The SEC finally accused Goldman Sachs of securities fraud, in a civil suit filed Friday. But this thing sounds a whole lot more dramatic than it really is. For one thing, the name of evil co-conspirator John Paulson — the biggest profiteer of Wall Street’s meltdown — comes up many times in the suit but he is not named as a defendant.
Also, this scheme was first reported four months ago, and Goldman defended itself at the time by saying, in effect, that that is how the game is played. And Goldman is probably right.
This will get great air time. Mostly, though, the suit smacks of a smart move by the Obama administration, gearing up for a very tough election-campaign summer, to make people think that it’s finally going after Wall Street.
When it still isn’t.
Last December, the Times broke the blockbuster of Goldman Sachs making billions by betting against America. Simply put, Goldman created and sold derivatives of a kind called CDOs that were full of shaky mortgage debt. Then the bank and a few of its special pals made their own side bets that the derivatives would fail — knowing they would fail.
We already knew that Paulson was the top profiteer off the Wall Street mortgage meltdown at $3.7 billion. The SEC complaint says Goldman created these CDOs at Paulson’s request. Paulson wanted to bet that these instruments would fail, so Goldman let him pick which particularly shaky mortgage bonds to bundle to create these things. Then, Goldman blithely sold them to pension funds, insurance companies, and the like. Then, Goldman and Paulson bet that those instruments would fail.
The CDOs failed, and Goldman made a killing on top of the fees it got for peddling all this shit. Paulson, of course, made out like a bandit.
Reprehensible? Yeah. Illegal? Not necessarily. And is Paulson even named as a defendant in this overly ballyhooed SEC lawsuit? No.
As I wrote last December, Goldman didn’t really dispute the facts in the December 2009 Times scoop by Gretchen Morgenson and Louise Story. The vampire squid argued, and was backed up by securities-fraudster-turned-blogger Henry Blodget, that it was just “business as usual.” So unless there’s much more to this SEC suit, it’s a lot of hot air that will eventually drift away.
It is tantalizing, however, to see Paulson‘s name at least enter into this. No one’s touched him yet.