced obligations of each index are known.
Although the exact size of the short-selling bets on the ABX.HE indices is unknown, it is known
that these positions delivered two of the largest single successful payouts in the history of
financial markets: the Paulson & Co. series of funds that secured $12 billion in profits from sub-
prime bets based on the ABX indexes in 2007 (Mackintosh (January 15, 2008)) and the Goldman
Sachs bet on the ABX.HE index that generated nearly $4 billion of profits and erased $1.5 to
$2.0 billion of losses on Goldman's $10 billion sub-prime portfolio holdings in 2007 (Kelly
(December 14, 2007)).

Stock Market Indices-

Amex, CBOE, Dow Jones and Company, NASDAQ, Standard and Poor’s etc. are certain indices
that allow investors to monetize their views on performance of a number of companies.

ETFs-
An exchange-traded fund (ETF), also known as an exchange-traded product (ETP), is an
investment fund traded on stock exchanges, much like stocks.
An ETF's value is tied to a group of securities that compose an index. Investors are able to short
sell an ETF, buy it on margin and trade it. In other words, ETFs are traded and exploited like any
other stock on an exchange.

Chicago Mercantile Exchange

The quote from the CME web page on housing futures reads: "CME Housing futures and
options are the first comprehensive financial tools that make it possible to trade U.S. real estate
values. These products provide opportunities for protection or profit in up or down markets,
and extend to the housing industry the same tools for risk management and investment that
previous CME innovations have brought to agriculture and finance.” The following markets are
tradable: Composite Index (CUS), Boston (BOS), Chicago (CHI), Denver (DEN), Las Vegas (LAV),
Los Angeles (LAX), Miami (MIA), New York (NYM), San Diego (SDG), San Francisco (SFR), and
Washington, D.C. (WDC).
The CME can be used by a homebuilder as a hedging tool by selling a futures contract at current
prices to offset the risk of falling prices. A person who feels that the housing prices are going to
rise significantly can purchase a futures contract at current prices.
Investors can also buy contracts based on a weighted composite index for all ten cities. If a
house sells at $100,000 and then sells again at $110,000 the index records a ten percent
increase. Unlike either options or futures the investor is not offering to buy anything and will
not end up owning a single house.
OTHER SIMILAR DEALS DONE AT THE SAME TIME

Magnetar worked with Citibank, JP Morgan Chase, Merrill Lynch, and other top banks in the
run-up to the crisis to help create nearly $40 billion in collateralized debt obligations that in
many cases the hedge fund also bet against. People involved in the deals—which were made
just as the housing market was beginning to fall apart -said Magnetar pushed for particularly
risky assets to go into the investments.

It helped keep sales growing even as the housing market started to stumble. It did that by
stepping in to buy the riskiest portions of the CDOs. Without a buyer for the riskiest slice, the
supposedly least risky, generally triple-A rated portions of the CDO could not be sold.

Magnetar offset its risk by betting against the default of these securities using instruments
called credit default swaps. Magnetar ended up making big profits when these CDOs collapsed,
while the investors in the supposedly safer parts of the security suffered big losses.

By buying the risky bottom slices of CDOs, Magnetar didn’t just help create more CDOs it could
bet against. Since it owned a small slice of the CDO, Magnetar also received regular payments
as its investments threw off income.

They say Magnetar pressed to include riskier assets in their CDOs that would make the
investments more vulnerable to failure. The hedge fund acknowledges it bet against its own
deals but says the majority of its short positions involved similar CDOs that it did not own.
Magnetar says it never selected the assets that went into its CDOs.

Dead Presidents Deal

Morgan Stanley arranged and marketed CDOs to investors, and its trading desk at times placed
bets that their value would fall, traders said.

Among the Morgan Stanley deals that have been scrutinized are the Jackson and Buchanan
CDOs, created in mid-2006. Those deals essentially were portfolios of derivatives that aped the
performance of dozens of residential and commercial mortgage-backed securities.

One feature of the Morgan Stanley deals was a structure that could increase the magnitude of
the bullish investors' exposures to the underlying mortgage bonds. This feature, which was
disclosed in some offering documents, made it more likely that such investors could lose money
if the underlying bonds performed poorly.
Morgan Stanley traders took the more profitable, bearish side of these transactions, according
to traders. These positions weren't disclosed in some deals.

Libertas

It is believed that Morgan Stanley may have engaged in fraudulent sales practices related to the
sale of Libertas CDOs. Morgan Stanley knew securities in the Libertas CDOs were suffering a
dramatic rise in delinquencies, but provided a misleading "risk factor" in a prospectus that rising
delinquencies "may" hurt values in the $1 trillion residential mortgage-backed securities
market.

Morgan Stanley knew the CDO's assets were much riskier than the ratings suggested but was
highly motivated to sell the CDOs to investors because the firm was simultaneously "shorting"
almost all the assets.

PORTFOLIO COMPOSITION

Like countless similar transactions during 2007, the synthetic portfolio consisted of 90 Baa2
rated sub-prime residential mortgage backed securities (“RMBS”) issued in 2006 and early
2007.

ACA ultimately approved 90 securities that it stood behind as the portfolio selection agent,
albeit from the category of 2006/2007-vintage Baa2-rated subprime RMBS.

Form of CDS

Bond
Protection Buyer Protection Seller

“Short” the credit risk “Long” the credit risk

Payment only if credit event occurs

Physical Settlement and Cash Settlement

In a physical settlement, the buyer of protection delivers the defaulted bond to the seller and
receives par in return. In a cash settlement, the buyer of protection receives the net difference
between par and the market price (also known as the recovery value) of the defaulted security.
Physical Settlement

Bond
Protection Buyer Protection Seller
Par value of bond

Cash Settlement

100-recovery rate
Protection Buyer Protection Seller

Asset Backed Credit Default Swap (“ABCDS”)

Referenced entity in each ABCDS is a single ABS security. Each ABCDS is written on a specific
security, and only the status of that bond (e.g., prepayments, writedowns, interest shortfalls,
etc.) is relevant to the parties in the contract.
Maturity Date
The scheduled maturity date of ABCDS is the legal final maturity date of the reference bond.

Credit Events
There are generally four .credit events. as defined in ABCDS:
Failure-to-pay: The reference cash bond fails to pay all principal by the legal final maturity
date.
Write-down: The balance of the reference cash bond is written down.
Distressed rating downgrade: One of the three major rating agencies downgrades the
reference cash bond to Caa2/CCC or below.
Maturity extension: The legal final maturity date of the reference cash bond is extended.

The Pay-As-You-Go System

ABCDS are structured as pay-as-you-go (“PAUG”) contracts with a physical settlement option. If
a credit event occurs, the buyer of protection has the option, in whole or in part, to terminate
the CDS contract by physical settlement, delivering the bond to the protection seller in
exchange for par in return.
Under PAUG, the CDS contract remains outstanding, and the protection seller makes payments
equal to the writedown amount and, to some extent, interest shortfalls. The buyer continues to
make premium payments based on the notional of the ABCDS contract adjusted for writedowns
and paydowns.
There are three payment legs to each ABCDS contract: a fixed payment leg, a floating payment
leg, and an additional fixed payment leg.
Pay-As-You-Go Payment Mechanics

Payment To/From Amount (s)

Fixed Payments Buyer to Seller CDS Premium

Floating Payments Seller to Buyer Principal Writedowns

Interest Shortfalls (up to cap)
Principal Shortfalls

Additional Fixed Payments Buyer to Seller Reversed Principal Writedowns

Reimbursement of Interest Shortfall
Payments
Reimbursements of Interest Shortfalls

Interest Shortfall
It is the aggregate amount of interest payments from borrowers that is less than the accrued
interest on the loan.

Interest Shortfall Mechanics

No Cap: The seller’s obligation is equal to the full interest shortfall in each period.
Fixed Cap: The seller’s maximum exposure is capped at the CDS premium.
Variable Cap: The seller’s obligation is limited to LIBOR (London Interbank Offered Rate) + CDS
premium.

WHY ABS IS USED

Acquire Credit Risk

ABCDSs provide investors access to credit risks and rewards they otherwise may not be able
to acquire due to scarcity of cash bonds.
CDS also allow investors to acquire more exposure to a specific bond than is available in the
cash market. An investor with a particularly strong view or with a larger portfolio could, for
example, sell protection in a $10 million CDS contract referencing a BBB bond that has only $5
million outstanding.
Increase Leverage
Since CDS require no initial cash outlay (beyond any margin requirements), they provide an
efficient means of making leveraged credit investments. Investors with relatively high funding
costs should find it more attractive to sell protection through ABCDS than to buy the cash bond
and fund it on balance sheet.
Hedge Exposures
ABCDS can be used as hedging instruments for mortgage originators, banks, and other
investors. The subprime mortgage market experienced an annualized growth rate of 50% over
the past four years before 2007. As the market grew, bank and originator margins have
compressed, increasing their desire to hedge pipeline risk (i.e., the risk of spread widening after
loan rates are locked but before they are closed and sold or securitized).

Short the Market

ABCDS allow investors to express a bearish as well as bullish view on the credit quality of ABS
collateral in general.

TIMELINE OF EVENTS

December 2006: Paulson & Co. approaches Goldman Sachs expressing interest in
purchasing protection on (i.e. betting against) a basket of a BBB-rated, subprime-backed
mortgage bonds that closed around the second half of 2006 (i.e. “06-2”).

January 2007: Goldman approaches ACA to propose they serve as the “Portfolio Selection
Agent” for the proposed CDO.

Goldman sends ACA the first proposed portfolio, concocted by Paulson, in an email with the
subject line “Paulson Portfolio.” This initial portfolio consisted of 123 subprime RMBS.

January 9, 2007 to February 26, 2007: Paulson and ACA debate the contents of the
portfolio. The parties agree on the final portfolio of 90 RMBS securities on February 26.

The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for
structuring and marketing ABACUS 2007-AC1.

By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been
downgraded and 17% were on negative watch. By January 29, 2008, 99% of the portfolio had
been downgraded. As a result, investors in the ABACUS 2007-AC1 CDO lost over $1 billion.
Paulson’s opposite CDS positions yielded a profit of approximately $1 billion for Paulson.

ABN Amro Bank NV lost more than $840 million and Dusseldorf, Germany-based IKB Deutsche
Industriebank AG lost most of its $150 million investment, according to the SEC.

* Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more than
$90 million. “Our fee was $15 million. We were subject to losses and we did not structure a
portfolio that was designed to lose money” says a Goldman Sachs spokesperson.
SEC’S CLAIM AND CASE

The SEC faces political pressure – to prove it is on the case of protecting investor interests. The
agency is under scrutiny not only because of its role as a Wall Street cop as the financial crisis
emerged, but also for failure to catch Ponzi schemes such as those of Bernie Madoff and R.
Allen Stanford.

Case and claim- A big hedge fund, Paulson & Co., wanted to bet against the housing market. It
talked to Goldman about putting together a CDO full of mortgage-related assets that Paulson
thought were likely to lose value. Paulson's plan was to bet against the CDO, so it would profit if
the CDO lost value.

But Goldman "knew that it would be difficult, if not impossible" to sell the CDO if investors
knew that a hedge fund played a "significant role" in deciding what went into the CDO, then bet
against it, according to the SEC. So Goldman brought in another company, called ACA
Management, which was in the business of selecting assets for CDOs. Goldman "misled ACA
into believing that Paulson was investing" in the CDO, rather than betting against it, according
to the SEC. Paulson worked with ACA to determine what went into the CDO. In its marketing
materials, Goldman said the assets in the CDO were "selected by ACA". The marketing materials
didn't mention Paulson.

Paulson paid Goldman $15 million for putting the CDO together. Investors in the CDO lost over
$1 billion. Paulson bet against the CDO and made a profit of $1 billion, the SEC says.

GOLDMAN’S CLAIM AND CASE

Their claim is that the firm lost $90 million on the transaction, as it had a net long position that
soured when the CDO went bust.

Goldman argues that the buyers of these products were “sophisticated investors” with their
own sets of models to evaluate the risk associated and they should have known that these
transactions involve betting on the success and failure of the underlying mortgages.

According to Goldman, what was important to the note investors were the offering documents’
descriptions of the Reference Portfolio. This information was accurately disclosed.

Secondly, ACA Management exercised its own judgement in deciding which assets were
included in the portfolio and rejected dozens of those suggested by Paulson. In that sense, ACA
had the final say in deciding what went into the deal. Indeed, ACA put its own money behind its
analysis by investing in the notes itself and entering into a large swap referencing the portfolio.

Thirdly, while Paulson’s investment strategy is well known today, nothing in the record
establishes that Paulson’s involvement would have been significant in early 2007 to anyone
involved in the 2007-AC1 transaction. All participants in the transaction understood that
someone had to take the other side of the portfolio risk. A disclosure that the relatively
unknown Paulson was the entity to which Goldman Sachs transferred that risk would have been
immaterial to investors in April 2007.

Fourthly, there is no basis to suggest that the portfolio would have performed any differently or
that the economic outcome for the participants would have changed in the least had Paulson’s
role and interest been more transparent.

Finally, the SEC’s proposed theory ignores the fact that, as a broker-dealer acting as an
intermediary on behalf of a client, Goldman Sachs had a duty to keep information concerning
its client’s (Paulson’s) trades, positions and trading strategy confidential.

WALL STREET’S VIEW

Buffett said he's studied the charges against the investment bank and has "no problem with
that Abacus transaction." faulty government regulations are to blame for most of the economic
turmoil of the past few years, not investment banks.

Buffett said ACA, the bond insurer involved in the Abacus deal with Goldman, was responsible
for assessing the transaction's risks, and that it shouldn't have mattered that Paulson was
betting against ACA's interests.

"The players on both sides of the trade that the SEC has targeted knew the risks and knew one
side was bound to lose. It's far from the worst sin of this mess.", says Bill Fleckenstein, a hedge
fund manager at Fleckenstein Capital Management.

“Synthetic derivative investments are so highly complex that even highly sophisticated investors
can be defrauded,” opines Shepherd Smith Edwards and Kantas, LLP Founder and Stockbroker
Fraud Attorney William Shepherd.

POLITICIANS’ VIEW

Democrats called for greater regulation of Wall Street.

Senate Banking Committee Chairman Chris Dodd-we don't need to know the outcome of this
case to know that the opaque nature of unregulated asset backed securities fueled the financial
crisis. And even as our country is still recovering from those mistakes, Wall Street financial firms
continue to game the system.”

U.S. Senator Blanche Lincoln-“This is another example of how risky Wall Street behavior puts
our nation's financial system in peril and further illustrates the need for the strong reform.

House Minority Leader John Boehner, an Ohio Republican, said the SEC suit provided further
reason to oppose the measure.

“These are very serious charges against a key supporter of President Obama’s bill to create a
permanent Wall Street bailout fund,” Boehner said in a statement after the SEC lawsuit was
announced. The bill “gives Goldman Sachs and other big Wall Street banks a perpetual,
taxpayer- funded safety net by designating them ‘too big to fail.’”

Dodd’s bill sets up a mechanism for unwinding systemically important financial firms when they
fail, creates a consumer protection bureau at the Federal Reserve and bolsters oversight of
derivatives and hedge funds.

COMMON MAN’S VIEW

After reading the SEC's case and Goldman's Defense Document, I feel that SEC's case is one that
is aided by hindsight and is not strong enough. I do not think the SEC would have filed a case
against Goldman had the mortgage market not melted down.
Goldman is in the business of facilitating transactions for its clients and investors, which it did.
What went into the deal was the sole responsibility of ACA. Having the largest exposure of $951
million, it had every incentive to select the appropriate securities. Which side Paulson was
taking should have been immaterial to ACA and other sophisticated investors as they would
have done their own analysis regardless of the other parties' intentions. Moreover, at that time,
Paulson was a relatively unknown investor. His inclusion in the offering document would not
have changed opinions of those who were better established than him.

REFERENCES

http://www.huffingtonpost.com/2010/04/16/goldman-sachs-fraud-expla_n_540938.html
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/goldman-deal-gamblers-
knew-the-score.aspx?page=1
http://online.wsj.com/article/SB10001424052702303491304575187920845670844.html
http://www.sec.gov/news/press/2010/2010-59.htm
Lehman Brothers "ABS Credit Default Swaps- A Primer"
Richard Stanton and Nancy E. Wallace "ABX.HE Indexed Credit Default Swaps and the Valuation
of Subprime MBS"
RISK FACTORS

Goldman Sachs may, by virtue of its status as an underwriter, advisor or otherwise, possess or have access to non-
publicly available information relating to the Reference Obligations, the Reference Entities and/or other obligations of
the Reference Entities and has not undertaken, and does not intend, to disclose, such status or non-public
information in connection with the Transaction

Goldman Sachs does not make any representation, recommendation or warranty, express or implied, regarding the
accuracy, adequacy, reasonableness or completeness of the information contained herein or in any further
information, notice or other document which may at any time be supplied in connection with the Transaction and
accepts no responsibility or liability therefore.

Although at the time of purchase, such Collateral will be highly rated, there is no assurance that such rating will not
be reduced or withdrawn in the future, nor is a rating a guarantee of future performance.