April 19, 2010
- A d v e r t i s e m e n t
Goldman Sachs was charged with fraud last week by the Securities and Exchange Commission. The investment bank says the charges are “unfounded in law and fact.” Regulators allege “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,” SEC Enforcement Director Robert Khuzami said in a statement. In other words , Goldman and a hedge fund client put together a ball of sub-prime crap designed to fail and bet against it. Goldman also took out insurance on those same mortgage backed securities from AIG–yes, the same AIG taxpayers bailed out to the tune of $180 billion. Goldman was paid a total of nearly $13 billion from AIG at the direction of Treasury Secretary Tim Geithner. What a mess and it is going to get much worse before it gets better.
Plaintiff attorneys are preparing for a deluge of future lawsuits written about in this recent Reuters article: The SEC’s charges against Goldman are already stirring up investors who lost big on the CDOs, according to well-known plaintiffs lawyer Jake Zamansky. “I’ve been contacted by Goldman customers to bring lawsuits to recover their losses,” Zamansky said. “It’s going to go way beyond ABACUS. (name of Goldman security in question) Regulators and plaintiffs’ lawyers are going to be looking at other deals, to what kind of conflicts Goldman has.” (Click here for the full Reuters story.)Also, the UK and German governments are asking for their own investigation into Goldman Sachs deals.
If you think this was the only shady deal dreamed up by Wall Street banks, you have another thing coming. All of the big banks have been selling securities called derivatives for at least two decades. Derivatives are usually bundles of debt. There are derivatives for mortgages, car loans, credit cards, student loans and all types of government debt, to name a few. Derivatives are complex, but when it comes right down to it, you can sum them all up as debt bets.