Financial Times has misreported our views on ABX, says Paulson

Paulson & Co vice-president Michael Waldorf has written a letter to the Financial Times pointing out that the newspaper mischaracterised the hedge fund’s recent proposal to Isda over asset-backed credit default swap documentation.

Waldorf writes that Paulson and other fund managers do not oppose modification of the underlying mortgage loans. “To the contrary, we support loan modification as the fastest way to resolve troubled loans in a way that helps keep borrowers in their homes,” he writes. “What we oppose is deliberate market manipulation.”

What he describes as market manipulation takes place at the level of the mortgage-backed issuer and not the individual loans. For example, banks who wish to provide credit support to particular mortgage-backed securities trusts can do so by purchasing defaulted mortgages at par. Paulson claims that these transactions are market-manipulative and therefore prohibited under securities laws, but that it has proposed that Isda amend the language of its CDS documentation expressly to prohibit such transactions.

Source: Financial Times