If you can’t spot the obvious patsy within the first 5 minutes then YOU ARE THE PATSY!

*Withholding material information and misleading is not allowed, so while there were rubes, Goldman should still be charged with fraud. Rule 10b-5 applies.

*Referring to Paulson as the transaction sponsor rather then the one who picked the bonds, or the one who will be going short.

*saying an independent party picked the assortment of bond trash to select from.

*Calling it a hands off trade, then bet short on it, and insure it,knowing it was junkier then the usual junk in such ‘sophisticated’ transactions.

*Coercing Moody to upgrade AAA while admitting it was junk.

*This deal was created by someone who likes things to blow up, specifically designed to blow up and with that insider knowledge, Goldman sold it others. Who knows what the insurance actually netted of if they did switcheroos as well.

Tell me why that is not deceptive, “All the security lawyers on earth”. The lawyers for Goldman are trying to find some slippery loopholes here, which will end up making Goldman look bad, and the lawyers look sleazy.

How do these guys feel about their kids friends reading about this in the Times? Are their kids going to be proud of them? I may not have made 68 million dollars in a year, but at least I can look my kids in the eyes. Which is worth a whole lot more to most people.

If Nixon had fired Haldeman and Erlichman, and cut his losses, he would have gone down as one of the better presidents in the 20th century.

But Goldman will not do the sensible thing. Hubris trumps humility. And their stock will slowly drift down, and customers will drift away. Somebody is going to look at their market cap of 84 billion, and say almost all of that is blue sky, in other words, their reputation.

The case boils down to whether or not Goldman disclosed the relevant material facts. The most pertinet fact being that Paulson sponsored the CDO and was actually shorting the entire structure.

An unsophisticated investor likely would not have realized (or even understood) that the sponsor of the CDO could be net short (or perhaps even that there was a sponsor separate from Goldman). Goldman’s defence is that a sophisticated investor must know that in a synthetic CDO, for every long, there must be short. Given that the sophisticated investor knows this, then it is not material that Paulson is that short.

I don’t know how the courts will rule on this issue, but it is important that IKB implicitly knew that there was a short position on the CDO. It obviates the need for Goldman to disclose it.

Mind you, the crux of the case isn’t that it wasn’t disclosed that Paulson was short, it’s that it (potentially) wasn’t disclosed that Paulson played a role in selecting the refence basket while being short.

We need to come to terms with the fact that most parts of our society, upon which we interdepend, require specialized knowledge not shared by the masses. Fully 99.97% of us will never become doctors, but if a bunch of MDs run around spreading the plague, you shouldn’t need to be able to cite the differential diagnosis for pleuritic chest pain in order to make a complaint.

Perhaps we need a law that says if you can’t explain a financial instrument in under twelve words (“We’re buying coffee futures because people are drinking lotsa coffee.”) it is declared fraudulent. We would lose CDOs but maybe retain the housing sector.

An unsophisticated point of view, I admit.

Do enlighten us. What other laws apply than the one Felix cited?

I mean marks tend to think that they are sophisticated. A bank which knew it was clueless would have bought Treasuries.

Oh my God, STFU about securities law issues. You’re in so far over your head that you probably don’t even know how badly you’re embarrassing yourself.

Signed,

Every Securities Lawyer on Earth

Note the sleight-of-hand from “sophisticated” to “accredited.”

Carney should know/knows better than to believe the claim he’s making. The “prudent man” standard–even after it was distended beyond recognition, creating the incentive for all that deregulation and the inevitable fall (see Gresham’s Law) of the Investment Banks–is not applied to hedge funds and their like because the standard for “accredited investor” is that they DO NOT NEED TO BE PRUDENT.

Accredited = has a lot of money. Sophisticated = knows investments and the markets. There is an overlap–see, e.g., Buffett, Warren–but a lawyer who tries to argue that people who have more than $1MM in assets excluding their primary residence are by definition “sophisticated” would be laughed out of John Carney’s brother’s court.