GmaH- Things to Think about - Parts I and II Page I of 4 Matt Tannin To; pacioffi@hotmail.com, matltannln@gmaiLcom Sun, Apr 22, ?2007 at 8:19 AM Dear Ralph, Part I In January of 2003 I exciledly ao:epled your offer to bec:Jme your partner. ~iIe you may have had a fully fleshed aLII. idea of where you thought we were going back then, I did not t k.new only Il1alI lrusled and respeded you and that I had come to love to work with you over (a fCf:!ling :shared by just about e....eryone) - so I considered myself tremendousty far-unate 10 have betm given the opportunity you gave me. O\ler the past four years a lot has changed - and a lot has nol We have been very successful meas'Ured in almost any ccnceivable way. We have raised a lot of money, we've made a lot of money, we'vff hired a lot of good people - but, for me, most importantly - we have spent our time well - and time is the ONLY U1ing in this life which one can't ever get back I'm not sure how )'ou are feeling right nO'N - deep down. I guess I'm noL 100% sure how I'm feelir.g - deep down - either, but I U1ink I'm feeling pretty damn good. I think that I'm feeling this way because I have absolutely no doubt U1at I've done the best possible job that I could have done, Mistakes, yep, I've IT'.ade them - but ltley do not bother m.e as much as they did yea~ ago. I have come to see that whatever my ~inte!ligencen or "abililies? are - they are not substantially worse than ANY of Ihe people we speak 10, talk to or read. So - fuck it - all one can do is their best - and I have done this. From my point of view -I would say the same for )'ou. Every so often I worry a bit that because you have been so spectaculariy succ:essful so far (in almost every way) you might be taking this opportunity to second guess yourself. Well, just in case you are - don'l At the end of the day I think we will both be able to look at aU that has happened and all that we have done and learn from what has gone well as well as from what that hasn't. What a shame it ,WOUld be for us not to take all we have leamed and apply it going forward. Perhaps I should save this next comment for the ~self help? book I now plan 10 write - but I really don't feel that what we're going through right now is all that much different IN KIND from everyU1ing else we've experienced over Ule last four (or fourteen) years. We've lived a full and exciting life in the midst of an increasing NAV and 1see no reason Why the fullness and positive excitement we eXpi:.rience should be any different if the trajectory of the NAV changes. It only the NAV. On EVERY level I do not think a mature person - or a person who is at peace with themsel.... Es would allow NAV to be the determining faclor for ANYTHING except their W-2 calculation {and Turbo Tax seems todo U1al efforilessly). I became your panner in 2003. From where I sit I remain as excited a partner now as I was back then. On Thursday night, when we Were out with Goldman 1 heard )'ou say that you really had no interest in retiring. Well. neither do 1- and I am as ~ful1y in~ as your partner now as I'.... e always hoped I would ever be. Ok - put the Kleenex away. Pan Two is far less sentimental. Panll I think we ha.ve some important decisions to make, Some of these Mdedsions~ will be guesses and some will hnp://maiJ.googlc.cam/ma; II? u i~2 &ik=71 a85 dbcc9&vieVFpl&q= Ray &search=query &lh... I Of] 1(2007 BS-USAO OOl1397 SEC_ENF_FCIC_019335 Gmai! o Things to Think about - Parts I and II Page 2 of4 follow-dlrectly from these guesses. Others will be prudent and respcmsible decisions given the probability factor of same of our guesses, lime radors constrain and influence many af o~-r decisions and guesses. Many of our decisions will be inter~related so I ani not sure, as I now write this, of the proper order of these decisions. j'll just let loose here and we can !hen sort oUl the order later today (and tomorrow. C!f1d the next day and the day after that). Question #1: \foInat should we do now? (And by "now- I mean NOW). . As I've said to you over the last few months -I think we have two basic options: Close the two HG funds now - or get very very aggressive. (I will focus, for the moment, primarily on the HG Funds - but Rampart is obliiollSly very dosely related. The ope is related - but less related - end SRP is related but least related.) There are now a few reasons to close the Funds now. The sUb-prime market looks pretty damn ugly. CPR/CDR tells us we are looking at major write-downs across the board. If we believe the runs Steve has been doing are ANYWHERE CLOSE to aCOJrale I think we should close the Funds now. The reason for this is that if CPR/CDR is correct then the entire sub-prime market is toast. It is,toast in the way the HY COO market is toast. If A.AA bonds are systemically dO'Nngraded then there is simply no way for us 10 make money - ever. (\'Vhile it may well be possible to succeed with a ?distressed- fund -I do. not think we can do this with HG. We are just too long. (A distressed fund may be in our future - but not HG's fUlure - and it is way loa ear1y for a distressed fund - the distress hasn't even begun). I think we need to GUESS about the accuracy of the CPR/CDR models NOW. It would be nice if we had the luxury of wailing a bit {and maybe we do - this is another discussion point} - but I do not think we have any lime luxuries here. So - how will we guess? I'm not sure I know the answer. Here are the possibilities I see. You and Ray will have to ad,d any other possibilities. Guessing on the likelihood of a melt-down. 1. We should believe CPRlCDR is we believe the model. 2. We should believe the model if we think the inputs are reasonable. 3. The inputs are reasonable if there is a good probability thallhe historiC TQ: matUannin@gmail.com when you return from the Met's game give me a call I can drive inlo the city and we can meet either at the Qffice or uptown near your apartmenL Sun. Apr ZZ, Z007 at 10:11 AM >Fram: Matt >TQ: pacigffi@hQtmail.com. matt tannin@gmailcom >SubjecL: Things 10 Think about ~ Parts I and II >oale: Sun, 22 Apr 2007 08:19:10 -0400 {Quoted le::ll hidden! hnp://maiJ.google.com/mai!/?ui=2&ik=7! a85dbcc9&view=pt&q=Ray&search=query&th... t 0/3112007 BS-USAO 0.011399 SEC_ENF_FCIC_019337 Gmail - Things to Think about - Parts I and II Page 4 of4 Mart Tannin To: rmcgarrigal@mac.com here u go Sun, Apr 22, 2007 at 3:36 PM - - - Forwarded message - - From: Matt Date: Sun. 22 Apr 200708:19:10 -0400 SUbject Things to Think about - Parts I and II To: padoffi@hQtrnail com, matUannin@gmail.com hnp:llmajl.googlc.comlmaill?ui=2&ik~7 J a85dbcc9&view=pt&q~Ray&search""query&th... 1013 t n.OO? BS-USAO 0011400 SEC_ENF_FCIC_019338