Question 3 only Read Attachment 3E “Goldman Sachs Hawks CDOs tainted by credit c
ID: 2729244 • Letter: Q
Question
Question 3 only
Read Attachment 3E “Goldman Sachs Hawks CDOs tainted by credit crisis under new name These new products called Bespoke Tranche Opportunities (BTOs) allow investors to tailor the securitization however they want, but the two key dimensions are: (1) what credit risks are included in the pool of reference entities; and (2) how the deal is structured (tranched). Banks have learnt one thing since the crisis, and that is, unfunded issues can be very problematic, and so most of these deals appear to be fully funded. -Using the information in the article and any other information you may find about BTOs (HINT: do not waste too muchtime looking, there is not much as these are too new) to answer the following.- Consider the following different parties: the borrowing firms (F), the lenders who want credit protection (L), the "speculators" (S), the intermediary i.e. Goldman Sachs (GS). and the investors who buy BTOs (I). 1,' In any given deal of this nature we know that we need at least two of the above counterparties to take part, but of course, there can be many more than two. For the following three scenarios, please draw and label a diagram of the flow of funds, risk and return from the ultimate user of funds to the BTO investor: a,' Ethical Goldman Sachs creates BTOs to hedge insurance written for clients who have credit exposures to various firms.Explanation / Answer
Financial leverage is created whenever a closed-end fund common shareholder has investment exposure (both reward and risk) equivalent to more than 100% of his or her investment capital.
DBA
A DBA (also known as a "sole proprietorship", "Doing Business As", or a "Fictitious Name") is a business that is not separate from its owner, merely a different name that the business owner operates under. The owner is personally liable for the company and its debt; all income is added on the owner(s) personal tax returns (pass-through taxation). If there is more than 1 owner, then the business is classified as a "General Partnership".
PROS: Easy to setup, easy to maintain.
CONS: Owners are personally liable for the company and its debt ( the owner(s) could lose a house, cars, personal assets, etc.) in a lawsuit. Usually not recognized at the State level, only in your city/county. No corporate "prestige" of having the "Inc." or "LLC" attached to your name. LLC’s have primarily replaced DBA’s as the entity of choice for even the smallest businesses.
How to Get Started
You can file a DBA right now. We can prepare and file your DBA in almost any state/county.
Regular Corporation (also known as a C-Corporation)
A corporation is a separate legal entity that can shield the owners from personal liability and company debt. As a separate entity, it can buy real estate, enter into contracts, sue and be sued completely separately from its owners. Also, money can be raised easier via the sale of stock; its ownership can be transferred via the transfer of stock; the duration of the corporation is perpetual (the business can continue regardless of ownership); and the tax advantages can be considerable (i.e. you are able to deduct many business expenses, healthcare programs, etc. that other legal entities are not). Income is reported completely separate via a tax return for the corporation.
A corporation is set up in this structure:
In many cases (especially during the startup phase), you will be the 100% owner of the stock, therefore you elect the directors (usually yourself) and then appoint yourself as an officer (or all the officers: CEO, Treasurer, Secretary).
The rules for operating your corporation are set in what are called Corporate Bylaws. This document sets the rules for the company and can be modified as the business grows and changes. Our Incorporation Service includes a fully personalized set of Corporate Bylaws for your State (as well as an editable copy in Microsoft Word format) for you to modify as the company grows and changes.
Operating a corporation involves at the minimum holding a yearly Directors and Shareholders meeting (the location is determined by you and the expenses are deductible), keeping written minutes of major company decisions and maintaining general corporate compliance as dictated by the Corporate Bylaws.
PROS: The oldest, most successful and most prestigious type of business entity; provides personal liability protection; conveys permanence, can reduce taxes (lower tax rate on retained profits, items like healthcare, travel and entertainment are deductible).
CONS: More expensive to set up than a DBA; more paperwork and formality required than an LLC (holding Shareholder/Board meetings, keeping minutes and resolutions).
The Lowdown: Though more complicated to run and manage than the LLC, the Corporation is still the oldest and most prestigious form of entity. C Corporations are taxed at a lower rate on profits and are able to deduct items like healthcare, travel, entertainment, etc. that LLC’s and S Corporations cannot. More complicated tax and management issues than an "S Corporation".
Click here for Frequently Asked Questions about Corporations
How to Get Started
You can incorporate right now. We can form your corporation in any of the 50 States and D.C.
S-Corporation
After a corporation has been formed, it may elect "S-Corporation Status" by adopting an appropriate resolution and completing and submitting a form to the Internal Revenue Service (some states require their own version). Once this filing is complete, the corporation is taxed like a partnership or sole proprietorship rather than a corporation. Thus, the income is "passed-through" to the shareholders for purposes of computing tax returns.
Most new small corporations elect S-Corporation Status (90%+) so profits and losses can be added to the shareholders’ personal tax returns without having to pay taxes on profits once, then again when they are given back to the shareholders as income (dividends). This is known as "double taxation" and is the reason why S-Corporations were created. An S-Corporation can also revert back to regular Corporation status fairly easily.
There are some limitations on S-Corporations: they cannot deduct some expenses like health insurance, travel, entertainment, etc. that normal corporations can. Also, they are restricted to 100 shareholders or fewer and those shareholders must be U.S. Citizens. Finally, S-Corporations may not own or be owned by other business entities.
PROS: Prestige of the corporation without the double taxation. Ideal for "1 person corporations".
CONS: More expensive to setup than a DBA; more paperwork and formality required than an LLC (holding Shareholder/Board meetings, keeping minutes and resolutions).
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