‘Sparks, Daniel L ‘Sunday, December 17, 2006 10:52 AM ‘Montag, Tom; Ruzika, Richard; Viniar, David; McMahon, Bill Cohin, Gary (EO 85830) ‘Subprime update Focuses: 41. Square position in BBB-. We made progress last week, but still more work to do. First focus on 2006 BBB- and then on reducing index vs single names basis. Below shows sisk reduction trades Thursday and Friday (we also did $650mm notional of single name risk reduction Wednesday). DVO1 is between 3 and 3.2, s0 to get the 2006 BBB: DVO’ to flat we need lay off about another $1 billion notional Notional —_ Notional Approx BBB Index Single-Nanes Net DV01 (+ = Long Risk) 2005 = 50mm 188 2006 = 100mm =~ 80mm 217 ay 2005 =~ 60mm +500 2006 = -265mm = ~315mm 4275 Biggest concems are (1) liquidity in last 2 weeks of Dec. and ability/motivation for certain hedge funds to shove market either way with respect to year-end performance measures, and (2) noise in originator sector - more will go down (when not if), Trading desk is looking to buy puts on a few originators, 2, Recognition and aggressiveness in residential whole loan and counter-party business. Team making and receiving full margin calls (except for MLN partial), team aggressively pursuing EPD claims and settlements, and team understanding not to rush into opportunities that are coming (2.g., we did not buy S600mm soratch and dent package that had Friday first round bids because there is going to be a lat more coming). 3. CDO warehouse marking Worked with controllers and strats Friday to implement more frequent marks to CDO warehouse. Methodology conceptually agreed to, need some more time fo implement. We took 2 S5mm reserve on Friday in PAL. Details need to be wotkod out, but view isto mark to CDO execution deal by deal, and ony adjust dwn ia doal fs undorwator (no cea ‘marks up). Garry wil also begin to recognized. Note: deals would be marked, not postions assuming liquidation (which swould bo more volaile but not reflect actual business actvity). 4. Business flows will continue - buy and securitize loans, camp and execute CDOs. With extra focus on cleaning out left over positions. 5. Platform opportunities are coming, Fro Spars, Dane Sent: “Thursday, December 14, 2006 1110426 To: Montag Tom; Ruzia, Richard Subject: ‘Subprime rik meesng with Vinia/MeMahon Summary Mortgage team - Gasvoda, Rosenblum, Swenson and me, Viniar, Bill, Brian Lee (controllers) and some risk guys. uzika on phone. Reviewed in detal 6 areas of risk related to subprime: ABX/CDS Confidential Treatment Requested by Goldman Sachs GS MBS-E-009726143,Loans Residuals GDO warehouse Early Payment Defaults (EPOs) Loan warehouse Follow-ups: 1. Reduce exposure, sell more ABX index outright, basis trade of index vs CDS too large 2. Distribute as much as possible on bonds created from new loan securitizations and clean previous positions 3, Sell some mare resids 4, Mark the CDO warehouse more regularly (had been policy to true-up quarterly) - will ikely be weekly or more it necessary 5, Stay focused on the credit ofthe originators we buy loans from and lend to 6. Stay focused and aggressive on MLN (warehouse customer and originator we have EPDs to that is likely to fal) 7. Be ready for the good opportunities that are coming (keep powder dry and look around the market hard) Confidential Treatment Requested by Goldman Sachs GS MBS-E-009726144