Parsing the new Goldman statement

By Felix Salmon
April 16, 2010
much longer statement on the Abacus affair. It's worth delving into:

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Good news! Goldman has just released a much longer statement on the Abacus affair. It’s worth delving into:

We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact.

Is Goldman really trying to say here that because its “extensive record” is OK, that gives it license to do what it likes on any given “single transaction”? Certainly it’s repeating its ill-advised assertion that “the accusations are unfounded in law and fact”.

We want to emphasize the following four critical points which were missing from the SEC’s complaint.

* Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more than $90 million. Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money.

Goldman goes into no detail here about exactly where the losses came from. But I won’t be impressed if it turns out that they just pulled a $90 million number out of thin air as the value of the equity tranche — which they never even attempted to sell — and then declared that they lost $90 million when it turned out that the equity was worth nothing.

In any case, we’re talking about two different things here, which Goldman is conflating. On the one hand there’s the $15 million in direct fee income, much of which went straight into the CDO desk’s bonus pool. Then there’s the profit-and-loss on whatever part of the structure that Goldman decided to retain: that’s trading-and-investment income, and is a different bucket. It’s entirely conceivable, and indeed probable, that the people structuring the deal cared much more about their fees than they did about the ultimate performance of the CDO.

* Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side.

If the word “Paulson” isn’t included in the section about “extensive disclosure”, then I don’t think the disclosure can be considered to be extensive. The point here is that neither IKB (which really wasn’t that sophisticated) nor ACA was told by Goldman that this synthetic transaction — which, yes, necessarily includes a short side — was actually architected by that short side. Paulson stacked the deck by giving ACA a pool of toxic assets to choose from, without revealing that they were short. Goldman knew what Paulson was doing, and was complicit in the silence. That’s not “extensive disclosure”, chaps.

* ACA, the Largest Investor, Selected The Portfolio. The portfolio of mortgage backed securities in this investment was selected by an independent and experienced portfolio selection agent after a series of discussions, including with Paulson & Co., which were entirely typical of these types of transactions. ACA had the largest exposure to the transaction, investing $951 million. It had an obligation and every incentive to select appropriate securities.

Except ACA didn’t know — because it wasn’t told — that the securities presented to it by Paulson were specifically chosen to be the ones most likely to default. From the complaint:

In late 2006 and early 2007, Paulson performed an analysis of recent-vintage Triple B RMBS and identified over 100 bonds it expected to experience credit events in the near future. Paulson’s selection criteria favored RMBS that included a high percentage of adjustable rate mortgages, relatively low borrower FICO scores, and a high concentration of mortgages in states like Arizona, California, Florida and Nevada that had recently experienced high rates of home price appreciation.

If ACA had known how these securities were chosen, it would never have agreed to this deal. Simple as that.

* Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor. The SEC’s complaint accuses the firm of fraud because it didn’t disclose to one party of the transaction who was on the other side of that transaction. As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor.

This is hair-splitting. Goldman represented to ACA that Paulson was a “sponsor”, and invariably in this world sponsors are equity investors. What’s more, Goldman told ACA about the equity tranche of the deal in the same transaction summary: the clear implication was that Paulson was holding on to that tranche. And Goldman ended up getting exactly what it wanted: ACA walked away convinced that Paulson was long. It was wrong — and it was therefore misled by Goldman.

Goldman then includes a long “Background” section:

In 2006, Paulson & Co. indicated its interest in positioning itself for a decline in housing prices. The firm structured a synthetic CDO through which Paulson benefitted from a decline in the value of the underlying securities. Those on the other side of the transaction, IKB and ACA Capital Management, the portfolio selection agent, would benefit from an increase in the value of the securities. ACA had a long established track record as a CDO manager, having 26 separate transactions before the transaction. Goldman Sachs retained a significant residual long risk position in the transaction.

IKB, ACA and Paulson all provided their input regarding the composition of the underlying securities. ACA ultimately and independently approved the selection of 90 Residential Mortgage Backed Securities, which it stood behind as the portfolio selection agent and the largest investor in the transaction.

The offering documents for the transaction included every underlying mortgage security. The offering documents for each of these RMBS in turn disclosed the various categories of information required by the SEC, including detailed information concerning the mortgages held by the trust that issued the RMBS.

Any investor losses result from the overall negative performance of the entire sector, not because of which particular securities ended in the reference portfolio or how they were selected.

The transaction was not created as a way for Goldman Sachs to short the subprime market. To the contrary, Goldman Sachs`s substantial long position in the transaction lost money for the firm.

The thing to remember here is that the heart of the SEC has nothing to do with investor losses, be they within Goldman or outside it: instead, it has everything to do with transparency and honesty, or the lack thereof. And the SEC isn’t pulling a Ben Stein, complaining that Goldman was short mortgages and saying that there’s something inherently wrong about that. Whether Goldman was long or short this structure is entirely beside the point. The point is that Goldman treated its clients — ACA and IKB — atrociously. At the very least they deserve a grovelling apology; the SEC makes a strong case that they deserve hundreds of millions of dollars on top of that.

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Comments
34 comments so far

There was a risk that ignoramuses and the remaining Goldman apologists might put off by Goldman’s second statement. There is less chance of that now.

Posted by IanFraser | Report as abusive

Note how carefully Goldman treats only ACA and IKB as investors. I wonder whether GS still lost money when ABN Amro’s (and the british taxpayers’) losses are taken into account.

http://www.globaldashboard.org/2010/04/1 6/british-taxpayer-goldman-fraud/

Posted by csissoko | Report as abusive

Felix, every CDS has a short side. Let that concept sink in.

Posted by TinyOne | Report as abusive

Also, you are forgetting that Paulson wasn’t “Paulson” at this point. It wasn’t like a having George Soros on the other side of your trade. He wasn’t famous yet. You are making too big a deal that they wouldn’t have done the deal if they had known he would short it, and it isn’t clear that they didn’t know that.

Posted by TinyOne | Report as abusive

Felix, You ought be thoughtful.

Why the case against Goldman might fail:

Disclaimer 1: I am not an employee of Goldman. Disclaimer 2: I have read through the entire charge.

The crux of the allegation is that Goldman should have told the investors (a German bank and ABN Amro) that John Paulson is taking the other side of the trade; and that he could be shorting the very same securities.

Question: Why should Goldman tell that John Smith the carpenter or John Paulson the hedge fund manager is on the other side of the trade? Why does it really matter (at that point of time … circa Feb. 2007).

Think of an alternative scenario in which the sub prime securities paid decently well and Paulson ended up losing his shirt but the investors ended up gaining money in accordance with their risk appetite!

Obviously the crux of the case is contingent on the thinking that John Paulson would always be right and that he should be treated as some sort of demi-god and that everyone on the other side of every trade he is in should be alerted to the fact that one might be betting against John Paulson. Would that rule then apply to everyside of trades made by John Paulson, George Soros … and every other hedge fund … and every other pension fund?

But that is how a trade is made: you take one side and someone else takes the other side! A sophisticated bank like ABN Amro or even a moderate bank like the German bank wouldn’t have known that! Aha!

What about the emails sent by the trader within Goldman? Empty and idle speculation. Nothing in the complaint tells us that he might be “more informed” than anyone of us. It was empty speculation based on his conviction that John Paulson being on one side makes the other side necessarily idiotic. That need not be the case.

This case is based on what the SEC knows today (ie. John Paulson was indeed right) and hence Goldman should have told this to the investors on the other side.

The very fact that Goldman refused to settle it few days before tells me that they are confident–and rightly so–in taking up the SEC.

Posted by DoubleLiability | Report as abusive

Felix, You say:

“I won’t be impressed if it turns out that they just pulled a $90 million number out of thin air as the value of the equity tranche — which they never even attempted to sell — and then declared that they lost $90 million when it turned out that the equity was worth nothing.”

If you read the complaint, John Paulson bought insurance against these underlying securities from Goldman Sachs.

I am disappointed with your thoughtless comments. I will nevertheless continue to read you.

Posted by DoubleLiability | Report as abusive

If ACA had a long interest in the MBS, and Paulson a short (albeit hidden) one, then how could they have ended up agreeing on a portfolio?

According to the complaint, an ACA employee, while approving the final selections, wondered why Paulson had struck the high-quality Wells Fargo mortgages from the pool.

The internal fallout from all this at ACA will be interesting to follow.

Posted by Mega | Report as abusive

TinyOne,

You and Jimmy Cramer are missing the key point: Paulson, the short side, participated in STRUCTURING the CDO he shorted.

Posted by ContrarianP | Report as abusive

Whoops, silly me. Should have read the whole complaint. ACA’s gone. I’ll do better next time.

Posted by Mega | Report as abusive

GS made $1bln. It just lost on the hedges, separate transactions :)

Posted by supersenior | Report as abusive

one thing is really bugging me about this, though. How is it an excuse for ACA that they didn’t know that Paulson wanted to be short? THEY PICKED EVERY BOND IN THE CDO! yes – i know they picked them from Paulson’s own list – but so what? why does it matter who provided the list or what side of the trade Paulson was on? THE ASSETS ARE STILL THE ASSETS!

the components of the CDO are the same whether they are chosen by Jesus Christ, John Paulson, or Warren Buffet. They should be evaluated (by ACA, by IKB) on their merits – not on who suggested them, or who the end seller was.

but the PROBLEM is that ACA and IKB didn’t do this analysis! i don’t know how anyone can sympathize with ACA. they should have known every detail of every bond in the CDO – as they were the ones who picked the list.

Posted by KidDynamite | Report as abusive

The thing that bugs me a little is, did the buyers not know it was a ‘synthetic’ CDO, and therefore someone was shorting the other side? In a CDO, a sponsor buys a bunch of bonds, and then slices them and dices them into tranches and sells them at a profit. In a ‘synthetic’ CDO, they don’t actually buy the bonds, they buy a derivative that matches the cash flows of the underlying bonds. The picture I have is:

- Paulson picked some bonds they wanted to short
- the CDO sponsor bought a derivative from Goldman (fronting for Paulson) that matched the cash flows of the reference portfolio
- the cash flows were sliced and diced and sold as CDO tranches

Knowing it was a synthetic CDO, wouldn’t it have to have crossed ACA’s mind that Goldman was acting as middleman for someone who wanted to short some bonds? Wouldn’t ACA want to know who and why, and wouldn’t it have occurred to them it was Paulson, who had come up with the portfolio?

Posted by Curmudgeonly | Report as abusive

You’ve premised this and your previous entry on your abilty to “parse” Goldman’s statements. This gives us commenters licence to be more than usually pendantic:

“a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact.”

What does “extensive record” refer to? I concede “single transaction” phrase may make one think at first Goldmans “record” of prior transactions. But in the context of the overall sentence (and even more so once one thinks about team of skilled lawyers and PR people who constructed then vetted this statement) this surely refers to the detailed “record” (files, emails, details even within the complaint itself) that exists pertaining to this particular transaction. In a strict sense there’s arguable ambiguity there, but if you are making a sincere attempt to interpret this honestly, I believe you should concede likely error.

Posted by bxg4 | Report as abusive

The facts in the case are so simple that I don’t see how Goldman can possibly win.

If the short seller, Paulson, actually created the CDO and the customers to whom Goldman sold the CDO were not told of this then that is fraud.

The statement that there was an independent manager selecting the assets was false. It was a lie. It was a massive misrepresentation. Would the buyers have purchased the CDO if they had known that it was constructed from a listed created by a short seller? Of course not.

Goldman Sachs is showing themselves to be a bunch of idiots today. When you have been caught committing a crime on camera and there are tons of witnesses, you don’t put up a fight and force the police to wrestle you to the ground unless you are on drugs or you are an idiot. Stop running through people’s lawns in a foolish hope that you can escape the helicopter chasing you overhead. We have watched enough COPS.

A few heads should roll, Goldman should proclaim themselves disgusted that a these rogue employees could be so far removed from Goldman’s high standards and new safeguards are being built to ensure this never happens again, task forces are established, etc etc.

Why would you circle the wagons around such atrocious behavior?

Posted by DanHess | Report as abusive

DanHess – the largest buyer of the CDO was the very firm that built the underlying portfolio – the independent manager – ACA. They selected the bonds (from a list generated by Paulson) to go into the CDO. This is a fact. The bonds are the bonds – the value of the underlying bonds don’t change if Paulson suggested them or if someone else suggested them. The bottom line is that ACA didn’t evaluate the bonds like they should have.

Every buyer of a synthetic CDO has to know that there is someone making the exact opposite bet as they are making. If you don’t assume that the other guy thinks he’s going to make money on the trade, just like YOU think you’re going to make money on the trade, you’re in the wrong game.

Posted by KidDynamite | Report as abusive

I read the Reuters’ opinions from time to time.

Often they are quite amusing…. simply because lack of knowledge on the part of the opinion providers. Your commentary to the SECs Goldman allegation appears to be beat most opinions I have read by a mile.

I am not a Goldman employee or associate to any transaction, but horrified about your limited knowledge and assumptions without foundation and fully removed from practice in respect of constructing financial instruments such as derivative-driven CDOs.

My polite recommendation to you: At first, consider carefully posts from DoubleLiability and KidDynamite. Secondly, get a back office job to learn about compliance. Thirdly, peruse prospectuses for professional investors and consumers to get a broader understanding of life and practice in the financial sector. And finally, get hold of a couple of the myriad of books on derivatives to learn about their structure and indeed, the real risks and rewards pertaining to CDOs.

It may take some time, but you will possible obtain some of the required knowledge to assess and judge the participants and their required skill base to embark on investments, long or short, in CDOs. Your comments on Goldman’s ‘motives’ and ‘omissions’ appear to exceed stupidity.

The SEC claims are Mickey Mouse talk, potentially only sufficient to embarrass the institution further in court. In the meantime, unproductive time and money is vested into this circus, which very few civilized nations would put up with.

Goldman’s possible counter claim for loss of reputation must be in the billions, that is, if it would be politically wise to launch such claim against the SEC.

SEC obviously gave up on charging Paulson to act in a conspiring way together with Goldman to defraud the investors. It appears to be the most secure method of taking Goldman to the cleaners, that is, if proven.

What I have read so far implies either a low professional level at SEC or instructions to provide results now.

Posted by HuckleberryFinn | Report as abusive

a $1 billion settlement for Goldman is nothing to them.

Posted by Storyburncom_is | Report as abusive

Six months before this episode, Paulson already had two years of successful MBS shorting under his belt, with his strategies a matter of public record in numerous articles and interviews.

If he presented you with a list of BBB-rated mortgages a year into the subprime meltdown, his angle wouldn’t be too hard to discern, now would it?

ACA comes off as a bunch of major dolts here.

Posted by Mega | Report as abusive

HuckleberryFinn, it is exactly that attitude and snot that makes the general public want to knock the snot out of investment bankers who are not concerned about making money for the investors.

The fact that this kind of investing is even allowed is a huge part of the problem. Smoke and mirrors and not worth the paper it’s printed on … No one is caring about anything but their firm’s profits, brokering shadey deals rather then actually investig and making good market speculation and in the end who is ‘shorted’ is the poor bloody little guys, whose real money was give ‘in trust’ because they truly think they might benefit from the investment!

may I ask, If knowingly bilking investors isn’t fraud then what the hell is?

Posted by hsvkitty | Report as abusive

Dan Hess pretty much hits the nail on the head.

Huck, Double, etal, I hope your kid buys a used car from some unscrupulous dealer who has rolled back the mileage and deliberately misrepresented the car.

I have read extensively on this subject, and the super-sophisticates out there who trash DanHess’s simple logic are so much part of the grifter culture on Wall Street. They are basically saying they are so much smarter than the rest of us, that we cannot possibly understand what is the truth here.

OK, here is the truth. In 2008 the credit markets seized up because nobody could assess the true value of what was in toxic assets,such as this ABACUS CDO. Why couldn’t they do that? Because in cases like this, Paulson conspired with GS to create a synthetic CDO that was loaded with trash, and somehow got some parts of it to be rated Aaa. So a reasonable investor, could look at that rating, and assume there is minimal risk here.

OK Huck, Double, and all you super sophisticates out there, answer these very simple questions.

Was Paulson creating a CDO that was specifically designed to fail, so he could make a fortune betting against it? If you say he was not, you are calling John Paulson an idiot, which he is not.

Did the guys at Goldman know what Paulson was up to? If they plead ignorance, was their ignorance deliberate?

Would you guys buy a synthetic CDO from GS?

This kind of conduct brought our economy to its knees, because nobody could trust the information coming from counterparties.

Trust me people, the criminal charges are coming. Make sure none of these guys leaves the country.

Posted by randymiller | Report as abusive

I have read extensively on this subject, and the super-sophisticates out there who trash DanHess’s simple logic are so much part of the grifter culture on Wall Street. They are basically saying they are so much smarter than the rest of us, that we cannot possibly understand what is the truth here.

Posted by cocodou | Report as abusive

Huck, Are you sure you don’t work for Goldman Sachs? Sure sounds as if you do — indeed for a fleeting moment I thought that you and many of the other commenters on this post are actually “atroturfers” in the pay of Lucas Van Praag! The SEC claims are not “Mickey Mouse talk”. They are serious. The way you patronise Felix with your asinine “de haut en bas” manner” is truly pathetic. His comments about Goldman’s motives and omissions do not “exceed stupidity.” They are entirely true. Your legalistic, nitpicking speciousness cannot remove the truth that i-bankers (such as, I presume, yourself) don’t give a damn about your clients any more. Instead you have a parastic relationship with them and the rest of society. As long as you can enrich yourselves, and it can be done within the letter of the law, anything goes. I’m afraid there is very little that can wash Goldman Sachs’s reputation clean now. Unless Goldman and other investment banks mend their ways, and sharpish, governments are going to be doing it for you. http://www.qfinance.com/blogs/ian-fraser  /2010/03/22/it-was-not-lack-of-regulati on-but-lack-of-ethics-that-killed-the-st reet

Posted by IanFraser | Report as abusive

Van Praag’s hyperbole means nothing, the facts speak for themselves. Let all the major players put their personal fortunes on the line, let the International Court of Settlements determine if anything illegal was done and by whom. If so, winner takes all. Then penalize the respective business entities of each of the guilty parties at 1000 times the total amount of of all shorts and longs on the deal. Let’s all play Master of the Universe ..

Posted by Woltmann | Report as abusive

HuckelberryFinn,

Over-sophisticated can mean one of the three: Idiot, fraudster, or both.
Bankers and ‘experts’ such as you appear to be contributed more than anyone else to the creation of the latest monster bubble.
What are you guys up to now? -Or would it be too sophisticated for someone like me to understand?…

Posted by yr2009 | Report as abusive

What I don’t get is the eagerness to let ACA and IKB off the hook.

ACA grossly misrepresented to the buyer that they had actually researched the bonds. Didn’t they have a duty to say: Hey this guy Paulson gave us a list of bonds and we picked from it.

AND IBK chose not to invest in wind energy or lower credit card rates or industrial bonds or treasury bonds, but took their depositors money and dumped it in the toilet. Their management should be in jail.

Posted by rootless | Report as abusive

Overwhelming evidence indicates that Goldman has been operating shell games with ACA in this instance as one of their typical shills.

If Goldman is betting on U.S. courts being mentally weak to the point of letting them slide on some home-turf toady loophole, that’s because it’s the only bet they have left.

No amount of bluster and domestic graft will shield them from the coming vendetta from overseas. That’s what’s on the cards for GS now – aces and eights.

Posted by HBC | Report as abusive

Huckleberry Finn, you call the SEC’s claims Mickey Mouse talk.

Here is SEC’s Robert Khuzami on the allegations. Does this sound like Mickey Mouse talk to you?
http://blogs.reuters.com/rolfe-winkler/2 010/04/17/questions-for-khuzami/

Yes other parties acted badly. Is that the defense Goldman plans to use in court?

Posted by DanHess | Report as abusive

A lot of anger is noted in the comments on the assumed wrongdoing of Goldman. The reasons are obvious…. and I do appreciate that.

However, it should not allow jumping to conclusions which, at best, are more than shaky.

I also refer to the SEC task unit that has been established only recently. Again, this institution missed the boat as the unit should have been established back in 2003 or no later than 2004, (but should include professionals from the sector) when f.x. condos in Vegas were marketed without a chance to keep up settlement values.

Much of it was financed by CDOs and later on by the toxic synthetic ones, but Fannie and Freddie were extremely helpful. At that time any prudently operated organisation like the SEC should have checked out, thoroughly, the mismanagement within government-backed institutions and the rest of the circus that developed at a gradually higher speed as investor greed accelerated… what some are calling investments by ‘the small guys’.

Did the SEC protect them? Or did the SEC act when all the red lights were flashing for several years in the Madoff-scheme? Check it out yourself.

What about ratings agencies classifying toxic CDOs as other AAA-rated instruments including the Abacus? Why do you think that not even the Obama-movement towards reform of financial institutions made thorough investigations? The number of cases are in the thousands!

No, I am not an i-banker. I retired as an auditor some years ago to take up other challenges including asset valuations in M&A transactions. As everyone knows today most of the housing bubble was a product of (investor) greed and mismanagement within banks, all of which the SEC chose to turn a blind eye to, even though interest rates were low and Congress was asked to take action.

Since 2004 my associates and I advised not to take up any American mortgage-product, but the casino-like game expanded to synthetic CDOs….. right in front of the SEC and the Feds, including prospectus-like presentations of mortgage-products that professionals within real estate claimed were almost as safe as treasuries. Have a look at what happened!

The Abacus transaction emerged in early 2007, almost three years after my associates and I issued stern warnings of not to go long in American mortgage-products. The SEC watched, or should have watched daily, the practice that developed at WS and in the UK market. If they did… they must have been blind or corrupted.

But this does not make Goldman’s Abacus transaction fraudulent in its disclosure.

DanHess suggested I watch the six-minutes interview with SEC’s Khuzami. So I did.

Khuzami’s explanations made me uneasy as he appears to confirm that the SEC has decided to feed the public with bankers’ meat to satisfy the hunger (and anger) out there. Come hell or high water.

His explanation about the difference between going short and going short while having prepared a list for mortgage selection by professional investors, also acting as mangeres, is telling a sad story.

In CNBC’s follow-up interview one of the commentators dryly stated that it comes down to selection of the underlying collateral. I believe he is right…. and that’s bad news for the SEC and American taxpayers.

Jim Cramer suggested that it was a popular kind of witch hunt to progress the Administation’s reform package. Cramer may have a point.

I feel the majority of Americans’ anger should be directed against the Casino-culture that the SEC and the Feds let develop with participation of banks. None of these watch-dogs critically assessed the market, practice and its participants.

Two German institutions were the victims of fraud. So the SEC boldly claim. Well, if the SEC had done a little more than surface-digging in Germany they would have discovered another story. Problem: Who would be able tounderstand a document drafted in German?

IKB was bailed out by the Federal government in Germany, while the anger, rightfully, was boiling in the public. Why? Because the IKB executives had not carefully assessed the risks in American mortgages, while a sound basis for suing any American institution, including Goldman, could not be identified… according to information received in 2009.

Should Jim Cramer’s assumption be correct, also sported by another Reuters columnist James Pethokoukis under the heading: ‘Obama’s SEC war against Goldman Sachs’, which may be the case, the SEC’s house of cards should come tumbling down.

I encourage to be critical of news presentations, but also to spend a little more time to understand what really happened in America from 2003 to 2009. Choosing Goldman in the role of scapegoat for assumed regulatory mismanagement is not reasonably, nor a wise move. It is a highly professional firm having survived worse situation than the SEC allegation.

And again…. civil fraud is a serious allegation making headlines when the accused is the world’s leading i-bank. What a way to start the SEC campaign!

I still do not comprehend how it would be possible to get Goldman in the really hot seat based on the information I have consummated. As such, it is Mickey Mouse talk.

Posted by HuckleberryFinn | Report as abusive

Huck, I really enjoyed your latest comment and will now re-read the earlier ones. When it I get around to writing a considered piece on the Abacus situation, it is likely to be informed by what you say. I would also like to apologise for, and withdraw, my remarks about your “asinine de haut en bas” manner, as well as my suggestion that you are an i-banker in disguise! Should you wish to contact me my contact details are here http://www.ianfraser.org/?page_id=458 (BTW: I’m currently commissioning pieces for a book about the crisis to be published by Bloomsbury)

Posted by IanFraser | Report as abusive

Seems like the SEC has a good case. I’m not a financial expert by any means. And because of that I don’t get lost in the details. It was GS behavior that is the issue here.

If Paulson specifically picked investments he knew were going to tank, that’s one thing. But when you combine that with what GS DID NOT SAY, about Paulson’s role and allowing IKB and ACA to think that Paulson was long on these investments, the deck is then stacked in favor of Paulson and against IKB and ACA. If the role of GS was to give beneficial advice to these entities then obviously their actions are in direct contrast to the role they were trusted to perform.

Of course no one can pick winners every time. But most people know a looser when they see one. And marketing a looser as a winner is a lie. This lie cost billions. They must be held accountable.

Posted by Benny_Acosta | Report as abusive

It will be up to the citizenry to vehemently demand that government officials and legislators also be held accountable for their utter lack of vigilance and incompetence. This whole financial disaster could never have occurred if regulators had been watchful and had a genuine desire to serve the public.

It would not have happened if the individual players in the banking system had not prioritized profit over real service. It comes down to the choices of the individuals in question. They got caught up in “everybody’s doing it”, and we wound up with this mess. The tax payer has been forced into providing corporate socialism by the government, while at the same time Wall Street holds the tax payer accountable for their debts.

So the tax payer must pay their debts or have the law thrown at them and they lose everything. Meanwhile CEO’s get to grab as much of everyone else’s money as they can, and apologize for the inconvenience.

Government then tries to lay the blame squarely on Wall Street while they say nothing about their own actions which contributed to the problem. There is no way to fix this problem with rules and regulations. It takes people of conscience. And it would appear that people of quality are in very short supply and in low demand.

Posted by Benny_Acosta | Report as abusive

Some folks act shocked, shocked that Goldman could be accused of fraud.

Well there are a number of things that Goldman and other banks aren’t facing charges for that have been very ethically questionable:

* Bailouts of AIG CDSs at 100 cents on the dollar
* Ability to borrow from the Fed nearly interest free, which amounts to outright theft from American taxpayers since this money can be lent right back to taxpayers at great profit.
* Use of high frequency trading to gain information on the trading activities of other entities, thereby front-running them
* Collecting collateral on CDSs from institutions that were failing, jumping ahead of all other creditors
* Hiding losses from shareholders by avoiding marking present assets to market, while paying themselves large bonuses.
* A quantitative easing program where the Fed mainly buys bank assets rather than distributes the money to the American people.
* Massive re-risking after the too-big-to-fail principle has been established.
* Risking up between reporting periods and scaling back just in time for reporting in a manner that while probably legal is deeply deceptive.

In terms of dodging charges, Goldman is batting nearly 1000.

Posted by DanHess | Report as abusive

If Jim Cramer is the designated canary in Goldman’s coalmine, the whole seam is about to cave in.

Monday’s Daily Show should be an absolute riot.

Posted by HBC | Report as abusive

DanHess and Benny Acosta, I really liked, and agreed with, your latest comments. If you’re interested in reinventing finance, please read this:- http://www.ianfraser.org/?p=902

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