April 17: Emails – just shut up already

As far as I know, no actuaries were misbehaving in Goldman Sachs’ Abacus 2007-AC1, for which the investment banker is being sued by the SEC. That title goes, according the the SEC, to Fabrice Tourre, who helped build and market CDOs. He created the flip books for the road show potential investors saw. What got the SEC mad was that Mr. Tourre seems to have known that the CDOs he was flagging contained crap, since they were built by an investor who wanted to short them.

How does the SEC know Mr. Tourre’s thoughts? He emailed them!

From New York Times:

In February 2007, Mr. Tourre met with both ACA and Mr. Paulson, and he sent an e-mail message to a Goldman colleague acknowledging the awkwardness of the situation. “This is surreal,” Mr. Tourre wrote.

Nine days later, a Goldman colleague wrote Mr. Tourre and said, “the C.D.O. biz is dead. We don’t have a lot of time left.”

Doesn’t sound like a product worth selling, does it?

This reminds me of an actuary I once met, though he was on the side of the good guys.

I will call him Blair, for the usual Dragnet reason. He was and is an upstanding fellow who happened to find himself working at FAI, an Australian insurer that had severe financial difficulties about a decade ago. Management told Blair to “cut the fat” from New South Wales workers comp reserves. Blair replied tartly (via email, of course), that “Kate Moss had more fat on her” than NSW work comp reserves.

Great line, right? Well, not long after FAI had merged into HIH, Blair’s bon mot ended up lighting up a wall in the middle of a Royal Commission proceding into the biggest corporate failure in Australian history. It was a bit embarrassing for the actuary, as he told the author of this book about the whole mess. Not that he did anything wrong, but I guess no one really expects an off-the-cuff remark – which most of us consider email – to be scrutinized by government cops. But it can happen.

And it happens all the time. I almost wrote this same post a few weeks ago, when the stories broke on Lehman’s repo 105s. From the Times:

In a series of e-mail messages cited by the examiner, one Lehman executive writes of Repo 105: “It’s basically window-dressing.” Another responds: “I see … so it’s legally do-able but doesn’t look good when we actually do it? Does the rest of the street do it? Also is that why we have so much BS [balance sheet] to Rates Europe?” The first executive replies: “Yes, No and yes. :)”

And emails played a big part in the contingent commission scandals a few years ago. There’s more, a lot more. The lesson here – be discreet and assume that someone you don’t know is reading every email you write.

BTW, put your personal stuff on your personal gmail or yahoo account. Your boss probably isn’t reading your emails today, but he could. If an employee leaves the company, it’s routine for someone, usually a manager, to start receiving emails addressed to said employee. The company doesn’t want to snoop, but it also doesn’t want a client request to go unheeded. I’ve found out some interesting things about my former co-workers. Please don’t make me be specific.

I never wanted to know this stuff, mind you. But if it’s your job to plow through someone else’s emails, well it’s hard to skip over the juicy stuff.

Finally, Goldman wasn’t the only one structuring crap. More here, from ProPublica, and an easy-to-follow description of the deal, via the This American Life radio show, here.


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