By the mid-1990's, the complaint says, the surety companies were in a slump and decided to expand their business of guaranteeing performance, like the delivery of gas, to include transactions that served effectively to insure financial transactions.
The insurers argued that their surety bonds were being used improperly to insure financial transactions, rather than bona fide gas trades.
Companies say these rules are necessary to insure honest transactions.
It remains unclear how much exposure banks in Paris and Frankfurt have to Greece through credit derivatives, which insure business transactions and would become payable in the event of a default.
This premise raises the question, Why is it any more reasonable to rely on the government's backing of American International Group than it is to have relied on A.I.G. to effectively protect against investor defaults by insuring their transactions?
Due diligence is the process whereby people who contemplate entering into a business transaction take steps to insure that the transaction is as they believe it to be.
While blessing the accounting treatment as within the rules, the memo adds: "Because it will be important to insure that all transactions are priced at fair value, we informed the company that we will likely request an independent third-party appraisal".
They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.
IKB, one of the buyers, and ACA, which acted as the selection agent and insured the transaction, said they didn't know Mr. Paulson was on the other side of the deal and had influenced which mortgages were chosen.
RBS, 84% owned by the UK taxpayer, has already become embroiled in the Goldman case because ABN Amro, the Dutch bank it took over, insured the transaction through a credit default swap and lost $800m as a result.
