U.S. charges Goldman Sachs with civil fraud

[jimmy olsen]

CNN had some discussion.  Turns out it wasn't just "a hedge fund," it was the the hedge fund that Goldman had hired to package subprimes for securitization.  No elaboration of how that hedge fund "bet against subprimes."

http://www.msnbc.msn.com/id/21134540/vp/36599400#36599400

They were packing shitty loans together and selling them to buyers as high quality, and then shorting them.

[MadImmortalMan]

CNN had some discussion.  Turns out it wasn't just "a hedge fund," it was the the hedge fund that Goldman had hired to package subprimes for securitization.  No elaboration of how that hedge fund "bet against subprimes."

What I understand is this:

1: GS hires the hedge fund to select a group of loan packages for a security they are putting together. The objective is to get good safe ones.

2: The hedge fund picks a pile of shitty ones they know will fail.

3: Hedge fund then shorts the security GS creates out of the package.

4: GS's investors lose money. The hedge fund makes a killing.




Edit: beaten to it.

[alfred russel]

Ouch.  They're fucked.

Maybe. If this is the only case, then the total losses are $1 billion, and most of the profits are with Paulson (who should have the deep pockets to pay out). I wouldn't expect the damages to be too high for GS (considering they made almost $5 billion in their last quarter).

[Admiral Yi]

Maybe. If this is the only case, then the total losses are $1 billion, and most of the profits are with Paulson (who should have the deep pockets to pay out). I wouldn't expect the damages to be too high for GS (considering they made almost $5 billion in their last quarter).

Damage to the brand name.

T'would be a good time for Obama to introduce financial regulation legislation.

[The Minsky Moment]

So the theory is that Goldman intentionally created dud securities and sold them to investors, and then proceeded to sell CDS protection on them?  Me no understand.

Also, the complaint seems to do a pretty good job of explaining how Goldman allegedly misled ACA (the selection agent) about Poulsen's role, but ACA was not a purchaser or seller of securities and Goldman owed no duty to ACA.   The SEC is going to have to explain how the investors were misled.

[Caliga]

As of now, GS is down over 21 points. Ouch. Good thing I go nowhere near US bank stocks.

At one point I owned a Goldman Sachs managed fund... good thing I sold it years ago (for a profit).

[Faeelin]

Maybe. If this is the only case, then the total losses are $1 billion, and most of the profits are with Paulson (who should have the deep pockets to pay out). I wouldn't expect the damages to be too high for GS (considering they made almost $5 billion in their last quarter).

I dunno. Their main value is reputation, no? If you were doing an IPO now would you be okay with using them?

[alfred russel]

Maybe. If this is the only case, then the total losses are $1 billion, and most of the profits are with Paulson (who should have the deep pockets to pay out). I wouldn't expect the damages to be too high for GS (considering they made almost $5 billion in their last quarter).

I dunno. Their main value is reputation, no? If you were doing an IPO now would you be okay with using them?

Assuming their fees weren't too high, absolutely. The reputation of Goldman Sachs among Rolling Stone readers isn't especially relevant.

[Hansmeister]

So the theory is that Goldman intentionally created dud securities and sold them to investors, and then proceeded to sell CDS protection on them?  Me no understand.

Also, the complaint seems to do a pretty good job of explaining how Goldman allegedly misled ACA (the selection agent) about Poulsen's role, but ACA was not a purchaser or seller of securities and Goldman owed no duty to ACA.   The SEC is going to have to explain how the investors were misled.

The case is a joke, it was merely pushed to help Obama pass the new financial regulatory bill of which Goldman Sachs would be one of the biggest beneficiaries.

[Razgovory]

So the theory is that Goldman intentionally created dud securities and sold them to investors, and then proceeded to sell CDS protection on them?  Me no understand.

Also, the complaint seems to do a pretty good job of explaining how Goldman allegedly misled ACA (the selection agent) about Poulsen's role, but ACA was not a purchaser or seller of securities and Goldman owed no duty to ACA.   The SEC is going to have to explain how the investors were misled.

The case is a joke, it was merely pushed to help Obama pass the new financial regulatory bill of which Goldman Sachs would be one of the biggest beneficiaries.

Decide to take a break from the Tea Party circuit and post here for a while?

[dps]

GS helped Paulson short the CDO, but a GS employee led another party to believe that Paulson was long.

This is the only outright fraud I see here, and if it Minsky is correct that no actual investors were misled, I'm not sure there's much of a case.

At the end of the day, the SEC alleges GS let Paulson help create a security that they were also helping him bet against, which obviously gave an incentive to create a security that would fail.

This sounds dodgy, but frankly I'm not familiar enough with the rules on disclosure to say that it's not legal.

[DGuller]

A whole separate problem is that a lot of investment banking activities that are unethical and immoral are not illegal.

[jimmy olsen]

http://www.borowitzreport.com/2010/04/25/somali-pirates-say-they-are-subsidiary-of-goldman-sachs/

Somali Pirates Say They Are Subsidiary of Goldman Sachs

Could Make Prosecution Difficult, Experts Say

NORFOLK, VIRGINIA (The Borowitz Report) – Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs.

There was an audible gasp in the courtroom when the leader of the pirates announced, "We are doing God's work.  We work for Lloyd Blankfein."

The pirate, who said he earned a bonus of $48 million in dubloons last year, elaborated on the nature of the Somalis' work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted.

"We were functioning as investment bankers, only every day was casual Friday," the pirate said.

The pirate acknowledged that they merged their operations with Goldman in late 2008 to take advantage of the more relaxed regulations governing bankers as opposed to pirates, "plus to get our share of the bailout money."

In the aftermath of the shocking revelations, government prosecutors were scrambling to see if they still had a case against the Somali pirates, who would now be treated as bankers in the eyes of the law.

"There are lots of laws that could bring these guys down if they were, in fact, pirates," one government source said.  "But if they're bankers, our hands are tied." 

[Admiral Yi]

Anyone else read the Time article on Goldman?  Quite the smear article I thought.

[citizen k]

What are the odds Jamie Dimon and JPMorgan come out of this smelling like roses.