Report on the Lehman-related Securities (7)

( II. Dissecting the ‘Piggybacked Structure’....... continued)


The Mahogany Notes are relevant to this scam not only because they were sold under the
supervision of Lehman, but also because they are based on notes issued by another
Lehman-controlled SPE known as Saphir Finance plc (the ‘Saphir’). For those victims who
have received notices from the trustee (HSBC USA NA), they may recall Saphir is one of the
companies that supplied security to Pacific Finance for the minibond. In other words, Pacific
used money received from the victim investors to purchase ‘security’ (that is, the hidden
component) from Lehman-controlled SPE and Saphir is one of the security suppliers.

At this stage, more perceptive readers would notice some anomalies. The façade, which is a
CLN, requires collateral to back up the swap agreement. But why should the parties agree to
use the very risky and very complicated synthetic CDO as collaterals. This is entirely
contrary to the logic inherent in the role of collateral because when compared with the façade,
the ‘security’ is inherently more volatile. The only way to make this ‘piggybacked structure’
less absurd is to reverse the roles played by the CLN and the synthetic CDO. That is to say,
the synthetic CDO should be shown to the world as façade of the product, because it is a lot
more risky and is capable of generating higher return. By the same token, the CLN whose
basket of reference entities are among the most powerful corporations in the world with
known political connection with the most powerful governments, it is more logical to be the
collateral if only because of the little likelihood that any one of them would default.

.....to be continued.
Extract From: "Exposure - the Truth About Lehman-HSBC Fraud"