The Goldman Sachs suit – the other side of the coin

As a followup to my post on the SEC fraud suit against Goldman Sachs, there is this post (from Neal Boortz) that questions the timing and validity of the suit. Boortz suggests that the securities Goldman was offering were so complex that they were reserved for institutional investors who should have known the risks involved. Therefore the SEC may not have much to go on with the lawsuit.

Goldman Sachs sells securities, investments. Some of these investments are for ordinary investors. It doesn’t take a lot of investment knowledge to buy stock in Apple. Other investments are for very sophisticated investors only. If you’re not in the market you probably don’t know that some investments sold by brokerages and securities firms are so complicated, so iffy, so convoluted that the person selling those investments has a legal responsibility to determine that you are a “sophisticated invester” and that you actually have some clue as to what you’re doing.

Here comes the SEC and a lawsuit is filed against Goldman Sachs. Essentially the lawsuit claims that before Goldman Sachs sold this instrument to investors it had the responsibility to tell the investor absolutely every detail as to how this CDO was created, including the involvement of John Paulson. Now keep two things in mind here. One, the CDO is a very sophisticated investment instrument and those to buy CDOs are often just as knowledgeable as the people at Goldman Sachs making the sale. Secondly, at the time Abacus was created Paulson had not achieved fame by betting against mortgage-based investments. Why, then, did Goldman Sachs have to disclose his involvement? It probably wouldn’t have meant anything to the investors anyway. Remember – Goldman Sachs thought they had put together a CDO that was going to make some big bucks. That’s why Goldman Sachs bet on Abacus, and ended up losing ninety big ones.

What’s more, the SEC has been bending historical curves in its treatment of Goldman:

One of the issues here is the odd way the SEC has been acting in this case. Usually when the SEC brings an action against a company there is plenty of warning and an opportunity to reach a settlement as to how to resolve the problem and any fines that might be played. Oddly – and nobody can remember where this has happened before — the SEC wouldn’t even return Goldman Sachs calls in the days leading up to the lawsuit. This is pretty much unprecedented, as is the nature of this particular SEC action. There really is no record of an action like this taken by the SEC before.

OK, so it might be some kind of setup – especially when you consider that corruptocrat Chris Dodd is readying a financial industry “reform” bill that our dear comrade leader supports. (Remember – when politicians speak of “reform,” you can guarantee that it means more boot-to-the-face and bigger government for all.) So now our dear comrade leader can ride in on his white stallion and save us all from the ogres of Wall Street.

Let’s wrap this up with a simple and easy to understand question. Did the SEC pop this lawsuit on Goldman Sachs last week to bolster Obama’s calls for new financial regulations? Was this lawsuit thrown out there to give Obama the talking point he needs to sell his new regulatory scheme? Usually actions like this are settled before a lawsuit is filed, but in this case the SEC wouldn’t even return calls from Goldman Sachs. Maybe someone was telling them to get this thing done .. and get it done NOW … so that Obama can have his talking point for regulatory reform.

Here’s another post (from Legal Insurrection) that bolsters the point that this is just another ploy by the administration to increase the size and power of the federal government.

Interesting to see how all of this will play out. In any event, looks like another BOHICA moment…

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