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All that glitters…

cartoon from Mike Luckovich, Creators Syndicate

It was a tough weekend for Goldman Sachs. On Friday, the SEC announced it was bringing a civil suit against the Wall Street titan and one of its VPs, Frabice Tourre. The SEC claims the bank created and sold a mortgage investment vehicle that was secretly intended to fail.  In January, Goldman’s CEO, Lloyd Blankfein, testified before Congress that his bank did not “bet against” its clients, it was merely a “market maker”. The SEC begs to differ.

In February 2007, at the request of John Paulson, a Goldman client who wanted to bet against the housing market, the bank created an investment vehicle called Abacus 2007-AC1. Although Goldman told investors that the bonds in Abacus would be chosen by an independent manager, Paulson was allowed to hand-pick mortgage bonds he believed were most likely to lose value. The investment was then sold to investors, including pension funds, insurance companies and foreign banks. After the investment lost value, these investors lost billions, while Paulson profited more than $3 billion. According to Robert Khuzami, head of the SEC’s enforcement division,“the product was new and complex but the deception and conflicts are old and simple”.

After reading a letter where Frabice writes

“More and more leverage in the system, The whole building is about to collapse anytime now … Only potential survivor, the fabulous Fab[rice Tourre] … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrousities!!!”

Referring to himself as “the Fabulous Fab”, it is obvious he is a major douchebag. Possibly, a wall street stars who is still trying to live out his high school popularity fantasies and takes his”power” a little too seriously? Classic case of hubris. For the life of me I cannot understand why people have not learned to self-censor their emails. If you do not want something to be repeated, reprinted, or used against you, DON’T PUT IT IN PRINT. Obviously there will be some populist sentiment and satisfaction behind Goldman’s legal troubles. After being known as the “golden child” of Wall Street for so long and continuing to make record profits and record bonuses in spite of the financial crisis, Goldman seems to have suffered few consequences for its role in the crisis. It was obviously a major player, in the way it was tied up with institutions like AIG. Unfortunately, for Goldman, it makes the perfect scapegoat.

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