Goldman Sachs charged by the SEC. The charges against Goldman could have far wider consequences.
The Economist, 16 April 2010
Is the most powerful and controversial firm on Wall Street about to get the comeuppance that so many think it deserves? On Friday April 16th America’s Securities and Exchange Commission (SEC) filed civil charges against Goldman Sachs and one of its vice-presidents, Fabrice Tourre, for allegedly defrauding investors by failing to disclose vital information about a financial product linked to subprime mortgages, as America’s housing market was starting to wobble. Goldman’s shares tumbled, dragging down stockmarkets.
The instrument in question, structured and marketed by Goldman, was a synthetic collateralised debt obligation (CDO), whose performance was tied to that of residential mortgage-backed securities. Goldman told its investors, who included some European banks, that the securities bundled together to form the CDO had been selected by an independent third party, ACA Management. The SEC alleges that the investment bank failed to disclose that another firm, Paulson & Co, a big hedge-fund manager, had in fact had a hand in choosing what went into the CDO.
This was a crucial omission, since Paulson & Co—run by John Paulson, who made billions in 2007-08 betting against the housing market—had taken a short position against the CDO; in other words, his firm would profit if the instrument performed poorly. “The product was new and complex but the deception and conflicts are old and simple,” said Robert Khuzami, head of the SEC’s enforcement division. Goldman called the charges “completely unfounded” and said it would contest them vigorously. Paulson & Co has not been charged; the firm issued a statement saying that ACA, as the third-party collateral manager, had sole authority over the selection of securities in the CDO.
Isn't it delicious that little Iceland, which the British Rothschild banks tried to indenture, will send a cloud that will devastate the British economy! If that volcano keeps up for months, which they often do, Britain will , in essence, be under an air embargo from little Iceland.
As far as this SEC filing against Goldman Sachs, it's pure distraction from the recent revelations of gold fixing internal emails.
Do you really think the Soetoro administration is going to bite the hand that controls and feeds it?