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SEC Charges Goldman Sachs With Fraud On Subprime Mortgages, Paulson & Co. Implicated

Tyler Durden's picture


Washington, D.C., April 16, 2010 — The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."

Kenneth Lench, Chief of the SEC's Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."

The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.

According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.

The SEC's complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.

The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.'s interests in the collateral selection process were closely aligned with ACA's interests. In reality, however, their interests were sharply conflicting.

According to the SEC's complaint, the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.

Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.

The SEC's complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.

# # #

For more information about this enforcement action, contact:

Lorin L. Reisner
Deputy Director, SEC Enforcement Division
(202) 551-4787

Kenneth R. Lench
Chief, Structured and New Products Unit, SEC Enforcement Division
(202) 551-4938

Reid A. Muoio
Deputy Chief, Structured and New Products Unit, SEC Enforcement Division
(202) 551-4488

Full Lawsuit:



Fabrice Tourre's FINRA record:


Fabrice Tourre


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Fri, 04/16/2010 - 11:51 | 304167 Nout Wellink
Nout Wellink's picture

Jeffrey Christian will be shocked.

Fri, 04/16/2010 - 12:04 | 304178 Mr Lennon Hendrix
Mr Lennon Hendrix's picture
The Coup- 5 Million Ways to Kill a C.E.O.:

Fri, 04/16/2010 - 12:04 | 304179 Mr Lennon Hendrix
Mr Lennon Hendrix's picture
Kill a C.E.O.">The Coup- 5 Million Ways to Kill a C.E.O.:

Fri, 04/16/2010 - 12:04 | 304180 Mr Lennon Hendrix
Mr Lennon Hendrix's picture
Kill a C.E.O.">The Coup- 5 Million Ways to Kill a C.E.O.:

Fri, 04/16/2010 - 12:07 | 304182 Leo Kolivakis
Leo Kolivakis's picture

Will be interesting to see if Paulson & Co get swamped with redemption calls, forcing them to liquidate a portion of their portfolio. Look for other hedgies to circle in like sharks smelling blood. These sharks always end up cannibalizing each other. As for Goldman's "mystique", it's unravelling faster than Larry King's latest marriage.

Fri, 04/16/2010 - 12:13 | 304183 williambanzai7
williambanzai7's picture

This is a pretty straightforward set of allegations that does not require novel legal interpretations provided they have the evidence. If the have the goods, Judge Rakoff is not going to let Goldman off the hook with a wrist slap, we can only hope!


Fri, 04/16/2010 - 15:36 | 304538 anony
anony's picture

What the mind of man, a Goldman, can conceive, it can achieve.

Fri, 04/16/2010 - 12:10 | 304188 masterinchancery
masterinchancery's picture

Wow--whipped dog finally bites master.

Fri, 04/16/2010 - 12:10 | 304190 masterinchancery
masterinchancery's picture

Wow--whipped dog finally bites master.

Fri, 04/16/2010 - 12:10 | 304191 svendthrift
svendthrift's picture

Many thanks to Taibbi for putting the Vampire Squid in the headlights.

Fri, 04/16/2010 - 12:11 | 304194 masterinchancery
masterinchancery's picture

Michael Lewis probably deserves much of the credit.

Fri, 04/16/2010 - 12:11 | 304195 Theta_Burn
Theta_Burn's picture

Wow, Great.....good thing I dumped my QID longs 2 days ago.....

Let the games begin....

Fri, 04/16/2010 - 12:17 | 304203 svendthrift
svendthrift's picture

...end of the rally?

Fri, 04/16/2010 - 12:21 | 304218 Jestocost
Jestocost's picture

Holy Shit!

Trying just to get in here to watch this happen is a trip...

Somebody declared war on this URL

Fri, 04/16/2010 - 14:29 | 304418 hamurobby
hamurobby's picture

The ZH server needs a dedicated 20 ton ac unit.

Fri, 04/16/2010 - 12:23 | 304224 1fortheroad
1fortheroad's picture

GS to Obummer, does this mean we cant be friends anymore?
Obummer ot GS, Im still your huckleberry.

Fri, 04/16/2010 - 12:27 | 304232 chindit13
chindit13's picture

Goldman's future (if found guilty)

---huge fine

---loss of TBTF status

---loss of BHC charter

---loss of all non-masochist customers, as GS is now shown to treat all with contempt

---loss of key staff to competitors

---remains in the sights of SEC

---may face populist outrage resulting in violence

Goldman options:

---go private

---admit they're just a hedge fund and get on with it

---ask Warren for a buyout

---move to Reykjavik and try to hide in the ash

Possible beneficiaries:  JPM, MS...but more likely foreign IB's

Even if innocent, any remaining mystique is in a race to the bottom with Tiger Woods.  If guilty, 16 April 2010 marks the day the Goldman we all know and hate died.

Fri, 04/16/2010 - 14:24 | 304403 velobabe
velobabe's picture

bet --- go private

come on, leave TW out of it  °  °


Fri, 04/16/2010 - 12:27 | 304234 economists_do_i...
economists_do_it_with_models's picture

ZH isn't the only site having troubles.  CME reported electronic crude trading was halted for a while due to 'routing errors.'  Funny how that only seems to happen on a big volume down day...

Fri, 04/16/2010 - 12:28 | 304235 John McCloy
John McCloy's picture

This is Zero Hedges Finest Hour. Let me congratulate all the Tylers and contributors along with readers for working so hard to restore balance to the markets through transparency. Not too shabby for an "Excitable Blog". As one reader on here wrote," Have you not heard the prophecy of the blog which will bring balance to the force"

I forsee many outages, ad revenue and increased respect in coming months.

Fri, 04/16/2010 - 13:48 | 304332 JR
JR's picture

 The vast holdings and power of the country’s rulers (Goldman, JPM etc.) are well covered by the giant curtain of secrecy that they’ve established.  Justice still is very far away with this latest development.  But the good news is that the rulers would hardly welcome attempts to begin tampering with that curtain.   And, given the public’s increasing knowledge and displeasure with the bank monopoly, no person on earth can predict where these developments will lead.

I raise my glass on high to your eloquent toast to Tyler Durden and the Zero Hedge fight club for prying open Pandora Goldman’s box.

Nathan Martin a short while ago came out with his assessment of the situation. He says in NO WAY “is the U.S Government really getting serious about going after these guys,” that “there are always token fall guys and this is all theatre and show.”  I agree, but I also believe that once a Pandora’s box is opened no one can predict the fallout from an angry populace that’s faced with the unforeseen troubles and miseries caused by the money manipulators such as Goldman.

Nate then makes this powerful statement:

“Think about the timing of this.  It comes just as I have been talking about a ‘triggering event’ that will take the blame for turning the markets.  This suit was reported AFTER the open on OPTIONS EXPIRATION day.  Why now?  My suspicious mind says that it was time to allow the options sellers and contract speculators to walk away and to instill maximum damage on the retail buyers of the ALL TIME RECORD number of option call buyers who were in the market just yesterday.”

Says Nate: “Markets almost always turn on such sentiment extremes, but I know that Goldman controls the government and absolutely is in control of the S.E.C. too! It’s almost a joke to me that they would turn the markets by allowing the S.E.C. to bring suit against themselves… “ The rest of Nate’s analyses says it all, IMO:…

NOTE: ZH traffic today is horrendous.

Fri, 04/16/2010 - 12:31 | 304244 What does it al...
What does it all mean's picture

Fabrice is going to make Partner MD now.  Two jumps in one day.  Good for him.

Fri, 04/16/2010 - 12:38 | 304253 monmick
monmick's picture

Isn't this simply a convenient way of forcing Paulson to liquidate his GLD position?

Fri, 04/16/2010 - 17:04 | 304717 RichardENixon
RichardENixon's picture

Hey, that's an angle I hadn't thought of! But that's probably just a side benefit to the orchestrators of this elaborate show trial.

Fri, 04/16/2010 - 12:38 | 304254 squid_pro_quo
squid_pro_quo's picture

I must admit it's quite a surprise - the SEC get their heads out of their asses AND announce a case against GS?  Yes, there is the cynical view that it's just damage control, etc., but nonethless you better believe somebody has some green sharts in their shorts up there at 200 West. Did somebody say UBS?  Waterloo:

Fri, 04/16/2010 - 12:43 | 304269 SgtShaftoe
SgtShaftoe's picture

Meanwhile, Obama is "amused" by the little  people protesting at the gates of the white house over taxes:


 The hubris, the ignorance, the stupidity (of all in Washington)... 

Fri, 04/16/2010 - 12:49 | 304281 RockyRacoon
RockyRacoon's picture

It's a pre-planned move to kill equities and prompt a move into bonds. Haven't we all been expecting this?

Fri, 04/16/2010 - 15:43 | 304555 DB Cooper
DB Cooper's picture

+1000 makes perfect sense!  JUst what they need at end of QE.  And also explains why no criminal charges - they really just need the money.  GS will settle with a fine.

Fri, 04/16/2010 - 12:51 | 304282 RockyRacoon
RockyRacoon's picture

Duplicate post -- website flaky!

Fri, 04/16/2010 - 12:53 | 304288 Comrade de Chaos
Comrade de Chaos's picture

During the height of this crysis, I ve mentioned in here that ARROGANCE has huge,  hidden  costs and grave consequences.

Now my next statement will represent a view of every none GS financial professional in this country:

Burn Byaches.

Fri, 04/16/2010 - 12:51 | 304289 RockyRacoon
RockyRacoon's picture

It's a pre-planned move to kill equities and prompt a move into bonds. Haven't we all been expecting this?

Fri, 04/16/2010 - 12:53 | 304291 ignorant
ignorant's picture

Now tob buy stocks or to sell ?

Fri, 04/16/2010 - 13:33 | 304297 fUny1
fUny1's picture

If you put down what was a De facto all or nothing Aprils expiration 1 grand bet this morning on the 170 put options at 1 cent each you’d be sitting on a million plus by noon. Not a bad 110,000 % gain in two hours.

How much you want to be that Goldman’s traders were betting against their own stock via put options this morning in collusion with the SEC’s decision to release the civil charges against Goldman on options expiration day?

Other than Goldman’s traders and fellow parasitic primary dealers, Who else benefited from this? Would the SEC care to investigate that? or itself for the matter?

Fri, 04/16/2010 - 13:48 | 304333 covered
covered's picture

That was the first thing I thought of, Funy1. Just like the old Bear Stearn days.

Fri, 04/16/2010 - 13:34 | 304299 BDig
BDig's picture

Well it looks like the administration has seen enough of their ratings plummet.  Time to start doing something about it.  This story is reminiscent of John Mack rolling Zoe Cruz's head.  "Well, it's either your head or mine.  I choose yours."

Resignations at government level coming in 5, 4, 3...

Fri, 04/16/2010 - 15:13 | 304496 calltoaccount
calltoaccount's picture

SEC should indict itself for letting Mack off the hook for insider trading and firing Aguirre.

Fri, 04/16/2010 - 13:38 | 304303 SilverIsKing
SilverIsKing's picture

Next up... Timmy gets pushed out.

Fri, 04/16/2010 - 17:57 | 304801 MsCreant
MsCreant's picture

A window? Over a ledge? Walking the plank? Into a spewing volcano to appease it? You can't tease like that, you gotta give details.

The standards of good Econo-snuf-porn demand it.

Fri, 04/16/2010 - 13:39 | 304304 Howard_Beale
Howard_Beale's picture

There is no way this is not a positive for the bears. This is going to go further than you think. Call me an optimistic bear but as Santelli just said "A year from now this may well be known as "The Goldman Day", i.e. the top of the bear market rally. I don't care about the small amount they may have to pay--this is good news.

Sat, 04/17/2010 - 03:03 | 305353 Otrader
Otrader's picture

I think people are so angry now that this may get traction.  The bailouts are still fresh in everyone's heads.  I hope this opens the door into the ponzi scheme.

Fri, 04/16/2010 - 13:40 | 304305 economessed
economessed's picture

I am having a good day. This may have been the "event" I referred to yesterday that we'll look back on as the point where reality regained its grip.

Virtual high fives to all of you who thought this day would never come.

Fri, 04/16/2010 - 13:40 | 304306 johngaltfla
johngaltfla's picture

Just remember some of the rumblings the past two weeks; Obama's crew has been contacting the opponents of the Dodd reform bill and threatening them. By demonstrating their power against GS first, the others will be either falling in line or lined up against the wall and shot one at a time.

This is all about politics. Care to guess what happens to the banks that do not modify mortgages by eating the principle?

Fri, 04/16/2010 - 13:40 | 304307 emsolý
emsolý's picture

this might be a "ZH moment" -- one of many to come, of course.

Fri, 04/16/2010 - 13:48 | 304331 Pure Evil
Pure Evil's picture

Obviously this is just a drop in the ocean compared to the nefarious activities over at Crime Inc.

But, congrats are in order for Tyler, I guess, browbeating, slander, libel, ignominiuous accusations, assorted slieghts, character assassinations, and downright name calling actually did work to get that dried up ole prune off her lily livered white ass to bring charges after how many years since she's been at the head of the SEC and probably known full well the extent of criminal activities at Goldman Scrotum.

I see Paulson gets off scott free and so the game begins as to who will be the scapegoat in this little escapade of political intrigue all the way from Wall Street to Pennsylvania Ave.

Fri, 04/16/2010 - 13:54 | 304347 Failure to Comm...
Failure to Communicate's picture

"The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events."

Where is Paulsons indictment for this?

Fri, 04/16/2010 - 17:52 | 304793 Carl Spackler
Carl Spackler's picture

Excellent question.

The SEC doesn't have jurisdiction over hedge funds (until the current Financial Reform Bill passes!!!).  So they prove they are worthy by offering up the Squid.

US Attorney would have to show up at Paulson's door.

Fri, 04/16/2010 - 13:58 | 304358 EventHorizon
EventHorizon's picture

Overheard at GS this afternoon: "Fabrice, we have a new opportunity for you, Equities in Dallas has an opening...."

Fri, 04/16/2010 - 13:59 | 304362 chumbawamba
chumbawamba's picture


Buy on the dips!

Time is running out...

I am Chumbawamba.

Fri, 04/16/2010 - 14:17 | 304397 jomama
jomama's picture

funny, i was thinking the same thing. bought two more gold eagles today...

Fri, 04/16/2010 - 16:02 | 304594 WaterWings
WaterWings's picture

If it goes way up: Fucken hooray! Told you so!

If it goes way down: Fucken hooray! Buy buy buy!

No change: Fucken doldrums. What's goin' on over on CNN? Fucken Tiger Woods again.

Fri, 04/16/2010 - 17:27 | 304762 Alienated Serf
Alienated Serf's picture

i wants me some silver barz

Fri, 04/16/2010 - 13:59 | 304364 Kina
Kina's picture

Its trench warfare over 11,000 and 1,190 Will the PPT make a big effort at 2.30 or will it be met with a simultaneous big sell off.

Fri, 04/16/2010 - 14:03 | 304373 wagefreedom
wagefreedom's picture

Green shoots!

Fri, 04/16/2010 - 14:03 | 304375 Kina
Kina's picture

There must be dozens of events that the SEC can go the investment banks on. Who knows why they haven't.

Fri, 04/16/2010 - 14:09 | 304380 jomama
jomama's picture

wrist meet slap

Fri, 04/16/2010 - 14:14 | 304389 Pladizow
Pladizow's picture

How do you kill a vampire squid?

Fri, 04/16/2010 - 14:15 | 304390 Get_to_the_choppa
Get_to_the_choppa's picture

This is the (completely planned and still quite profitable to the big boys) end of the equities run.

Cue Morrison:

Fri, 04/16/2010 - 14:15 | 304392 Pladizow
Pladizow's picture

How do you kill a vampire squid?

Fri, 04/16/2010 - 14:25 | 304412 fluorideintapwa...
fluorideintapwaterisbadforyou's picture

A 14 digit fine &
fifty years confined to a small room
with AL Gore

Fri, 04/16/2010 - 14:28 | 304417 fluorideintapwa...
fluorideintapwaterisbadforyou's picture

Air Filters , Bitches

Fri, 04/16/2010 - 14:31 | 304423 fluorideintapwa...
fluorideintapwaterisbadforyou's picture



DO NOT MESS AROUND WITH ICELAND !!!!!!!!!!!!!!!!!!!!!!!!!!!!!










Fri, 04/16/2010 - 14:52 | 304465 geminiRX
geminiRX's picture just said the "c" word!  Ah! Carbon run for your life!

Fri, 04/16/2010 - 17:57 | 304800 Alienated Serf
Alienated Serf's picture

opus dei makes GS look lik epikers.  legatus is good times too.

Fri, 04/16/2010 - 14:39 | 304440 hamurobby
hamurobby's picture

Who will go down as the Ollie North of Wall Street?

The one thing I am taking from this, is how vulnerable the stock market actually is. This was unexpected by most, but I believe this will not go unnoticed nor untested in the near term.

Fri, 04/16/2010 - 14:50 | 304461 geminiRX
geminiRX's picture

The SEC grew a pair of balls. Today is uplifting. Hopefully the DOW will gets it's legs chopped off and return to some sort of normalcy. I'm sick of people like Leo and Harry telling us that stocks are good buy - because fundamentally they are not.

Fri, 04/16/2010 - 15:34 | 304534 anynonmous
anynonmous's picture

unfortunately they grew a pair of ping pong balls

Fri, 04/16/2010 - 14:51 | 304463 digalert
digalert's picture

CNBS Cramer is now defense attorney for GS.

Fri, 04/16/2010 - 14:56 | 304473 King_of_simpletons
King_of_simpletons's picture

I just heard Ron Paul say, "Sorry Obama is a socialist, I made a mistake calling him a Corporatist"

Fri, 04/16/2010 - 15:14 | 304497 ReallySparky
ReallySparky's picture

Question for the thread.  Many above have mentioned that Goldman's lawyers would have been working with/communicating with the SEC regarding this investigation.  Would this not be an important material fact that should have mentioned in their quarterly filings?  Or is it okay to omit this information to investors as long as it is just lawyers and SEC bantering back and forth, prior to the civil suit announcement?

Fri, 04/16/2010 - 21:29 | 305089 Alienated Serf
Alienated Serf's picture

SEC investigations are more or less "confidential" until a filing is made.  being investigated is not a disclosable event, being engaged in active litigation is. 

Fri, 04/16/2010 - 15:21 | 304506 Gussiefink-nottle
Gussiefink-nottle's picture

"SEC to charge Goldman Sachs".

When Prince Metternich, the famed Austrian diplomat heard of the death of his French rival in crime Talleyrand, he remarked "I wonder what he meant by that".

Fri, 04/16/2010 - 15:23 | 304509 JW n FL
JW n FL's picture

Goldman has a 0% Fed Window to borrow from… as well the keys to the Kingdom… this is a Buy! Buy!!  Buy!!!

I hate Goldman so I am not going to buy… but for the pure capitalists… this is a great opportunity…

Now Flag me… and the price is…


162.10 -22.17‎ (-12.03%‎)  Apr 16 12:48pm ET










Avg Vol: 


Mkt Cap: 



I would think that after the nightly news that this begins to hurt Goldman a lil more… Buy maybe Monday after the story runs and runs and runs… 20% though looks good for a taste..


And will be where? Buy the dips… on Name Brand, Government Guaranteed, AAA Rated Banks… Goldman has outperformed Gold by? YTD? Monthly? Weekly? Flag away idiots!


The lawsuit goes nowhere… ever, or I should say while I am still breathing. This will never, ever get out of court, I will say again… EVER!


And this buys cover for the beltway gang with the signing of the perma-Wall Street Bailout bill just around the corner… everyone is so happy Goldman is getting sued… meanwhile, the larger more dangerous and costly plan is put into action.


250 post(ish) and 18 here (Goldman sued by SEC in Civil Court), when the real problem lies…


Fucking sheep to the slaughter.


Flag away idiots!

Sat, 04/17/2010 - 14:57 | 305873 AssFire
AssFire's picture

I was enjoying the posts then this.. JH must get a junk filter.

Fri, 04/16/2010 - 15:33 | 304532 the grateful un...
the grateful unemployed's picture

Yeah I wouldn't want to be Paulson in all this, the CDS was his idea, Goldman was just the middleman. The SEC would really like to shut down these hedge funds, which pose speculative risk, (short positions in equities, buying oil and taking it off the market) my guess is Goldman can take the heat, Paulson cannot.

Fri, 04/16/2010 - 15:46 | 304561 rawsienna
rawsienna's picture

The CDO manager -ACA - was just a front for Paulson.  Ignorance is no defense.  They knowingly stuffed the CDO with bad paper knowing GS was hyping the CDO manager. Sounds like they are just as guilty to me.

Fri, 04/16/2010 - 15:49 | 304567 parallaxview
parallaxview's picture

CommodityRumors are GS is long Oil, short NG, and nowhere on Gold. But Paulson is long Gold for sure.

From FMX Connect:
We can only speculate on what happens in the capital markets short term. Perhaps the shoe is on the other foot now for GS. There may be a lot of “front-running” type behavior as players speculate on what GS positions are in Oil, Gold, Gas, etc. It may be early to think GS will unwind positions to pull in its own reigns, but these prophecies can be self fulfilling as GS knows full well being on the other side of the table often enough.

Crude Oil Forensics: Passover week, over 100k lots in crude oil were liquidated, longs exiting. This dovetails nicely into the Reuters’ allegation that GS knew it was being investigated in advance of action. That position may have already been exited, if it even existed.

Reality is; this is a watershed moment for leveraged capitalism. PIMCO’s New Normal concept has even more weight now as lesser leverage and more regulation return us to 1950s style capitalism where capital expenditures and positive cash flows are more important than growth projections. Volumes may drop in times ahead, banks will lend more locally creating an economic nationalism, and the velocity of money will slow further. Globalization may give way to partial protectionism and all fluff will be removed from assets via deleveraging. The fed won’t have to tighten. Fear will prevent good businessmen from trading as well. We think this is very deflationary. Just our two cents.

Fri, 04/16/2010 - 15:53 | 304578 organicfarmer
organicfarmer's picture

 The talking heads are very very excited!

Fri, 04/16/2010 - 15:59 | 304587 CookieMonster
CookieMonster's picture

Treasury auctions going well. As soon as all of the debt has been issued, the SEC will issue an apology to Goldman Sachs and say it was all a mistake, sorry. Nothing but a slap on the wrist is going to happen. What a joke......

Fri, 04/16/2010 - 16:16 | 304614 walküre
walküre's picture

I know most here have a beef with the banks, with GS in particular and the fraud allegations.

However sweet this feels in terms of a revenge, if looking at the bigger picture there is a distinct and remote possibility that GOVERNMENT is overstepping its boundaries AGAIN and what will the result be? More dependency, more government, more intrusion and more regulation.

From a distance this looks like a page out of ANIMAL FARM.

First, the capital brings the pigs into power. Then the pigs go after the capital and assume full control.

Don't be a fool to believe this is anything less.

They want YOU to be happy and cheerful that the CAPITAL gets tarred and feathered only so they can extend their powers.



Fri, 04/16/2010 - 16:38 | 304669 Bear
Bear's picture

Agree about Obama ... but any light being shed is light after all

Fri, 04/16/2010 - 18:03 | 304810 Seer
Seer's picture

Obama is nothing more than a puppet of the established power, just like all the others before him.

But, and I've said this before, what good will all the worthless capital be to these folks?  It's only worth something when all the little people use it, and the little people are running out of it, and the ability to use it.

Fri, 04/16/2010 - 16:23 | 304634 Leo Kolivakis
Leo Kolivakis's picture

Why the Goldman Story Has Legs:

Expect all of Saturday's newspapers to be filling their front pages with this breaking news: The Securities and Exchange Commission sued Goldman Sachs and one of its employees for civil fraud, alleging they defrauded investors in selling a financial product tied to subprime mortgages, in 2007. Here's the suit.

The potential financial impact on Goldman from the case is likely small, because Goldman's gain from the alleged fraud was $15 million.

But this story has legs, folks. First off, Goldman has been feeling heat in recent months amid record profits and revelations of their wild success amid the credit crisis, which hit other Wall Street firms hard. To say the firm had a target on its back, politically speaking, is an understatement. An hour after the suit was filed, Goldman shares were down 13%.

Second, the SEC also has been under seige in recent months for, among other things, perceived failures to catch Ponzi schemer Bernard Madoff and some high-profile litigation trip-ups, including its failed insider-trading case against Mark Cuban. If the Goldman case is successful, it could help rebuild the agency's reputation.

Third, the case filed by the SEC prominently features hedge fund Paulson & Co., led by John Paulson, who made the "Greatest Trade Ever” by betting against the mortgage market. His firm earned $15 billion in 2007 alone.

The SEC's case focuses on a single transaction structured by Goldman, for which it allegedly earned $15 million in fees from Paulson.

Here's what allegedly occured. Goldman sold a "synthetic CDO,” or collateralized debt obligation, to investors. Goldman allegedly told those investors that subprime-mortgage securities underlying the CDO were selected by a third-party firm called ACA.

However, the SEC alleged, it was the Paulson fund that had selected the securities. Paulson, in a separate transaction then put up lots of money to bet that those securities would sour.

Investors who purchased slices of the CDO, such as ABN AMRO, a Dutch bank, collectively lost $1 billion as the mortgage-backed securities quickly soured amid the mortgage crisis, according to the SEC.

Goldman allegedly helped Paulson bet against those securities, and Paulson's firm made a profit of about $1 billion.

The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for structuring the deal, called ABACUS 2007-AC1. "Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process,” the SEC said.

Fri, 04/16/2010 - 16:46 | 304680 the grateful un...
the grateful unemployed's picture

One thing for certain, gas prices will be around $2.50 by election day. That administration will do it one way or the other. I wouldn't be too sure Government Sachs isn't lying about Paulsons involvement. Government lying to itself, that's not exactly a first. Why Paulson, evil hedge fund manager, naked short selling oil hoarding free market pirate? This has been a witch hunt for a long time.

I want to know what Soros and Rogers think.

Fri, 04/16/2010 - 21:51 | 305105 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

George wants to rule the world. He is letting barry pretend he is in charge. Once the NATO troops start delivering Mr. Soros opium he will get rid of barry.

Fri, 04/16/2010 - 22:11 | 305127 the grateful un...
the grateful unemployed's picture

+1 gazillion

Fri, 04/16/2010 - 17:16 | 304744 walküre
walküre's picture

Leo, this is not good news for the market in general and will effect your funds.

What is the government's true objective here. Are they out to kill the markets?

Fri, 04/16/2010 - 18:06 | 304814 Seer
Seer's picture

What is the government's true objective here. Are they out to kill the markets?

Well, this could be seen as shifting from Wall Street back to Main Street.  If the govt really is the people, and the govt needs to finance the "people's" debt, then that money has to be made available for such "investment."

Fri, 04/16/2010 - 18:31 | 304857 deadparrot
deadparrot's picture

Not kill the markets, but why not take a bite out of the evil bankers Main Street despises so. Lots of political wins here for Obama and the SEC. Obama is seen as a populist hero. SEC pretends to be on the ball.

I've been thinking how this will affect the Fed. After all, the Fed has now (allegedly) directed taxpayer funds to support a criminal enterprise. Not good, Ben. Not good.

Fri, 04/16/2010 - 16:48 | 304686 wallstreetnobody
wallstreetnobody's picture

They'll try to pin all the blame on that 31 year old dude who apparently did little more than put together pitch-books.  The civil charges should stick but until criminal charges are filed nothing will change.

Fri, 04/16/2010 - 16:54 | 304698 JW n FL
JW n FL's picture

Ok... shut down the site... the problem is solved... Thank God! I mean Goldman... that everything will be ok now becuase of 1 court case that will never, ever fucking end.. and if it does.. it will be a fine, with no wrong doing admitted.. in civil court... score one Obama / Bush part duex Lobby lap dogs?


Really, seriously? hey! lets all hold hands and sing kumbaya it over... the war is over let us all rejoice!


This is not even a real case. This is a look over there... while we fuck you over here case...


Wake the fuck up!

Fri, 04/16/2010 - 20:08 | 304984 Otrader
Otrader's picture

This whole thing reminds me of the collusion case back in the dot com days, when all wall street firms settled for a tiny billion dollar, and admit no wrong doing.  Meanwhile, they made out like bandits probably 100's x the 1 billion fine they paid collectively. 

What a joke!  That's it! I'm joining the tea party.

Fri, 04/16/2010 - 17:05 | 304720 cocoablini
cocoablini's picture

My theory:

As a retail investor I can't elaborate on the exact techniques of gold suppression(or silver) but my latest theory is this:
-Just follow the "money" in the case of Goldman/SEC accusations. Who stands to benefit from a quick market meltdown?
-I just looked at COT data for April 13th. It seems as if a bunch of short positions have been added after weeks of quiet unwinds
-It's impossible for me to imagine Goldman had NO idea this suit was coming. The insider trading between the government and banks is rampant
-After the GATA and whistleblower testimony, why would anyone go short on gold/silver NAKED again?
-After 2 weeks of non-activity in the gold banks , how could the US and Centrals help unwind short positions with a shield?
-As ZEROHEDGE revealed, the idea is to squeeze the longs until they drop their positions with counter intuitive moves and moving average punctures to set off trigger sales
-If shorts can cover at a lower price(with US Bullion-backing firepower) then they can unwind-but unwinding has been very hard with a resilient gold price of 1150. Selling has been met with severe counterbuying.
-I think the Goldman scandal allows the shorts to cover under the media storm. It also makes the Government look good for midterm elections while saving a Force Majeure in metals markets
-It also pushes investment back into a failing US treasury market. Some auctions have flatout failed without the primary dealer mop ups.
-For months the US government has had to figure out a way to drive money back to bonds. I think the Goldman accusation is a great cover to hide unwindings, save treasury auctions and allow the right people to access hastily dropped bullion.The SEC finding religion after decades of stupidity is very,very hard to believe.

Plus goldman dumped SPYs previous to annoucement. EVERYBODY KNEW ahead of time and Goldman profited from their "problems."

Fri, 04/16/2010 - 17:07 | 304727 Snuph
Snuph's picture

circus, magic show,


They have done what was planned: to kill those long positions out there and make the sheeple think they are gonna do something.  A lone VP did this all while the big boys were fast asleep or in meetings trying desperately to find ways to help the little guy.

Fri, 04/16/2010 - 17:09 | 304732 faustian bargain
faustian bargain's picture

I guess that lawsuit against the FRBNY/Geithner is yesterday's news now, eh.

Fri, 04/16/2010 - 17:33 | 304764 velobabe
velobabe's picture

yeah i am happy for all you GS haters, really.

but im not going have my orgasm until i see

SEC charges JPM, jamie dimon defendant.

criminal fraud, house of MORGAN.

you know he was responsible for the titanic ship failing.

he went cheap iron rivets, not steel.

cheap ass banker†

Fri, 04/16/2010 - 17:31 | 304765 Baring
Baring's picture

Could be more than just a fine. The complaint closes with a "prayer for relief": "WHEREFORE, the Commission respectfully requests that this Court enter a judgment: ... 

E. Granting such equitable relief as may be appropriate or necessary for the benefit 

of investors pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)] ." GS has deep pockets and could pay out a lot if the court grants relief, setting a precedent. 


Fri, 04/16/2010 - 17:31 | 304767 where is my mind
where is my mind's picture

GS is gonna plead out.


This isn't even going to trial.


This will be the only suit brought against any Wall St. firm.

Fri, 04/16/2010 - 18:10 | 304822 Silver Bullet
Silver Bullet's picture

Unforunately, you are probably right.

The SEC doesn't exactly have the best track record.

Fri, 04/16/2010 - 19:10 | 304907 fsudirectory
fsudirectory's picture

Won't prevent Cuomo from bringing criminal charges

Fri, 04/16/2010 - 21:32 | 305093 tip e. canoe
tip e. canoe's picture

against who?  himself?   rick lazio?

Fri, 04/16/2010 - 17:55 | 304798 perchprism
perchprism's picture

Why Paulson wasn't charged:


Robert Khuzami, director of the SEC's enforcement division, said Paulson wasn't charged because it wasn't obligated to disclose conflicts to investors.

"We charged those that we felt were appropriate based on the evidence," Khunami said during a conference call with reporters.  "Goldman made representations to investors, and Paulson did not."

More from

Eight do's and don'ts for your 401(k)

Hedging Your Flex-Spend Account

Car-Leasing Deals Shift into High Gear

Fri, 04/16/2010 - 18:16 | 304829 Fraud-Esq
Fraud-Esq's picture

Seeking info: Does anyone have a rough number of synthetics sold in the market to date?

How about a rough breakdown per big 6?

This is a fantastic website, btw.

I turned on CNBC today for the first time in months just to watch the sociopaths squirm.

This lawsuit is a game changer but, it won't do it all.

It now appears the big boys couldn't run their greatest trades ever without the banks (GS in this case) assuming the tort risk.

Need more whistleblowers...   

Fri, 04/16/2010 - 18:26 | 304848 gamingthemarket
gamingthemarket's picture

The market today is eerily similar to the South Sea Bubble.  In 1720 Britain had the equivalent of roughly $2T in debt and was nearly bankrupt. The South Sea Company was reinvented to service that war debt. Roll all of the debt into public stock, dupe everyone and their grandmothers into buying it, then sell for a profit. The public gets left holding the bag. Sound familiar?

A quick review of why the South Sea Company stock failed and why it’s like AIG C BAC etc:

  1. Government funded stock secured by government debt
  2. Stock operates in a monopoly environment
  3. Corrupt system with unknown sums and fake shares
  4. Depends on an infinite increase in value

Fri, 04/16/2010 - 18:27 | 304853 Vendetta
Vendetta's picture

I'll stick to just sharpening the points on my pitchfork.  A functioning justice system has been awol for at least 10 years.  I haven't seen much anything to believe it has returned to the US to make amends.

Fri, 04/16/2010 - 18:29 | 304855 Deferred Comp
Deferred Comp's picture

E. Stanley....there are men at the front door with badges !

Fri, 04/16/2010 - 18:31 | 304858 jules from aus
jules from aus's picture

great news this indictment but still, i think we should view it as a PR exercise

Fabrice and a couple of other unlucky few drew the short straws

this indictment is and can only be seen as a drop in the ocean of GS fraud and deception

this little exercise just gives a sense back to those who have been defrauded, that justice is being done

well, true - some justice is being done by this indictment, but no where nearly enough

the Wall St establishment together with their political minions will now sit back to guage whether this little PR stunt sufficiently satisfies the blood lust of investors for something needing to be done about GS

if enough rhetoric and frenzy can be stirred into a froth, the PR machine may succeed in working militant investors and commentators up enough to exhaust any further calls for more justice to be brought to bear against GS

- my view is - don't get sucked in again...

this is only the start of the suit - how many times have we seen these things never see the inside of a court room, where the alleged offenders seek discussions with the SEC, and before you know it, they have dropped a substantial (though small in the scheme of their other frauds) wad of cash on the table, and agree to some jail time on a penal farm for a few - wrist slap over...

and remember - the money they use to pay for any fine was already given to GS by you the tax payer under earlier bailout measures

no... - when we see the SEC use this case to properly assert the need to fully audit every other similar transaction for similar frauds, then we should begin to think that the SEC and government are serious about nailing this company

any by 'nailing this company', i mean finding out so much fraud has been perpetrated by them over the last 7 to 8 years, that despite multi-billion dollar fines, the company is also deemed a hazard to society and by court order broken up and dissolved from the face of the financial universe

anything less is as i suggest, simply more well orchestrated PR by the company who helped bring you the GFC that they just had to have, in order to maintain those bonuses

good luck (and "don't believe the hype")

Fri, 04/16/2010 - 19:04 | 304898 Implicit simplicit
Implicit simplicit's picture

Future news flash: GS, MS, C, and BAC requested a bailout from the fed to settle the succesful SEC lawsuits for trillions of dollars for  fraud perpetuated against investors. The O'bama adm. met at 12 AM and rushed the bailout thru in the interests of national defense.

 Ten years later it was discovered that the now dissolved  SEC was a co-conspiritor in bringing about the fraud so the banks could get more taxpayer money.

Fri, 04/16/2010 - 18:55 | 304886 fsudirectory
fsudirectory's picture

Apparently I was omnipresent on Goldman shorting it self and the Obama e-mail.

Kinda sad.

Fri, 04/16/2010 - 19:02 | 304894 Liberdadedescolha
Liberdadedescolha's picture

Thanks for your awesome work zerohedge.

My update charts from yesterday.

Fri, 04/16/2010 - 19:14 | 304908 Bear
Bear's picture

He who lives by Goldman dies by Goldman ... How can I get on the jury?

Fri, 04/16/2010 - 19:20 | 304922 Everyman
Everyman's picture

The "natives" are restless, and want blood.  They do not want "money or "punishment", or anything like that, they want BLOOD.  This is the first step, and as many "Civil Trials" the investigation of the wrongdoing will result in huge legal bills for those so named, and some will purjure themselves, and others will roll.  I do not think for one minute that these people have any "loyality" or "scruples", and will have no porblem "turning a dime" if they are presured in anyway, shape or form.  In one M*A*S*H episode they were talking about how Henry would be presurred and all you had to do was "ask" a tough question and he folds.  Same here.  These types of people populating the "rarefied air" of the "Masters of the Universe", will behave quite consistently, and save their own arse, even if that means cutting another's bells off.  They will CYA and SOA, rather than do anthing that resembles "values of honor, and truth".

That means there will be far more "revelations" and as I said before Paulson is the number one criminal, and the rest derserve all the rancor and rage they generate.  They are truley the most hated people in the United States.

The giant is falling, and there is nothing to stop it now.

Fri, 04/16/2010 - 19:22 | 304926 where is my mind
where is my mind's picture

GS is a patsy for the president's upcoming legislative battle for finance reform.  I mean, you copy and paste the charges.......change GS to JPM and Paulson to Magnetar.  Christ!  This reads like Axelrod read the Pro Publica piece and marshalled the SEC to action on monday morning!

Fri, 04/16/2010 - 22:03 | 305118 anynonmous
anynonmous's picture

You nailed it, this is a political move and a brilliant one at that. Axel and Rham have managed to back the repubs into a corner and will with the help of their media handmaidens will show themselves to be tough on the banksters whilst their political foes are left fumbling. Even if the repubs get on board and push for criminal prosecution, which they should do, the dems have out maneuvered them and in the end the banksters and Goldman win. 

Fri, 04/16/2010 - 22:07 | 305124 the grateful un...
the grateful unemployed's picture


Fri, 04/16/2010 - 20:12 | 304992 ZeroConfidence
ZeroConfidence's picture

The govt that brought us "Too Big to Fail" will now introduce us to "Too Big to Piss Off".

The fall-guy has been set up & fingered.

Godfather Blankfein: "Fabrice... Fabrice! They got your fingerprints all over this... We've all agreed, you gonna have to take the rap for it. Don't rat anyone else out and we'll look after your family while you're inside, and you'll get a nice bonus waitin' for you when you get out."


Fri, 04/16/2010 - 20:57 | 305036 rawsienna
rawsienna's picture

read the complaint.  They are screwed. Looks to me that Paulson knowingly participated in the fraud.  ACA was always a bullshot company set up by Bear to shift cdo risk to stock investors. Who the ultimate equity investor turned out to be may be the key to the case. Would not be suprised in Paulson owned some equity as a Hedge - that may save em - but they knew the deal was being falsely marketed.  This will be interesting 

Fri, 04/16/2010 - 22:11 | 305129 anynonmous
anynonmous's picture

I read it but to me screwed involves  repeated and unwelcomed encounters with ones 280lb cell mate. Civil fraud charges will amount to pocket change for those involved with no interuption to weekends in the Hamptons. Encounters with a shaved headed tattooed bunk mate with the nickname Bunny begin with criminal charges not civil.  This is a sham.

Fri, 04/16/2010 - 21:01 | 305042 Artful Dodger
Artful Dodger's picture

When I saw this headline on Google Finance, I assumed (was hoping) the charges would be broader. This is not earth-shattering enough, unless the SEC has more to come.

So if were a speculator, I'd have been buying SPY 119 calls, waiting for that level today. Mostly washed out by Monday? I think so.

On the other hand, before I saw the headline, I interpreted the early part of the sell-off as the market's realization that stocks are expensive (BAC, GE, GOOG) *if* earnings don't keep going up from here. Finally a "sell on the news" day takes over. Shoulda known that's not possible any more. Only external one-time punches move the market lower.

Fri, 04/16/2010 - 21:30 | 305090 mcarthur
mcarthur's picture

I now understand the CEO's recent admission that GS had been up to some naughty things.  He would not admit this if his fingers had not been caught in the cookie jar already and he was trying to front run the inevitable.  The interesting thing is that he used the plural and not the singular.  More fireworks are likely.

Fri, 04/16/2010 - 22:04 | 305119 mcarthur
mcarthur's picture

The interesting thing is that it took very little to bring Arthur Andersen down.  Another punch or two in the gut could topple this one. 


A reputation is like fine China.  Expensive to acquire but easy to destroy.

Fri, 04/16/2010 - 22:20 | 305141 anynonmous
anynonmous's picture

Goldman's reputation precedes them, there is little to destroy. To compare to AA is apples and oranges. Enron was a criminal enterprise and charged as such, AA was an enabler. Goldman is like UBS pay a big fine and carry on. With many thanks for the political contributions and taking a dive, we'll quietly make it up to you after November.

Sat, 04/17/2010 - 00:59 | 305296 mcarthur
mcarthur's picture

The point is,who wants to be a conterparty to this mess going forward?  If governments refuse to act the market will.

Fri, 04/16/2010 - 22:32 | 305155 mynhair
mynhair's picture

OMG!  it just came to me.  Who benefits?  Which SLP was not involved in subprime?
Where is it head-quartered?
This devious little Squirrel wants GETCO to be the Bank of the Ustados Unitos.
Need an ownership trace of GETCO ASAP.

Fri, 04/16/2010 - 23:07 | 305207 Reese Bobby
Reese Bobby's picture

You ungrateful yoe-people.  Lloyd Blankfien gave some money to some cause helping people he would rather not even think about, and that he has managed to forget.  Warren Buffett is a big fan.  What else do you want?  I hate to call you people working pay check, to pay check ungrateful, but I'm guessing if you had any idea what just the fuel for a G5 trip to Paris for brunch cost you would feel pretty guilty about now.




Fri, 04/16/2010 - 23:17 | 305217 wallstreetnobody
wallstreetnobody's picture

Who really gives a damn if this was politically timed or not?  Seriously, that is exactly the type of noise that Goldman and CNBC want you to focus on instead of the fact that the SEC has a real case against Goldman and that Goldman may finally have to answer for its fradulent business practices.  If that is the result of political "timing" than I'm all for it and would love to see more of it.  Its the blowhards on CNBC that rail against populism, which is simply the voice of the people, if populism can help drive political action against our most entrenched special interests (like Wall Street banks) than fine by me.  These a-holes had decades of consistently decreasing regulation and over the past decade had an SEC run by Christopher Cox whose sole goal was to reduce the SEC's oversight and enforcement capabilities - under him investigators needed to get approval from ALL FIVE commissioners just to negotiate fines.  At least under Schapiro that got dropped right away.  The SEC may finally be becoming an agency with teeth, good for it and good for us.  If you want to go and stick with the banks and their defenders in Congress who don't want to impose any financial reform against them then you're free to do so.  But then don't complain about how Wall Street operates.  

Fri, 04/16/2010 - 23:19 | 305220 wallstreetnobody
wallstreetnobody's picture

Who really gives a damn if this was politically timed or not?  Seriously, that is exactly the type of noise that Goldman and CNBC want you to focus on instead of the fact that the SEC has a real case against Goldman and that Goldman may finally have to answer for its fradulent business practices.  If that is the result of political "timing" than I'm all for it and would love to see more of it.  Its the blowhards on CNBC that rail against populism, which is simply the voice of the people, if populism can help drive political action against our most entrenched special interests (like Wall Street banks) than fine by me.  These a-holes had decades of consistently decreasing regulation and over the past decade had an SEC run by Christopher Cox whose sole goal was to reduce the SEC's oversight and enforcement capabilities - under him investigators needed to get approval from ALL FIVE commissioners just to negotiate fines.  At least under Schapiro that got dropped right away.  The SEC may finally be becoming an agency with teeth, good for it and good for us.  If you want to go and stick with the banks and their defenders in Congress who don't want to impose any financial reform against them then you're free to do so.  But then don't complain about how Wall Street operates.  

Sat, 04/17/2010 - 00:00 | 305235 Burticus
Burticus's picture

What's news about Goldman fraud and what's the big deal about a measly billion FeRN fine?  The Vampire Squid made at least 13 billion on the AIG taxpayer heist alone.  Diving under the empty "civil charges" bus was probably part of the original deal, since the toothless lapdawgs in the SEC, CFTC or DOJ obviously have no concern for real market enforcement.

So, the corporate media cartel actors feed the appeasement headline to the sheeple, apologist commentators already miked up, timed perfectly to provide the violin accompaniment for the Kenyan usurper's bold crackdown on Wall Street announcement.  On cue, the herd flees from risky gold, silver, oil and stocks to the safety of Tiny Tim’s treasuries before Bubbles can even monetize them.  Meanwhile, the wily Squid undoubtedly had all the right tentacles in place yesterday and will now sheer billions more on the resultant volatility, betting against their unwitting sap “customers” who they advised to take the opposite trade.  Hahaha!  More bonuses earned fair and square!

The blistering humiliation of Cramer and the Squid's minion, followed by the indignant ejection of the honest commentator, ices the cake.  Thanks Z.H. and fellow commentators for the coverage.  It don’t git no better’n this!

Sat, 04/17/2010 - 00:22 | 305272 Clinteastwood
Clinteastwood's picture

OK I read every comment. None of you are cynical enough.


I think something else is going on, and it's much more cynical.  GS and Paulson knew that Congress and Bush had no idea about finance, that the Community Reinvestment Act was the worst piece of legislation to come down since the Great Depression.  All those nincompoops owing a mortgage.......???????? you gotta be kiddin' me. How else you gonna get the word to those Barney Frank Chris Dodd nitwits in Congress drunk half the time that:


You can't have 50% of the people on the dole just so you can get votes.  You can't have an sustainable economy that returns interest at greater than 3-5%.  You can't buy votes by creating money outta thin air.


So...............if you want to bring some reality into the system, what do you do?  


You take all their money.


You know the system is unsustainable, so you intentionally set up multiple (not just this measley SEC example, multiple, many times over) CDOs that are DOOMED............. and you buy the CDSs that will make you rich when the whole thing goes to hell in a handbasket.


There's nothing to see here, investors should know the risks.  If they don't, tough.  If the SEC doesn't like it, tough.....Goldman Sachs is too big to fail.


But look at this:  What's the net result?  GS may have accomplished it's purpose.  No longer are there unsustainable home mortgage loans (you gotta admit, that's a thing of the past).  No longer are there a bunch of nitwits out there creating a bunch of mortgages that cannot be repaid.  No longer are there mortgage backed securities to defraud investors.  No longer are there unsustainable stock prices because of cheap second mortgages.


What this country has needed is a wake-up call from cheap credit.  GS has done its part by creating the catastrophe.   Long live GS.  After all, that's what capitalism is all about, right?  Boom and bust.  Caveat emptor.  Come on's high time the baby boomers weren't babies anymore.

Now tell me why I'm wrong or junk me.

Sat, 04/17/2010 - 08:21 | 305424 Mercury
Mercury's picture

-As I said back on a page 1 post, I'm not sure Goldman bought into Paulson's market outlook regarding subprime mortgages - although for the purposes of this case it doesn't matter.  Goldman ultimately blew themselves up because, like most everyone else, they had too much subrime on the books -no? I mean, if they just knew that the subprime market was going to go bust why didn't they do enough about it to prevent themselves from getting buried in '08?  I think Paulson came to them with this idea and they were happy to structure the product and take the fees. 

-It certainly seems to be the case that GS is at fault for not disclosing everything they should have to clients. So, this is neither here nor there legally but there seems to be this assumption that had these GS clients known that Paulson specifically designed the portfolio with high likelihood default candidates in mind that everyone would have backed away from the thing like it was old fish.  This was a bubble. Investors were running with the heard not stroking their chin and listening to lone weirdoes who were making the contrary case.  Hell, I can put together a portfolio of Obama programs  that I think have a high likelihood of going bust.  I bet I can find a large amount of true believers willing to put big money on the other side of that trade even knowing that I created the portfolio with an eye toward picking the dogs.  GS probably deserves to fry for what they did but it's a little too big a leap of faith for me to think that full disclosure about Paulson's role would have scared away all those prudent investors. But again, the issue at hand is that Goldman was misrepresenting this CDO.

-Yes the mortgage market was unsustainable and eventually it corrected itself - Goldman didn't correct it for us...again they got caught with their pants down too.  This is classic invisible hand in fact.  In the short term supply and demand determine everything to the point where asset bubbles can be created in literally anything: tulips, art-project Internet "businesses" or crap debt.  But long term -perhaps longer than you can stay solvent- value rules (there is either something there or there isn't)  and the market corrects.  There seems to be some debate about this but I have yet to see an example that seems to exist outside this rule.  Indeed the whole premise of Zero Hedge seems to be that in regard to the macro leverage, debt, entitlement, fiscal and monetary situation in this country (and much of the developed world) there is no there there.

Sat, 04/17/2010 - 11:09 | 305626 slovester
slovester's picture

"Goldman ultimately blew themselves up because, like most everyone else, they had too much subrime on the books -no? I mean, if they just knew that the subprime market was going to go bust why didn't they do enough about it to prevent themselves from getting buried in '08?"


Not to pick on your post, but after seeing many other posts with comments along the same line as the above paragraph I wanted to reply with my opinion.


Goldman Sachs was in no shape, form or fashion "blown up" or in danger of being bankrupt or even badly injured by the subprime fallout.  They jumped on the opportunity of using the subprime crisis to clear the way for them to convert to a bank in order to take their place in line at the waterfall of (nearly) free money flowing from the Treaserv so that they could leverage that into massive profits.  To do that, GS magically transformed their books such that they turned in the one and only quarterly (4Q08) loss of their public existence (a huge loss at that).  They did so by a combination of moving forward every possible negative return number into that quarter and hiding (off balance sheet) and/or deferring any positive numbers to the subsequent quarterly report -- note how they remarkably returned to being a hugely profitable enterprise in 1Q09.  They simply borrowed a page from Donald Trump's playbook that he used for the divorce proceedings from Ivana and portrayed himself to be near bankruptcy so that her take from the divorce was a pittance compared to what it would have been otherwise and then shortly after the divorce settlement was finalized, Trump became a phoenix and was suddenly mega-wealthy again.


I also believe the current situation is a well orchestrated sleight of hand by TPTB to delude the public into believing that their best interests are being served, when in fact it is all for show to facilitate (at least) two goals by the TPTB:  to pressure all parties involved to pass the sham of financial reform (and all it's associated pork, continuation of a rigged finance system that benefits the oligarchy, etc.) and to sway the public back into positive feelings toward the democrats leading into the mid-term elections.

Sat, 04/17/2010 - 16:00 | 305921 Mercury
Mercury's picture

Well Goldman certainly took a big subprime related loss on that CDS they sold Paulson (but hey, what's a billion$$ these days?). They did, thanks to two guys I believe, short the crap out of the real estate market late in the game.  I had thought that they were still in pretty tough shape despite that - I certainly remember their stock getting killed - but maybe not.  It's hard to imagine the old partnership doing something so ignoble as converting to a  bank holding company unless they absolutely had to... but I guess that ship sailed a long time ago too.  Bad conclusion jump on my part. Once they did convert however, I have no doubt that they worked it for all it was worth.  Anyway my real/larger point was that Goldman wasn't aligned on the same side as Paulson's subprime strategy on this CDO deal.

Agree with your second paragraph.

Sat, 04/17/2010 - 00:33 | 305277 Kina
Kina's picture

Marketing a product designed to fail in order to profit yourself and a co-conspirator is pure fraud. Simple, easy to understand by all.


All those who lost money because of that deal can now come out of the woodwork and make claims. Class action? And the loss doesn't have to be the loss on the investment, but the collateral loss incurred since.

I wouldn't be buying GS until you saw what else came out of the woodwork.


And because this is such a easy to comprehend fraud it will be hard to not follow through with criminal chareges, if the former shown to be true.

Sat, 04/17/2010 - 00:41 | 305280 alien-IQ
alien-IQ's picture

ZH had this story from the go...way ahead of the pack....As usual. ( ok...Matt Taibbi also...and he's fucking wonderful as well)

I'm very proud of the work the gang here has done...we all should be.

ZH is an important place.

I feel like a mole on Marilyn Monroe's cheek...I'm just happy to be here.

I love this place.

A home for critical thinkers....oh my...what a treat...

Thank you ZH, Tyler, Marla,,,et al...Gracis ad infinitum.

Sat, 04/17/2010 - 02:56 | 305352 Kina
Kina's picture

Futures down just a 'little' bit.

Sat, 04/17/2010 - 03:41 | 305362 laughing_swordfish
laughing_swordfish's picture

If I were Lord Blankfiend I'd be worried about a couple of things: First, RICO isn't just about criminal actvities - a pattern of civil frauds (and this is just the first of many that will come down the pike) can give rise to Civil RICO prosecutions.

This courtesy of one of the Advokaten at DKM headquarters that I talked to today about an offering we're looking at.

According to the legal types, triple damages under a civil RICO are just openers - there's also complete piercing of the corporate veil and potential unlimited liability for both officers and directors. And, a "continuing pattern" of frauds, even though each one is technically a civil matter, may be considered in and of itself to meet the "criminal intent" requirement of the criminal RICO provisions.

And then, of course, the State of New York has some fairly draconian criminal securities fraud statutes. It's no wonder that ever since the bailout The Squid has been lawyering up like crazy - this will be a never-ending payday for New York's white-collar criminal defense bar.

Hey Lloyd - think the worst is maybe a 2MM fine and 6 months at Club Fed? When Andy Cuomo gets done with you, it'll be more like twenty to life at Sing Sing or Attica. Just ask your friends Dennis Kozlowski and Mark Schwartz about that.

Something for you to think about as JoJo and Bubba tuck you in at night ...


KrvtKpt. laughing swordfish

DKM trading division.

Sat, 04/17/2010 - 03:49 | 305366 Flatchestynerdette
Flatchestynerdette's picture

I agree. Great post. Too bad nothing will be done against GS since its being protected by the current regime and is in fact keeping this market inflated to make everything look better than it is. Betcha $50 donation to zero hedge that GS will get a slap on the wrist, go their merry spike the s&p futures way at 3:30pm, but Paulson will be behind bars as he served in a different regime that was ousted.

Sat, 04/17/2010 - 03:51 | 305367 Flatchestynerdette
Flatchestynerdette's picture

BTW: where's Geithner's name listed on the complaint. He was the NY Fed's watchdog. OH, right, he's part of this regime also so he'll skate as well. I've got one question: What in the hell does Goldman Sachs have on these politicos that they can't be touched by the law or brought before the public for crimes against the republic?

Sat, 04/17/2010 - 04:07 | 305369 John_Coltrane
John_Coltrane's picture

The politicos are caught between a rock and a hard place.  If they really go after their principal dealers like GS and JPM, who will market their huge $200B monthly debt auctions?  Yet they have to seem like they're doing something with the elections coming up.  So its guaranteed nothing substantive will be done against the PDs.  This is the central problem good old Alex Hamilton and the Federalists set up with with a national bank and never ending soveign debt (despite Jefferson's seeing where this would lead:  an unholy alliance of central bankers and politicians with debt as the glue.

Sat, 04/17/2010 - 06:56 | 305404 Goods
Goods's picture

When are people going to wake up?

[SEC Names Goldman’s Storch as Enforcement Unit Operations Chie]

Sat, 04/17/2010 - 08:15 | 305430 tip e. canoe
tip e. canoe's picture

"Storch, who joined the SEC Oct. 13, was named to the newly created post of managing executive in the enforcement unit, charged with making the division more efficient, the SEC said today in a statement. At New York-based Goldman Sachs, he had worked since 2004 in a unit at that reviewed contracts and transactions for signs of fraud."

1) looks like Mr. Storch's department at GS did a bang-up review on the ABACUS deal (not to say that it ever crossed his cubicle).

2) so let's see, GS knew for 9 mos that they were being investigated (Aug 09).  Storch was hired Oct 09, which means that there was an excellent chance that Storch knew very well of the investigations when he took the SEC job since he was in the office of fraudsniffers for GS until then. 

not to say he was directly involved in the allegations (no need to jump the gun here), but he must have been well aware that something was going down behind the curtain.   and of course, senior GoldSacks in the ivory tower knew very well something was going down and knew that young Adam would also know as soon as he walked into his new office in DC.

without even making assumptions, does anyone else smell the stale odor of dead fish?   just wondering when and where the horse head is going to make its appearance.



Sat, 04/17/2010 - 07:12 | 305409 Kina
Kina's picture

I gather the SEC has made this charge because it is the simplest and one where they have the best non-complex evidence. The highest chance of success.


IF successful it has however severe implications and can lead to a successful class action that will cost GS much more than a billion.


The next step would be for the right authority SEC? FBI? to bring charges for criminal deception / fraud. To plan to defraud, and successfully implement it goes way beyond 'not fully advising' clients. It would make them a criminal organisation, it is mafia type behaviour.


Sat, 04/17/2010 - 11:00 | 305614 rubearish10
rubearish10's picture

Well, they got Capone on tax evasion and took him down so,,,,,perhaps there's some hope and chance this thing leads to GS's ETAL's demise.

Sat, 04/17/2010 - 07:14 | 305410 Kina
Kina's picture

And IF a crime is shown to have been committed then what happens to the proceeds of crime? $1bn+ plus where the proceeds.

Sat, 04/17/2010 - 07:17 | 305411 chindit13
chindit13's picture

Interesting who the two big losers in this escapade are.  ABN Amro lost $841 million, and IKB Deutsche Industriebank AG the other $150 million.  It hurt IKB so much that it folded up and its remnants were bought by John Grayken's Lone Star Fund (remember another of his deals, the big Merrill Lynch .08 on the dollar toxic asset purchase near ML's end).

Grayken is no wallflower, and can retain top level counsel.  If there is a civil suit against GS resulting from this---and if his purchase of IKB granted him the right to pursue it---GS' legal counsel will be up against it.

This is definitely not over.  Expect not only legal troubles, civil and maybe criminal, but also defections of customers in droves.  Robbed of its competitive advantage (raping its own customers), what is left of GS?

Sat, 04/17/2010 - 08:13 | 305431 cossack55
cossack55's picture

The ability and intent to rape other people's customers?

Sat, 04/17/2010 - 07:21 | 305412 Al Gorerhythm
Al Gorerhythm's picture


Sat, 04/17/2010 - 08:29 | 305436 MarketFox
MarketFox's picture

Let's clear this up.

The number 1 reason for today's financial havoc was the AAA stamp on paper that clearly was not AAA in exchange for pay.

Even sophisticted investors were swayed by the AAA stamp when reaching for yield.

It was the product originators that are 1000% responsible for this highly fraudulant act...and yes fraudulent because it was the most sophisticated that created and provided for the AAA rubber stamp.

If AAA would have been properly labeled ie CCC....none of it or very little of it would have been sold....especially to pension plans and such that were reaching for yield.

And let there be no mistake about improper fed forced low rates which is still in place today....there would have been no "real strain" to provide interest seeking buyers with these complex and opaque products, had yields been allowed to be normal , and not govt. FR forced.

Accountability does exist, and indeed these originators were humans that have names and work for profit hungary companies that not only should be , but must be prosecuted; even in the current US FACIST government.

The fact that there has been no accountability PROVES FACISM is alive and well within the US.

Make no mistake.

Heavy payments in the lobbying process is no different than "bribing", which is clearly illegal in the corporate vein.


The current GS case is just the tip of the iceberg in cleaning up the securities business.

IBs should originate and create all grades of products with proper and objective labeling. But should never be able to label AAA what is CCC just to get products sold.

Sat, 04/17/2010 - 10:08 | 305511 Implicit simplicit
Implicit simplicit's picture

Goldman will probably use the reverse shotgun approach as defense, blaming the originators and rating agencies. they will claim they relied on the due dilligence of these groups before packaging the deal. However, the counter argument will ask "why did Paulson hand pick certain mortgages for inclusion?" In addition, if they claim they relied upon others to perform due dilligenc for them, how can they argue in defense that Abascus should have done their own due dilligence before buying the CDOs.

Sat, 04/17/2010 - 11:08 | 305623 MarketFox
MarketFox's picture

The point is that it was the IBs who educated the rating agencies as to how they could call CCC paper, AAA paper.

The rating agencies complied because they were paid to comply.

The IBs to this day, want to keep this business mainstay as a huge profit center, because of its complexity and opaqueness.

The bottom line is that there are people that work for profit driven IB companies that are responsible for today's financial calamity.

To date, there has been no accountability, although the money that has been misappropriated constitutes the most massive financial fraud in history whose costs have been ponied on the world's public.

There is also a lot more cleaning up to do in the securities markets.

This is not a securities markets problem, this is a company/govt/people problem.

Perhaps a more appropriate term is FACISM, American style.

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