
On Goldman - olefoo
http://www.fivethirtyeight.com/2010/04/on-goldman.html
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gruseom
Here's a point I haven't seen made elsewhere:

 _Sixth -- how will Goldman defend themselves? The standard defense when two
parties to securities litigation are "sophisticated investors" is to argue the
parties were essentially big boys and knew the risks. That defense isn't
possible in this case, largely because of the statute employed. This case
comes down to whether or not Goldman lied -- period. Either they did or didn't
misrepresent facts. The financial standing of the purchaser of the security is
irrelevant. Goldman's only defense is to somehow demonstrate they did not lie
about the transaction. Given the complaint filed, I don't see how that
argument is possible._

Since the "big boys" argument has been frequently cited -- it's basically the
"caveat emptor" defense running through most threads about the case including
this one -- it's worth noting that if this guy is right, it's irrelevant.

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byrneseyeview
[http://crookery.blogspot.com/2010/04/nasty-derivatives-
tale....](http://crookery.blogspot.com/2010/04/nasty-derivatives-tale.html)

This is an example of committing the same crime Goldman has allegedly
committed. You'll notice that if you're an accredited investor, you can call
your broker up right now and do this. In act, if you do much options trading,
you may have already more or less done it.

~~~
jfager
At what point in that story did the bank lie about who specifically had
assembled the reference portfolio? In other words, where's the parallel with
Goldman using ACA as a marketing tool and shield?

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retube
The crux of the complaint is weather GS lied or not. But what are they
supposed to have lied about? If they were selling this
fund/instrument/collection of bonds to third parties, by definition there must
be a short on the other side - someone has sold the instruments into the fund.
So what?

~~~
olefoo
The heart of the case is that they were selling a product as being composed of
a high-quality mix of mortgages likely to produce positive returns while
simultaneously working to engineer the actual content of the CDO to be almost
exclusively bad debt unlikely to avoid default.

It's like a real estate agent knowingly selling you a house with a mold
problem. Or maybe more like a developer selling houses that had been
constructed with substandard materials.

~~~
retube
at the risk of soliciting downticks, caveat emptor surely? It's not like the
underlying instruments were not known.

Edit: I can't believe Goldman really said - here's a basket of triple A's,
when in fact they were junk. Expressing an opinion on whether they were likely
to go up/down is a different matter. Of course a salesdesk is going to promote
the investment in positive terms.

~~~
jfager
Your incredulity aside, they absolutely did say that, or at least they
convinced the ratings agencies to say that. That wasn't the lie, though -
according to the (horribly broken) models, they were AAA (or whatever rating
is in question).

The lie was that the package of underlying mortgage bonds was selected solely
and independently by a 3rd party who had an interest in putting together a
quality instrument, when in fact Paulson played the major role in the
selection.

~~~
fleitz
He played a role only to the degree ACA allowed him to and failed in it's
fiduciary duty.

~~~
jfager
Okay, fine, ACA sucks. But Goldman still knowingly lied about who was involved
in selecting the reference portfolio.

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chmike
Does a same law exist for lying about massive destruction arms ?

