Today’s civil fraud charges against Goldman were a surprise, but the devil is in the details, and the case against the firm doesn’t look particularly strong. Goldman claims to have actually lost $90M by investing in the ABACUS CDO (Bloomberg), and lead investor (and major loser) ACA actually had ultimate authority over the securities selected and knew of short-seller Paulson & Co’s involvement in the selection process (though not that they were shorting) as pointed out in an excellect article by Henry Blodget :

In reality, however, to make this case, ACA is going to have to make the embarrassing admission that knowing what Paulson & Co was going to do affected its judgment with respect to the transaction.  This information should NOT have affected ACA’s security selection process.  It should also not have affected ACA’s decision to go forward with the deal.  ACA is an independent firm staffed with experienced professionals paid millions of dollars to evaluate securities by themselves. What Paulson was or wasn’t planning to do, therefore, should have been irrelevant.

We also know that Goldman knew in advance about the SEC’s plans, and that the man picked out for a public stoning, Fabrice Tourre, is a Frenchman who was only 27 or 28 at the time of the misdeeds in question. The CDO business was the cash cow of the bubble years and a prime focus from the executive suite on down. Was this kid really that important in the scheme of things?

Tourre admitted in emails that he didn’t even understand CDOs very well. It is just a joke that this is the best scapegoat that they could come up with. Did Goldman bring civil charges against itself on a weak and obscure point via minions (like Adam Storch) at SEC in order to create a safe outlet for the mounting public outrage? It certainly looks that way from here.

Wake me up when a Goldman employee or alumnus over 40 with a net worth over $100m goes to jail.

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