Somewhere, Matt Taibbi is laughing his butt off as the Vampire Squid goes down. Now when do we see the criminal charges – not just against Goldman Sachs, but the rest of the gang involved in crashing our economy for their own gain?
The Securities and Exchange Commission filed charges Friday against Goldman Sachs, one of the most successful but vilified banks on Wall Street, for misleading and defrauding investors in selling a financial product based on subprime mortgages.
In filing the civil suit against Goldman Sachs, the agency is targeting one of the banks that largely escaped the wreckage of the financial crisis and, with the help of various forms of government aid, emerged stronger.
The SEC’s suit strikes at a practice that was one of the main causes of the financial crisis: the creation of poisonous investments derived from home loans made to borrowers who couldn’t afford the houses they were buying.
The suit also drags into a legal maelstrom Paulson & Co., the firm of legendary hedge fund manager John Paulson, who made billions of dollars by betting against the housing market in the years before it went bust. He and his firm have not been accused of wrongdoing.
Goldman Sachs had no immediate comment. Paulson & Co. also had no immediate comment.
In this case, the SEC alleges that Goldman Sachs created and marketed a financial product known as a collateralized debt obligation, often referred to as a CDO, whose value was linked to that of home loans. The SEC says the bank failed to tell investors important information about the investment — in particular that Paulson & Co. played a central role in helping Goldman assemble the CDO while the hedge fund at the same time placed bets that the CDO would lose value.
And from the American Prospect:
One note of caution: These are hard cases to prove. Even if Goldman Sachs officials knew how crappy these financial instruments were, they also got solid ratings from the bond-ratings agencies, giving Goldman a real out. If the SEC brought this case, they must have a high level of confidence, but now they need to execute what will undoubtedly be one of the most high-profile financial fraud cases since Enron.
Incidentally, the fact that hedge-funder John Paulson played a role in picking these securities helps confirm the argument that I made in my review of Michael Lewis’ book The Big Short: Even the investors with the foresight to see the bubble and bet against it were acting as pernicious speculators who helped drive the bubble up and exacerbate its consequences, not as hero intellectuals tweaking the nasty big banks. These were symbiotic relationships that hurt regular Americans and the economy, make no mistake about it.
This news will only give more momentum to the Democratic financial-reform plan and, hopefully, more impetus toward strengthening the bill in any number of key areas where it could be improved.