Watch This Case - SEC vs Goldman Sachs

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Watch it, but don't hold your breadth.
Obama moet eerst zijn 2e benoeming voor de Supreme Court door de Senaat
slepen.
Daarna, na de tussentijdse verkiezingen dit najaar, is er pas echt tijd
en aandacht voor hervormingen, als Obama dat dan wel wil. Dat is mij
namelijk nog helemaal niet duidelijk.
Die hervormingen gaan héél véél pijn doen op Wall Street, en dat is dan
synoniem met heel veel strijd in de Senaat en voor wetgeving ook in the
House.
Het is wel al bijna zeker dat Goldman Sachs hier niet ongeschonden door
komt. Dat wordt namelijk over de hele wereld besloten.

Groet / Cees

April 17, 2010
Editorial
Watch This Case
http://www.nytimes.com/2010/04/17/opinion/17sat2.html

Months ago, Gretchen Morgenson and Louise Story of The Times exposed
Goldman Sachs’s practice of creating and selling mortgage-backed
investments and then placing financial bets that those investments would
fail. While appalling, it wasn’t clear whether the practice was also
fraud. The Securities and Exchange Commission has now decided that it
was, charging Goldman on Friday.

We urge everyone to keep a close eye on this case. If it is handled
correctly, it should finally answer the question of whether malfeasance
— and not merely unbridled greed, incompetence and weak regulation — was
also responsible for the financial meltdown.

Goldman insists that what it was doing was prudent risk management. In a
letter published in its annual report, it argued that “although Goldman
Sachs held various positions in residential mortgage-related products in
2007, our short positions were not a ‘bet against our clients.’ ” The
bank also insists that the investors who bought the structured vehicles
were sophisticated professionals who knew what they were doing.

The S.E.C. is now charging just the opposite.

It accuses Goldman of intentionally designing a financial product that
would have a high chance of falling in value, at the request of a
client, and lying about it to the customers who bought it. It says that
Goldman allowed that client — John Paulson, a hedge fund manager — to
pick bonds he wanted to bet against, and then packaged those bonds into
a new investment.

Goldman then sold this investment to its clients, telling them the bonds
were chosen by an independent manager, and omitted that Mr. Paulson was
on the other side of the trade, shorting it, in the industry vernacular.

Five months after Goldman sold the investments, 83 percent of the bonds
contained in the packaged securities were downgraded by rating agencies.

Goldman vigorously denies any wrongdoing, calling the S.E.C.’s charges
“completely unfounded in law and fact.” It will undoubtedly assemble a
daunting legal team and mount a vigorous defense. But if the S.E.C.
makes its case, it will be a watershed moment, changing the dominant
narrative of the financial crisis.

Up to now, the bankers have argued that the financial crisis was like
what insurers call an “act of God,” an unforeseeable cataclysm over
which they had no control. This has allowed them to shrug off
responsibility, even as taxpayers bailed them out. It has allowed them
to sleep soundly after collecting their huge bonuses. Goldman is not the
only bank to have sold mortgage-backed securities and then bet against
them. We suspect that after Friday, others on Wall Street may have a
harder time sleeping.

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