Betting against the world has its downsides.
Goldman Sachs has a legacy of betting against the market and often winning very handsomely. Call it luck, bravado, shrewd or as the SEC this afternoon are calling it – criminal. Of course this has serious consequences and if the SEC can prove their case GS the once uber investment/trading house will soon become the bloodbath that they recently exploited from. The details from MSNBC.
Goldman Sachs Group was charged with fraud by the U.S. Securities and Exchange Commission over its marketing of a subprime mortgage product, igniting a battle between Wall Street’s most powerful bank and the nation’s top securities regulator.
A battle? Well let’s put it this way the SEC have lately been proposing increased monitoring of how financial derivatives are packaged and priced and there’s nothing more scary than having government types looking underneath the toilet seat to make sure you explain why such and such is. Of course as wealthy traders will like to tell you, government types know nothing about how such things get priced in the first place, but then again it’s the same government types that seemed to get called in when it’s time to rescue the same folks who took on the wrong side of those horrible trades.
The case also involves John Paulson, a hedge fund investor whose firm Paulson & Co made billions of dollars by betting the nation’s housing market would crash. This included an estimated $1 billion from the transaction detailed in the lawsuit, which the SEC said cost other investors more than $1 billion. Paulson was not charged.
So let’s get this straight. Design a CMDO portfolio that the public is skipping breakfast so they can be the first to snap up but at the same time while you are selling it over Danish muffins neglect to mention that the biggest units in the synthetic trust are dogs that your biggest client and investor – hedge fund beauty boy John Paulson and to some degree yourself are jumping through hoops to sell short before mid morning caffe latte. Does this sound like transparent trading or just business as usual? In any event it’s going to be a few interesting weeks as the world decides if Goldman Sachs is indeed complicit in ill business practice and whether it has to give back all those supposedly ill gotten gains. Such it seems are the occasional inconveniences of capitalism it seems.