Why SEC v. Goldman is far from open and shut
The government’s lawsuit against Goldman Sachs, announced Friday by the Securities and Exchange Commission, is a doozy. It alleges that the Wall Street firm defrauded investors in a synthetic — remember that word “synthetic,” because it’s important — collateralized debt obligation, or CDO. The charge is that Goldman let an investor named John Paulson help put together the CDO without telling other parties that Paulson was betting against it, thereby dooming them to lose money.
So far, so scandalous. But that’s not the end of the story.
First, about that word “synthetic.” The Wall Street Journal explains that
the investment at issue did not hold mortgages, or even mortgage-backed securities. This is why it is called a “synthetic” CDO, which means it is a financial instrument that lets investors bet on the future value of certain mortgage-backed securities without actually owning them.
Yet much of the SEC complaint is written as if the offering included actual pools of mortgages, rather than a collection of bets against them. Why would the SEC not offer a clearer description? Perhaps the SEC’s enforcement division doesn’t understand the difference between a cash CDO—which contains slices of mortgage-backed securities—and a synthetic CDO containing bets against these securities.
More likely, the SEC knows the distinction but muddied up the complaint language to confuse journalists and the public about what investors clearly would have known: That by definition such a CDO transaction is a bet for and against securities backed by subprime mortgages. The existence of a short bet wasn’t Goldman’s dark secret. It was the very premise of the transaction.
Now, it should go without saying that any investment is a gamble, that the only investments that forever go up, up, up usually result in someone like Bernie Madoff going to jail. The only honest gamble is one in which one side wins money and the other side loses.
And in this case, we are talking about a particular kind of CDO, one which is even more explicitly designed as a betting proposition. There is no consideration here of, say, income from the mortgages upon which the bet was based. It is purely a matter of up-or-down. No sophisticated investor — and the majority of the losses from this bet were sustained by big international banks — would make this bet thinking that everyone was betting on the upside. Yet that’s one of the things the SEC alleges against Goldman: that it didn’t tell some investors that other investors were betting on the downside, when that should have been plain to everyone.
The more serious allegation is that Goldman let Paulson build the CDO with mortgage-backed securities that were especially likely to fail. Actually, the complaint says that Paulson “played a significant role in the portfolio-selection process.” Who else played a significant role? ACA Management LLC, which the SEC describes as “a third-party.”
Undermining the narrative, however, is this revelation from Goldman Sachs on Friday: ACA was the largest “long investor” (meaning ACA was betting that the CDO would rise in value, not fall) in the deal, with $951 million.
So, ACA was not some disinterested “third-party.” It put together a CDO in which it then invested nearly $1 billion. It clearly was building a CDO on which it thought it could make some money. Borrowing the language of the lawsuit, you might even say its “interests were sharply conflicting” with those of short-side investors.
What’s more, Goldman itself lost $90 million on the deal, more than erasing the $15 million in fees it earned for arranging the deal. As the WSJ editorial puts it, “the SEC is suing Goldman for deceiving long-side investors in a transaction in which Goldman also took the long side. So Goldman conspired to defraud…itself?”
Can we assume the SEC would also sue Goldman if the bet had turned out the other way, and Paulson had lost money on the CDO he helped build, rather than ACA losing money on the CDO it helped build?
It’s always tricky commenting on a just-filed lawsuit, because more information invariably comes out as the process unfolds. There may be some truly damning information about Goldman’s role in this deal yet to come out. There may be other cases that are truly egregious — although, if that’s true, one has to wonder why they wouldn’t be the first ones out of the gate. But no such information has been unveiled yet, and based on the available evidence it’s easy to imagine the SEC losing this case, despite all the bluster about this supposed breakthrough in revealing how Wall Street makes the sausage.
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94 comments Add your comment
Michael H. Smith
April 19th, 2010
8:42 pm
Right again, Linda. And, herein lays devilish details.
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.
http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html?pagewanted=1
Michael H. Smith
April 19th, 2010
8:58 pm
Article on limited purpose banking:
Whatever We’re Doing, It’s Not Working
If the Tea Party folks haven’t discovered this book, they should. Larry says what’s on his mind, is not particularly concerned with making friends in government or business, and has solid credentials to back up his conclusions. In reviewing our meltdown, he doesn’t spare himself or his colleagues from criticism, either. “With rare exceptions, those of us manning the watch — the economists hired by the government and the business world — missed what was coming, were shocked when it happened, exacerbated the public’s fear, and are now helping resurrect the system that failed so miserably.”
Such behavior, Kotlikoff says, is part of a broader pattern of financial malfeasance. The federal government is able to print money and spend its way out of jams. Unable to resist the allure of the next election, our leaders have literally promised Americans they will spend upwards of $80 trillion on future benefits that the government simply has no way of obtaining. Short of hyper-inflating the money supply with devalued currency, we will not meet those promises. We are, in Kotlikoff’s less than humble opinion, bankrupt. Yet our leaders find it easier to look the other way or engage in political brinkmanship than get down to work.
Looking the other way also explains why financial firms were allowed to become too big to fail and put our money at risk and not theirs. They adopted and then over-dosed on highly leveraged financial instruments. These securities are still not fully understood by even sophisticated financial experts, and certainly not by the politicians who are supposed to fashion remedies. While tougher regulations are being sought in Washington, Kotlikoff notes that there are roughly 115 financial regulatory agencies already. The problem is not that banking is under-regulated; it’s that the regulators looked the other way instead of doing their jobs.
http://www.usnews.com/money/blogs/the-best-life/2010/03/07/whatever-were-doing-its-not-working
Linda
April 19th, 2010
9:05 pm
Michael@8:28, In case she is not re-elected the Fuller Brush Co. has offered her a job as a test pilot for their broom division.
Linda
April 19th, 2010
9:19 pm
Oh, & Michael, did you hear that Miracle Ear is donating hearing aids to the Dems that could not hear the message from the Tea Parties, the elections in VA, NJ & Mass, the blogs, the Town Hall meetings, the emails & phone calls?
Ragnar Danneskjöld
April 19th, 2010
9:34 pm
The SEC litigation is a mere distraction, to divert our attention from the Paulson-Geithner TARP programs, that funneled so much Federal funding into a company that was broke. The lawsuit, unfortunately, reflects the best thinking at SEC.
Michael H. Smtih
April 19th, 2010
9:46 pm
Linda @ 9:19 – I don’t think even Lee Majors six million dollar Bionic Ear could help the brain dead Democrats hear anything except more BIG GUB’MENT, “socialized and unionized”.
Mike
April 19th, 2010
9:50 pm
Linda and Michael… thanks for the links and to that degree I stand corrected. Nonetheless, if the banking industry had not been deregulated and Glass-Stegall eliminated, banks in the business of providing loans couldn’t have packaged those loans into the CDOs that tainted the entire banking system and brought it all down like a house of cards. Banks would’t have become “too big to fail.”
You both seem to blame the collapse on people who took out loans they couldn’t afford, and sure they bear SOME of the blame, but what about the enablers and “pushers” of these loans? Seems we should be blaming the bankers who pocketed billions and should have understood the risks a LOT more than the borrowers (many completely uneducated in matters of finance) who in many cases were convinced by the banks they could afford a house that they couldn’t. Banks pushed for deregulation and non-enforcement of the existing regulations for decades, and when they finally got it they successfully managed the largest transfer of wealth from the middle-class to the wealthy in history. Just who made out like bandits… the borrowers, or the banks and bankers?
Michael H. Smith
April 19th, 2010
10:02 pm
I’d seriously doubt the SEC thought this lawsuit up all by their lonesome, Ragnar. This bureaucratic bunch of primates has a habit of not thinking too hard about doing anything other than looking the other way so they can hear no evil, see no evil, or speak of any evil. It is the only way they get bananas for desert after feeding at the public trough.
How many times was the SEC informed of Bernie Madoff’s ponzi operation, before anything happened?
Michael H. Smith
April 19th, 2010
10:30 pm
First of all Mike, be more accurate when talking about Glass-Stegall: It is two separate banking acts 1932 and 1933. The one you continue to trumpet (of 1933) did nothing to stop the creation of sub-prime loans (the first one was made in 1993), which permitted the fraud in the first place. Fraud Mike, that is the key element in this entire corrupt rip-off. Glass-Stegall of 1933 commercial banking and investment banking to a separate hell and back my friend, as long as fraud is allowed to be committed in the banking system – and sub-prime loans are for most cases made fraudulently – then repackaged fraudulently and sold fraudulently as investment grade securities it will not make the needed difference. Only by removing the fraud (of non-qualified loans) and assuring those who would ever dare again commit it that they will lose everything they’ve gained including facing lengthy Federal prison time upon being convicted under false conveyance laws with a claw back clause will at least one part of meaningful financial reform have taken place. The other part might be found in limited purpose banking previously mentioned.
First Sub-prime loans:
Subprime lending evolved with the realization of a demand in the marketplace for loans to high-risk borrowers with imperfect credit. The first subprime was initiated in 1993.
http://en.wikipedia.org/wiki/Subprime_lending
Avery
April 20th, 2010
12:03 am
Hey Linda,
No – I am actually making fun of you, because the claim that homeownership initiatives “caused” the financial crisis has a logical breakdown……namely, that commercial property led the way and was not involved in any “homeownership initiative”.
Your defense of unfettered unregulated markets, and anger at any sort of parental oversight will need a new scapegoat. Keep digging in the 1990s, I’m sure you can figure out something else to blame on Democrats.
Avery
April 20th, 2010
12:11 am
Michael H. Smith:
After Glass-Steagall (at least get Henry Steagall’s name right), investment banks and commercial banks were required to be separate entities.
After the Gramm–Leach–Bliley Act, they were allowed to merge again.
Almost immediately after this act was passed, investment banks used their commercial banks to originate loans, which their investment banking wing immediately underwrote. To claim that consolidating multiple levels of supposed market oversight under one umbrella (in a conflict-of-interest type relationship) had NO bearing on the mortgage crisis is incredibly disingenuous.
Bob
April 20th, 2010
8:50 am
WILL OBAMA RETURN $994,795 IN GOLDMAN SACHS CAMPAIGN CONTRIBUTIONS?
CJ
April 20th, 2010
10:05 am
“WILL OBAMA RETURN $994,795 IN GOLDMAN SACHS CAMPAIGN CONTRIBUTIONS?”
To the extent that Goldman Sachs supported the Obama campaign, they should have done so because they supported his candidacy, not because they expected something in return. The fact that Obama would not let such contributions interfere with his judgment on various matters is something to be appreciated, not criticized.
Gator Joe
April 20th, 2010
11:03 am
Kyle:
How inconvenient that Wall Street should have to deal with “excessive” government regulation? This latest Goldman Sachs criminality is just one more example of “Free Market Capitalism” as practiced by some American corporations. That is, make as much money as can be made without regard to morality, by working at the margins of, and in many cases outside, the regulations. According to the Tea Party mob, the size of government should be reduced, and by extension “troublesome” regulation. “Troublesome” regulation which protects, for example, our environment, the safety of our workers, and our banking system.
Michael H. Smith
April 20th, 2010
8:40 pm
Avery
“NO bearing” as “you say it” probably is a stretch and then some. The consolidation of commercial and investment banking had a bearing much as in like pouring gasoline on an already out of control fire that is burning. What is delusional is to think that removing Glass Steagall was the cause or source of the fire, which is truly not the case(noting you did not correctly identify the act of 1933, again).
The Gramm–Leach–Bliley Act of 1999 was an “accelerator” added to the source which was the allowed-legalized FRAUD of these sub-prime loans that began in 1993 that Glass Steagall of 1933 did not stop, because it could not stop it, then nor can it now, even with a repeal of the Gramm–Leach–Bliley Act of 1999. All of which was my point that you obviously chose to ignore out of a courtesy to correct my misspelling of Steagall’s name. When all else fails your argument(Republicans guilty, Democrats innocent) go for spelling the errors right? So much for being disingenuous, ahem…
Investment bankers would have got around the Glass Steagall banking act of 1933 eventually, one way or another. Bring it back and they’ll prove it to you: So long as sub-prime(fraud) loans remain legal and they know that they can stiff we the taxpayers and stockholders of this country with their financial losses and make us pay for their crimes of fraud with a Big G’ment to big to fail bailout; while they walk around freely with billions of our dollars in their pockets.
Michael H. Smith
April 20th, 2010
9:14 pm
To the extent that Goldman Sachs supported the Obama campaign, they should have done so because they supported his candidacy, not because they expected something in return. The fact that Obama would not let such contributions interfere with his judgment on various matters is something to be appreciated, not criticized.
CJ, is your antidote for treating the poison of reality sold legally over the counter or can it only be obtained through the Democrat Underground?
The sausage making reality of politics are not a pretty thing to behold. Nevertheless, the ingredients used that go into the making of the sausage that is consumed, usually determines if it just leaves a taste in your mouth for the good or bad, or kills you.
Chris Broe
April 21st, 2010
7:20 am
Were there any similar fraud synthetics involved in the Great Depression?
Peter
April 21st, 2010
11:04 am
Kyle , the Law suit is week, you are correct……and this will be an egg in the eye for the SEC…..
I think they went too gung ho on this one…..Cramer said it best… Yes they were greedy, and yes they screwed the customer…..but that does not constitute fraud !
retiredds
April 21st, 2010
12:16 pm
This recently in from Reuters:
The Treasury confirmed that GM had repaid in full the $4.7 billion balance it owed under the government’s Trouble Asset Relief Program, five years before the loan maturity date and ahead of an accelerated repayment schedule set last year.
“We are encouraged that GM has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability,” Treasury Secretary Timothy Geithner said in a statement.
The company has now repaid a total $6.7 billion in debt owed to the treasury after a bailout last year. GM emerged from bankruptcy in July 2009.
All the conservatives were howling how the “gubment” was taking over private business. Well, folks, history will prove you wrong, again. There never was an intent by the “gubment” to take over the large corporations. And to boot the “gubment” you were, and still are, complaining about is making money on the bailout funds. Oh well I’ve never put much stock in the party of no and the “I want my country back folks”, and all the naysayers anyhow.
No More Progressives!
April 21st, 2010
3:26 pm
Jefferson
April 19th, 2010
11:12 am
Greed blinds.
Define greed, please.
CJ
April 21st, 2010
3:27 pm
Since Kyle is AWOL, and since retiredds has officially converted this particular thread into free for all, I’ll reiterate that the Republican party only cares about shifting as much of the tax burden from those who don’t work (inheritance income and investment income) to those who do.
Republican under the gold dome recently voted to eliminate state income taxes for retirees — tax cuts that benefit, statistically, the wealthiest group among us. They also voted to dramatically cut capital gains taxes.
So, as expected, to take up the slack for these wealthy white welfare queens, Georgia Republicans are now proposing to raise taxes on the poor.
Today’s Republican Party. Gotta love ‘em.
No More Progressives!
April 21st, 2010
3:29 pm
retiredds
April 21st, 2010
12:16 pm
All the conservatives were howling how the “gubment” was taking over private business.
King Barry the Magnanimous did take over GM and other industries. So it seems that student lending is next.
Show me the Article, Section or paragraph in the Constitution that allows the Feds to do this.
You can’t. It ain’t there.
No More Progressives!
April 21st, 2010
3:31 pm
CJ
April 21st, 2010
3:27 pm
So, as expected, to take up the slack for these wealthy white welfare queens, Georgia Republicans are now proposing to raise taxes on the poor.
Don’t need to raise taxes on the poor. Just keep selling lottery tickets………………
Define wealthy, please.
CJ
April 21st, 2010
3:52 pm
At this point, the definition of wealthy is less important to me than how different categories of income are taxed.
If you make most of your money from working, then you’re going to pay a lot more in taxes than if you get most of your money from an inheritance or investments. It just so happens that people who received most of their incomes from inheritances or investments are, by anybody’s standards, rich — but that is beside the point.
The point is, whether your total household income results from inheriting $50,000, selling stocks for a $50,000 profit, receiving $50,000 in dividends, or earning $50,000 from setting your alarm clock and going to work every morning, your tax rate should be the same.
CJ
April 21st, 2010
3:54 pm
I meant to say, “…It just so happens that most people who received most of their incomes from inheritances or investments are, by anybody’s standards, rich…”
No More Progressives!
April 21st, 2010
3:56 pm
CJ
April 21st, 2010
3:52 pm
The point is, whether your total household income results from inheriting $50,000, selling stocks for a $50,000 profit, receiving $50,000 in dividends, or earning $50,000 from setting your alarm clock and going to work every morning, your tax rate should be the same.
I agree. No matter who you are, where you are, what you do or how you do it, on April 15th, you take you annual income from the previous year, time 12% and the conversation is over. No more IRS. No more class warfare, no more “progressive” and punitive income tax. Now, I don’t know if 12% is the right number, but it’s the right concept.
When do we start?
No More Progressives!
April 21st, 2010
3:58 pm
Since you can’t define “rich” or “wealthy,” it is all the more reason to go to 1) a flat tax, or 2) a consumption tax.
Liberals are big into “fair.” And this is fair.
Tomorrow.
CJ
April 21st, 2010
4:02 pm
If we go with a flat tax, then we’ll have to decimate the military and let the highways, ports, damns, levies, national parks, FBI, FAA, and the rest rot. Not to mention the fact that we’d have to default on our national debt. I’m afraid that I can’t get on board.
But I’m glad that we agree on something. If heirs and investors are taxed at the same tax rates as people who work for a living, then taxes on earned income would otherwise be lower.
No More Progressives!
April 21st, 2010
4:07 pm
Nothing woul have to rot anywhere if the ruling elites in Washington would 1) craft a real-world budget (not this base-line crap they pull every year), and 2) supress their overwhelming lust to waste other peoples money on anything.
Do we agree here?
CJ
April 21st, 2010
4:20 pm
Consumption taxes are, generally, regressive. The less income that a household has, the higher the percentage of that household’s income that they pay in taxes.
Since those at the lower and middle income levels necessarily inject higher portions of their income into the economy, then consumption taxes are also counterproductive. In other words, relying entirely on consumption taxes would actually cause the economy to contract. To avoid being counterproductive we have to tax ourselves such that only disposable income is taxed — hence the progressive income tax.
In addition, like the flat tax, consumption taxes wouldn’t generate enough revenue to keep the lights on.
Incidentally, the FairTax proposal would only mitigate the regressive nature of consumption taxes, not eliminate it.
I do agree that the government is wasting other people’s money, but we probably wouldn’t agree where. I think that we have too much welfare for billionaires in the form of a bloated military with weapons programs that are obsolete or don’t work (i.e., missile defense), agricultural subsidies, various and sundry corporate subsidies that do more harm than good, and allowing the oil and mining industry to extract our resources without paying us a reasonable royalty for them (resulting in higher taxes for the rest of us).
No More Progressives!
April 21st, 2010
4:29 pm
Well, I would have to cogitate over your response.
You mentioned “a bloated military with weapons systems…….” The trouble with this argument is that when you cancel/stop spending on military programs, you inadvertantly un-employ thousands if not more. Are we a war-based society? No, but when we’re building F22’s, the ripple effect accross the economy is significant.
I agree about farm subsidies (never have understood them, to be honest).
Michael H. Smith
April 21st, 2010
7:52 pm
No More – No one at this point knows where the breakpoints should be set on a flat tax; and to actually make it viable, it would likely need to have two tiers: Hypothetically speaking as in 10% then 20% top – with all deductions, credits and rebates wiped out. What remains a fact is that no one should be able to “earn an income” and not have to pay tax on what “they earn”. With “BIG GUB’MENT” socialized (Marxist) spending out of the way, if everybody has skin in the tax game there will likely be sufficient funds to operate a proper “efficient government” of a much, much, smaller size, scope and cost.
No More Progressives!
April 22nd, 2010
9:33 am
Michael H. Smith
April 21st, 2010
7:52 pm
I agree. So we experiment. We went to the moon in 1969. This country can fashion a tax code that is “fair,” funds the Govt. for needed items, and who knows how much we’ll save dissolving the IRS. I say dissolve both DOE’s and a whole lot more.
But the point is we can do this. 70,000 pages of tax code and over 800 forms are a bit much.
Almost forgot: we need to go through the steps to have a line-item veto. Since the Supremes declared it un-Constitutional during Clinton, I’m sure it will take an Amendment to have one.
Federalist Patriotic Conservative
April 22nd, 2010
1:19 pm
Has the Teleprompter In Chief given back that million in donations to GS employees yet? You’ve got a better chance of watching liberals celebrate Earth Day by not using their computers and cars and power today.
Oh there is MUCH more of this Goldman Sachs story to be told. How many times did the head of GS visit the White House again? I’ll tell you – if this were a Republican president doing these shady sinister things this administration is doing, Pelosi and the Democrat main stream media would be calling for heads.
But instead, we have the left wing media ilk like the New York Times spending all its time investigating the Tea Party movement, what that kook head of ACORN said was a hate-filled “bowel-movement.”
Finally, anyone who doesn’t think a VAT will further hurt the economy and pocketbook of EVERY single person in this nation is an Obamawashed idiot. The radical leftist goons running Washington couldn’t run a corner hot dog stand, but yet they think they know enough to dismantle America’s economic infrastructure piece by piece and take control over it. I’ll bet you two jackasses and a cart these incompetents in Washington don’t even know the US economy is 70% consumer driven – for now anyway. And I say bet two jackasses and a cart because once these wretched “leaders” in Washington get through with their transformation to America THE STATE, that’s about all we’ll have left of value.
Anyone else notice these incompetents have all but STOPPED talking about jobs and job growth? Uh huh.
Michael H. Smith
April 23rd, 2010
10:42 pm
Did GM Pay Back Its Loan? Not Really
The big news regarding General Motors the last few days revolves around GM’s announcement that they had made a “final” $5.8 billion loan payment to the U.S. and Canadian governments on Tuesday. Two questions, however emerge. How did GM pay it back? And, what about the $50 billion bridge loan?
“Its good news they’re reducing their debt,” said Barofsky of the accelerated GM payments, “but they’re doing it by taking other available TARP money.
In other words, GM is taking money out of one pocket and putting it in the other, said Carper, who got a nod of approval from Barofsky. Seems like the way the payment is going to be made is by drawing down on the equity facility of other TARP money.
http://www.glgroup.com/News/Did-GM-Pay-Back-Its-Loan–Not-Really-47948.html
Well, folks… all we conservatives now have better reason than ever to howl, as history once again proves the lousy BIG GUB’MENT liberals wrong.
david wayne osedach
April 24th, 2010
9:09 am
Goldman will be slapped on the wrist with a token fine. Nothing more. It is back to (fradulent) business as usual.
Michael H. Smith
April 24th, 2010
10:59 am
If only it were nothing more than the Goldman token resolve in a return back to the fraudulent business as it has usually been conducted to date Americans might count themselves fortunate to have escaped greater calamities now in the making.
As the few who will dare to speak honestly will say, it is not more BIG GUB’MENT regulations and more BIG GUB’MENT regulators with a perpetual TARP fund created at further expense to the citizenry at large that is needed, as these things now appear in the making to worsen the fraud that exists by accommodating, if not accelerating its’ growth and longevity through the false sense that the efficacy sought shall be derived upon the enactment of this expansion. Which will only duplicate a magnified version of the fatally flawed system it shall never eradicate.
Regulations are only as good as the regulators, regulators are no better than the political system which produces, provides and ingratiates them. Without proper systemic checks and balances in place to provide immunity for the citizenry from the system with nothing policing the police, corruption and fraud shall prosper business as usual, unusually better than before.
Twinkie in T-Town
April 24th, 2010
1:01 pm
It’s evah so clear that the gubmint has runs amuk and needs to be saddled an rid’ like ol’ Bessie my cow. Yee-hah, ya’ll.
Alton E. Drew
April 24th, 2010
3:36 pm
Kyle. It’s good to see someone in the press provide a balanced and in-depth analysis of the SEC’s civil action against Goldman Sachs. You are correct. It is still early. Unfortunately too many Americans don’t understand that like any other true income generating investment, the investments made by Paulson had to be insured and putting together an instrument that he could bet against while generating revenue from the bet was a method of insuring his investment portfolio.
Suppose, instead of intervening in the financial contracts between homeowners and banks, the government encouraged more of us to go out and buy equity protection for our homes. Using a private market alternative, similar to those used on Wall Street to protect our investments. This approach would provide American consumers an affinity with true investment behavior while saving taxpayers billions by avoiding another bailout program. That would be a great lesson to learn from the Goldman suit.
Alton Drew
http://www.altondrew.com
Michael H. Smith
April 24th, 2010
4:09 pm
Thanks for your thoughts, Alton. I was hoping to see comments made on Limited Purpose Banking. What we do agree on is the necessity of indemnifying the American taxpayers against future government bailouts of gamblers deemed too big too fail, who win by losing on Wall Street.
Whatever We’re Doing, It’s Not Working
http://www.usnews.com/money/blogs/the-best-life/2010/03/07/whatever-were-doing-its-not-working
Lawrence Baker
April 24th, 2010
8:53 pm
An “octopus wrapped around the face of humanity” as one journalist put it; the New World Banking Order has arrived. In 2009 speculative, uncontrolled derivatives were the Worlds largest market at an estimated 600 Trillion. The Worlds total economic output was an estimated 58.07 Trillion and the total World bond market was an estimated 82.2 Trillion. Yet, there is no “crime” that the bankers can be charged with as they bankrupt citizens and Nations into the New World Order?
The appropriate criminal charge should be Treason to the American People and our Democratic Republic and Constitution. The members of the Trilateral Commission and the Bilderberg Group in government and banking who conspired to overthrow our soverenity as an independent nation, who conspired to bankrupt our Treasury with three unjust Wars and multinational corporate “rolling” bailouts, conspired to control mass media “free Press” propaganda, conspired and manipulated “financial crisis” for their own gain, conspired to “relocate” American industry and technology, conspired to offshore “American Income Tax”, and who have conspired to enslave American citizens with National debt (about $64,000 per citizen) and personal debt. Deserve the death sentence by firing squad for Treason.
Obama, your New World Order is Totalitarian and we Patriots, American free citizens, will fight for our Democracy, Independence and Freedom.
The Carnivore
April 26th, 2010
3:11 pm
Kyle -
I believe the SEC is going to get humiliated in this case, not just lose it. An investor such as Paulson has every right to handpick securities to go into a pool, CDO or otherwise. Furthermore, the parties on the other side of the transaction have every right to examine what is in the security pool and conduct due diligence before purchase. Since all of the parties in this transaction were large banks or hedge funds, there were no clueless Main Streeters involved.
Also remember that had this transaction happened 6-9 months earlier, Paulson would have lost huge and the buyers would have won huge. Paulson had great timing in this case, but it could have backfired on him.
Most importantly, this class of security only existed because Wall Street and hedge funds sensed a bubble forming and tried to take advantage of it. The Main Street wreckage would have happened anyway, with or without CDOs involved. It is conveniently popular to assign blame to those of whom you are jealous, but the real blame lies with the millions of homeowners who signed on the dotted line for loans they couldn’t afford.
The SEC will probably not win a single point of the case. This is an attempt by Obama to show that the government is doing something, but they could have picked an easier target than Goldman Sachs, who will make mincemeat out of the SEC in the courtroom.
Lawrence Baker
April 28th, 2010
12:30 am
I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country. I believe that banking institutions are more dangerous to our liberties than standing armies. Leave no authority existing not responsible to the people. No government ought to be without censors; and where the press is free no one ever will. Truth is certainly a branch of morality and a very important one to society. Honesty is the first chapter in the book of wisdom. If the American people allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive people of all property until their children will wake up homeless on the continent their fathers occupied … The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs. A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor and bread it has earned – this is the sum of good government. Force is the vital principle and immediate parent of despotism.
Every generation needs a new revolution. The spirit of resistance to government is so valuable on certain occasions that I wish it to be always kept alive. Every citizen should be a soldier. This was the case with the Greeks and Romans, and must be that of every free state. We are not to expect to be translated from despotism to liberty in a featherbed.
Thank You, Thomas Jefferson (all quotes assembled)
MarkatTwelve
May 4th, 2010
3:55 pm
This administration even wants to protect sophisticate investors that had full knowledge and disclousre of every tranche of this deal. In these deals every long needs a corresponding short. The long negotiated the actual CDO included in this synthetic.
Unless something else is disclosed, Goldman should fight this to the death.
In a deal where one party has to lose, I guess the administration is saying that you have cause for legal recouse if you have all the pertinent information, do due deligence and lose anyway.
Wow.