Everyone In The Fabrice Tourre Case Knows Exactly What's Going On Except The Jury, Judge, And Witnesses

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“I think the jury was lost,” John “Sean” Coffey, a lawyer for Tourre, 34, said during a break this morning in the testimony of Professor Dwight M. Jaffee, called to the stand to describe the collateralized debt obligations at the heart of the case. “It is critical that they understand how a synthetic CDO works.” Before Jaffee’s cross-examination, an SEC lawyer used a PowerPoint presentation to help him explain a CDO as a sinking cargo ship, with the equity and mezzanine investors the first to take on water. Not long after the super-senior deck flooded, the animated ship was shown sinking to the bottom. Later, Forrest tried to rephrase one of Coffey’s questions to Jaffee about a failing CDO, apparently using the wrong aquatic metaphor. “You’re talking waterfalls, I’m talking flood,” Coffey said...After Jaffee left the stand, the SEC called Sihan Shu, a Paulson managing director who testified that the firm in 2006 and 2007 was in search of investment vehicles that would allow it to make short investments on U.S. mortgages. “We wanted to express a bearish view on the U.S. housing market via subprime mortgage-backed securities,” Shu said. The jury wasn’t alone in grappling with the subject matter of today’s testimony. Paolo Pellegrini, a former top Paulson executive, testified after Shu. “What does ‘CDO’ stand for?” SEC lawyer Matthew Martens asked Pellegrini, who wasn’t in the courtroom for Jaffee’s testimony. “I’m not sure,” Pellegrini said. “It may stand for collateralized debt obligation, but I’m not sure.” [Bloomberg]

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