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Sunday, 18 April 2010

I think SEC doesn't have strong fact. Goldman created a product, a collateralized debt obligation, for hedge fund Paulson & Co., which “at the time wasn’t known as a particularly smart client,” , that allowed for a bet against the value of housing. To make sure the product was vetted ahead of its sale, Goldman hired an independent company, ACA Management, to do just that. And they released a report telling potential buyers exactly what was in there.

Now, I would never have bought the CDO, but not everyone was as bearish on housing as he was in late 2006, which is when the product was put together. Though we could see how less informed clients may have found it attractive. But in the end, no one forced people to buy this CDO. And “a *censored* was born the minute the trade was made,” “and the loss booked soon after.”

So did Goldman do something illegal when it vetted the product, letting everyone know what was in it? Or was the buyer just plain stupid for wanting it in the first place?

“I think the latter,”
We likened the situation to the tech boom of the late ‘90s. If someone created a similar product to bet against these stocks, it would have been an entirely legal, but losing proposition until 2000. It was only after that run that the bet would have paid off. Well, housing was exactly like that, , going into 2007. And the buyer of this CDO fully expected to continue making money, only to be shocked awake when the market collapsed. Now Paulson & Co. is known as a house of genius, while the people who went long on housing are the fools.

We learned today that Goldman sunk $90 million of its own money into the CDO. While We are not sure if that absolves the company, we know one thing: The SEC is under tremendous pressure to bring cases against Wall Street right now. And we know that Democrats in Washington are fighting for financial reform. So this is a great time to bring this case before the public and punish the firm perceived as the most arrogant and least reformed in the room.

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