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Pay No Attention to the Government Behind the Curtain...

...It's Goldman Sachs That's To Blame.

Or so the Democrats and their asshat brigade would have you believe.

The SEC's Suit Against Goldman Sachs
By Stephen M. Bainbridge

It was inevitable that the government would go after one of the big investment banks for their conduct during the run up to the credit crisis. Someone must be thrown to the lions so that the polis are distracted from the role their government played in the fiasco. So what are we to make of the SEC case against Goldman Sachs? Let's take a spin around the blogosphere:

Eric Gerding:

At first blush, this case looks to take on a practice of Goldman and other banks that has been widely criticized in the media - selling asset-backed securities (ABSs) to investors then using credit default swaps to profit should those securities default. Which has been likened to a doctor taking out a life insurance policy on a patient.

A closer examination of the facts asserted in the press release suggests that the SEC carefully chose a test case. An underwriter that sells ABSs has a stronger argument that buying credit default swaps (which would pay out should the ABSs default) is legitimate when the underwriter is holding on to some of those ABSs. The credit default swap then looks like a legitimate hedging of risk (and some believe that we want to encourage underwriters to hold part of an offering to retain some "skin in the game.") In other words, the doctor is taking her own medicine, and the life insurance policy covers her own life.

But, based solely on the SEC's allegations, that is not what happened here. The allegations are that a large hedge fund, Paulson & Co., pushed Goldman to sell a CDO to investors. The hedge fund allegedly (a) played a large behind-the-scenes role in helping Goldman structure and select the assets (collateral) that backed the CDO, and then (b) bought a number of credit default swaps that "shorted" the CDO. The SEC alleges that Goldman told neither investors nor the CDO's collateral manager (akin to the investment manager for the CDO) of Paulson's role in selecting assets or its short position - which would suggest a conflict of interest. It is hardly shocking that a securities law case boils down to disclosure.


Note also that the head of the Hedge Fund at Goldman Sachs is question is a noteworthy contributor to the Democratic Party:

Hedge fund manager in Goldman Sachs case is major Democratic donor
By Alexander Bolton
The Hill

The billionaire hedge fund manager at the center of an alleged fraud hatched at Goldman Sachs, a leading investment bank, has given tens of thousands of dollars to both parties.

Campaign fundraising records show that John A. Paulson, founder and chairman of the hedge fund Paulson & Co., gave $30,400 to the Democratic Senatorial Campaign Committee in June, qualifying him as a major Democratic donor.

He also gave $2,300 to Senate Majority Leader Harry Reid's (D-Nev.) reelection campaign in February of last year and $4,800 to Senate Banking Committee Chairman Chris Dodd (D-Conn.) last April, according to records filed at the Federal Election Commission.

What would the Democrats do were it not for convenient scapegoats.


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Comments (24)

I assume Hillary was not co... (Below threshold)

I assume Hillary was not consulted when they were picking a scapegoat?

Some might recall that, despite the fact that Goldman Sachs was doing quite well, Hillary was able to direct a $50 million grant and $1.65 billion (that's a 'b') "liberty bond" to Goldman Sachs in the wake of 9-11...amazingly enough, Goldman Sachs employees and their PAC became Hillary's biggest donor group in a later campaign.

The reason for this case is... (Below threshold)

The reason for this case is clear and simple.
It is a wedge to get Financial Reform passed.
1. If the government had a real case they would start with Criminal case.
All the parties involved in this case were serious investors. It up to them to do the due dillegence. Theses were high risk intrusments which possiblty of high return or high loss. The Company shorting the stock is not on the hock. The company that created the protflio is not on the hook just a Big Evil Wall Street bank.
What why were these complex POS created anyway?
CRA FM/FM you say.
What Goldman Payed back all the Bailout money with interest
FM/FM Has not paid back any money. What we given them more money?

Let see 1 billion was lost because the program was designed to Fail.

Can we Sue BHO for CRA and now HAMP?

The Obama Treasury Department's $75 billion Home Affordable Modification Program (HAMP) is a textbook example of a federal program doing the opposite of what was intended.

A new report from the Congressional Oversight Panel, chaired by Professor Elizabeth Warren of Harvard University, echoes criticism of HAMP from across the political spectrum. Simply put, HAMP is an awful failure.

It has granted permanent mortgage modifications to only about 170,000 borrowers -- far short of its goal of helping 3 million to 4 million. And with 2.8 million homeowners receiving foreclosure notices last year and only 1.3 million borrowers receiving trial modification offers, HAMP isn't keeping up with the housing crisis, either.

Homeowners who do go through the HAMP process often lose their equity, which discourages them from making payments on homes worth less than what's owed on their mortgages. And, most disturbingly, once five years of lower payments under permanent modifications end, many HAMP participants will default (again) anyway -- and face foreclosure (again) anyway.

"Billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures," the panel says. By any measure that matters to homeowners and taxpayers, HAMP isn't living up to its promises.

Then we have HEADSTART

President Obama and other supporters of increasing government spending on preschool have argued that "investments" on early childhood education yield big results later in life. As President Obama told an audience last March, "For every dollar we invest in these programs, we get nearly $10 back in reduced welfare rolls, fewer health care costs, and less crime." The president and other preschool backers generally base these claims on impressive results from one or two small-scale preschool programs that existed decades ago and that have not been replicated since.
Unfortunately, a new (long overdue) report published by the Department of Health and Human found that the $150 billion that taxpayers have "invested" in Head Start since 1965 is yielding zero lasting benefits for participating children. According to the Head Start Impact Study: "the benefits of access to Head Start at age four are largely absent by 1st grade for the program population as a whole." The Heritage Foundation reviews the findings of the new evaluation in a forthcoming Backgrounder report concluding: "Head Start has little to no effect on cognitive, socio-emotional, health, and parenting outcomes of children participating in the program."
This rigorous evaluation was published months after the U.S. House of Representatives approved legislation favored by the Obama administration that would create a new $8 billion preschool program. According to the GAO, there are currently 69 federal early education and child care programs. Taxpayers are currently spending at least $25 billion annually on these programs.

How about Stimulus?

This is why government shou... (Below threshold)
Jim Addison:

This is why government should not be in the bailout business - when government picks winners and losers, it is ALWAYS based on factors other than the actual financial conditions. Lehmann is allowed to fail, while Goldman and Citi are bailed out, and GM and Chrysler are bought out to save favored constituencies.

The only valid purpose of government intervention in the markets through regulation is to ensure transparency, and that is exactly what it failed to do here.

Three points.One, ... (Below threshold)
Bruce Henry:

Three points.

One, what's with the "rats" thingie? Bolding the "rats" in "Democrats" is about the pettiest, most juvenile, most childish trick in the book. It's something a sixth-grader would do, and detracts from your argument. It's unworthy of a serious political writer. I expect better from Wizbang. Save it for the comments section.

Second, the fact that the trader in question is a donor to the Democratic Party seems to me to be evidence that SEC is "letting the chips fall where they may," rather than evidence of anything nefarious.

Lastly, with this article, a conservative reveals his true colors. Far from being an advocate for Tea Party "little guys" who are just patriotic misunderstood activists, he is a defender of Big Money Big Shots who took huge risks with other people's money to enrich themselves and brought the world's economy to the brink of collapse.

"Lastly, with this article,... (Below threshold)

"Lastly, with this article, a conservative reveals his true colors. Far from being an advocate for Tea Party "little guys" who are just patriotic misunderstood activists, he is a defender of Big Money Big Shots who took huge risks with other people's money to enrich themselves and brought the world's economy to the brink of collapse."

Bruce, if you don't defend the right of all people to make money in a legal fashion, then don't defend anybody. Also, if you aren't made aware of the risks by "Big Money" then you have a point, but how many people weren't aware that actually read more the colorful brochure?

There are a LOT of politica... (Below threshold)
James H:

There are a LOT of political factors at play here. A few to think about:

1) The New York Times and McClatchy have both investigated Goldman's dealings in multipart stories. I've had troubel followign the stories myself. I couldn't decide which of Goldman's alleged actiosn were shady and which were merely legitimate hedging and accounting practices.

2) A lot of finance officials from both the Bush and Obama administrations are Goldman alumni. The longer the SEC put off a serious investigation of Goldman, the more some would wonder if Goldman was receiving some kind of preferential treatment.

3) The housing bubble's burst, along with losses in related securities, wiped out a lot of wealth. Were the securities properly accounted for? Was the SEC asleep at the switch? Should the SEC have investigated? Congress and finance-industry players are going to take a hard look at the SEC and whether it has competently executed its duties as financial regulator (short answer: no). Suing Goldman is a nice, splashy way to divert attention from the SEC's direliction of duty.

All things considered, I'm relatively neutral on the decision to sue Goldman. We're still not entirely clear on the details behind the housing collapse, and these sorts of investigations, backed by subpoena powers, are part of sussing out what portions of the crisis came about through misfeasance, which parts came about through error, and which were just people being dumb.

Bruce Henry"he is ... (Below threshold)
retired military:

Bruce Henry

"he is a defender of Big Money Big Shots who took huge risks with other people's money to enrich themselves and brought the world's economy to the brink of collapse "

Were you talking about Obama here? Maybe the unions? Barney Frank? Chris Dodd?

That statement sure fits all of the above.

Lots of things are "legal" ... (Below threshold)
Bruce Henry:

Lots of things are "legal" without being "right," Mr Graves. The fact that some of these practices were legal only points to the need for financial consumer protection and reform of the system, which only the eevil government can do.

And if some of these Big Shots engaged in practices which were NOT legal, they should be held accountable, wouldn't you agree?

My point was that it's amusing that Wizbang - a site that portrays itself as a defender of CommonSenseMiddleAmerican values - hosts an article that rushes to the defense of the Masters of the Universe before all the facts are known.

I have news. Most Americans hold Wall Street in even lower regard than they hold Congress.

Also in regard to comment #... (Below threshold)
Bruce Henry:

Also in regard to comment # 5, I did not engage in any risky trading practices, but I must live in an economy suffering the consequences resulting from the actions of those who did.

Millions of people around the world suffered layoffs, foreclosures, and economic uncertainty because of the reckless conduct of some greedy pirates.

So, no, I don't necessarily defend the right of people to make money by all legal means necessary. Some shit is wrong, legal or not.

"Some shit is wrong, legal ... (Below threshold)

"Some shit is wrong, legal or not.

9. Posted by Bruce Henry | April 18, 2010 11:13 AM"

You are years too late for that statement bruce.

Bruce, if we demonstrate a ... (Below threshold)

Bruce, if we demonstrate a healthy skepticism as to the integrity and impartiality of the Obama administration in general and the Holder Justice Department in particular, it's because they've earned it.

They had a WIN in their case against the Philadelphia Black Panther voter intimidation case, and they dropped it. Not just a solid case, but a winning verdict -- and they let it go.

Their ongoing war against Inspector Generals is another example. They've gone after those charged with enforcing ethics laws with a vengeance.

On the other hand, willfully violating tax laws seems not only acceptable behavior among them, but a prerequisite for high office.

So when they say they've found the "real villains" in the housing bubble collapse, and bring civil complaints -- not criminal charges -- we're a bit skeptical.

Even when it's someone as obviously scummy as Goldman Sachs.

Finally, Bruce: "Some shit is wrong, legal or not."

I thought yours was the side AGAINST "legislating morality," of making the government any kind of moral arbiter. Are you changing your position?


I am also neutral in my opi... (Below threshold)

I am also neutral in my opinion on the investigation into Goldman actions. I believe it is an attempt to encourage public support to pass the financial regulations Obama wants to allow him more take over power in his socialize America agenda.
But...would someone please explain to me what Goldman did that was different from all the other financial institutions that caused the loss of our investment dollars and real estate value.
If Goldman committed fraud, aren't all the others liable for the same crime, including the U.S. government(FM and FM)?

Not at all, Mr Tea.<p... (Below threshold)
Bruce Henry:

Not at all, Mr Tea.

Theft is wrong, and the government has a compelling interest in stopping it. Likewise deceptive trading practices in the securities markets, etc. Both wrong, and illegal. Or, should I say, both are wrong, and both SHOULD BE illegal.

On the other hand, whom one loves and chooses to marry, for example, is none of the government's business, and in my opinion, the government has no compelling interest in the matter.

I have no problem with skepticism of government, or of any particular administration. I'm just exhibiting a little skepticism of Mr Graves' motives. Is he a defender of average Americans, or a shill for Goldman Sachs and their ilk?

Just asking.

Hey, Bruce:"Innoce... (Below threshold)

Hey, Bruce:

"Innocent until proven guilty" even applies to the despicable rich.

Especially when their accusers have such a lengthy history of acting in bad faith.

Yes, theft is wrong. And illegal. But Bruce, you are the one who said "some shit is wrong, legal or not" while calling for government action. How is that NOT calling for the government to start legislating and enforcing morality?

I prefer the government to stick to enforcing the laws, and not bothering with questions of "morality." We, as a society, have other ways to deal with those questions, and they, as a government, have more important things to do.


"Second, the fact that the ... (Below threshold)
Les Nessman:

"Second, the fact that the trader in question is a donor to the Democratic Party seems to me to be evidence that SEC is "letting the chips fall where they may," rather than evidence of anything nefarious."

With so many big-money-type traders also being big Dem contributors, it's almost a given that anyone they investigate is going to be a Dem.

Ultra-rich, Northeast urban elitists trend Democrat. Not a big secret.

I'm not calling for governm... (Below threshold)
Bruce Henry:

I'm not calling for government action, Mr Tea. The government has already taken action.

We're speaking in generalities here. I did not say this particular trader was guilty (or, if I did, I didn't mean to.) On the other hand, Mr Graves appears to have come to the conclusion that this particular company was innocent, just making money, and, after all, it was all legal, right? Wink wink. Maybe it was legal, maybe it wasn't. I guess this suit will determine that, not I, nor you, nor Mr Graves.

As for "legislating morality" perhaps we're just talking past each other. I understand the phrase as referring to issues such as gay marriage, Prohibition, abortion, etc., not any and all behavior that may or may not be criminal. In my opinion, the government has a compelling interest in some of those issues, and not others. I think it's a reasonable position.

Second, the fact t... (Below threshold)
Second, the fact that the trader in question is a donor to the Democratic Party seems to me to be evidence that SEC is "letting the chips fall where they may," rather than evidence of anything nefarious
The Paulson & co are not being held accountable. The Company that assembled the bonds is not being held accountable. Just Goldman Sachs The case is weak which is why they are doing a civil case instead of Criminal. Also the Goverment wants GS to settle because as long as this case is in the news Goldman reputation suffers (so GS will want this off the done as soon as pssoble) and by extension Wall Street which helps pass finical reform. Again the reason for these complex instruments was to subsides FM/FM buying of sub prime mortages so they could meet the their government mandate of affordable housings. When FM/FM are brought up on charges of practices that everyone knew would fail.

Brue what I want Goverment to do is Kill FM/FM so taxpayers are no longer paying Billions of dollars and setting us up for another bubble.

Fine, Mr hcddbz. You should... (Below threshold)
Bruce Henry:

Fine, Mr hcddbz. You should support and vote for a candidate who espouses that position.

Good luck with that.

So, government is only "leg... (Below threshold)
Jim Addison:

So, government is only "legislating morality" in a bad way when it addresses moral issues Mr. Henry believes should be unregulated?

...a conservative reveals his true colors. Far from being an advocate for Tea Party "little guys" who are just patriotic misunderstood activists, he is a defender of Big Money Big Shots who took huge risks with other people's money to enrich themselves and brought the world's economy to the brink of collapse.

Mr. Graves did nothing of the sort. Perhaps you are projecting?

So, saying that Goldman Sac... (Below threshold)
Bruce Henry:

So, saying that Goldman Sachs is a "convenient scapegoat" in this matter is NOT a defense of Big Money Big Shots?

The title of the piece is not implying that the lawsuit is unwarranted (a defense of Goldman Sachs)?

Saying that the Democrats "and their asshat brigade" want you to believe that Goldman Sachs is "to blame" is NOT attacking one side, thereby defending the other?

Gee, Mr Addison, you and I have different definitions for the phrase, "Nothing of the sort."

If Goldman Sachs did nothin... (Below threshold)

If Goldman Sachs did nothing wrong, and followed all the regulations in place and are being scapegoated it is standing up for justice. So, I assume you are not for justice?

Sorry, but this entire blog... (Below threshold)
Tsar Nicholas II:

Sorry, but this entire blog entry is a non-sequitur.

First of all the federal government had absolutely no connection with the original meltdown of the mortgage markets. The Feds' major folly was in prolonging the problem, after the fact, by among other things bailing out various banks and artificially propping up other aspects of the industry.

Secondly there is no such thing as Goldman's hedge fund. The hedge fund at issue is a completely separate entity from Goldman. Sure, the guy running that fund is a major Democrat donor, but pointing out that a billionaire hedge fund manager is a major Democrat donor is akin to pointing out the sky is blue.

What Goldman is being accused of here is in essence a garden-variety pattern of non-disclosure and conflicts of interest, albeit on a very large scale. The real issue from the conservative viewpoint is not about donations to Democrats or even Goldman Sachs per se, it's about the sheer folly in any federal intervention into the affairs of financial markets; more government participation inevitably means a worse calamity than that which the free markets could have wrought on their own.

So, saying that... (Below threshold)
So, saying that Goldman Sachs is a "convenient scapegoat" in this matter is NOT a defense of Big Money Big Shots?
My own reading of "saying that Goldman Sachs is a 'convenient scapegoat' in this matter" is that it is a statement that Goldman Sachs is a convenient scapegoat in this matter.

Sometimes, Bruce, a statement means the sum of its words.

bh - "I have news. Most... (Below threshold)

bh - "I have news. Most Americans hold Wall Street in even lower regard than they hold Congress."

Polls both from 4/19


Wall Street

I think it's safe to say - you're wrong again.






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