On Friday Goldman Sachs was charged by the SEC with fraud regarding a real estate structured finance transaction during the height of the credit bubble in 2007. Like any fraud the various players jockey for position and in this case it appears the other players involve John Paulson, ACA and potentially other industry participants. First thought that comes to mind is how this coincides with the upcoming financial reform bill headed by Chris Dodd which goes to a vote in less than two weeks. Second, we really have limited information about the suit although readers of this blog are more than familiar with the underlying fraud that built the greatest credit bubble in history.
Questions we would like to see answered:
1) Was Goldman creating custom products for John Paulson while trading against other clients?
2) Were clients intentionally misled about what was being sold to them in order to reward other clients?
3) Were these and other transactions done at arms length?
4) How did Goldman and other banks emulate Lehman regarding repo transactions via off balance sheet entities at quarter end?
5) Did Paulson get access to other questionable custom Goldman products, specifically Greek CDS? If so, were these products fraudulent?
6) How were these various products assembled and were there known fraudulent activities within raw material? For example, did Goldman know about fraud at the mortgage origination level? Where did these mortgages originate? I mention this because WAMU executives were on Capitol Hill last week admitting to mortgage originations containing fraudulent documentation.
8) Since this is a civil suit do we have to rely on the criminal fraud trial beginning next month in Italy to finally receive the juicy details on this sham?
9) The four largest banks in America are also some of the largest mortgage servicing entities so are they privy to mortgage payment information which could or could not be shared with some of the entities creating structured credit?
10) Does Goldman employees’ $1 million contribution to Obama’s campaign coupled with over $344 million in lobbying efforts last year insulate the firm from criminal charges in the USA?
11) Is this material? “Head of allegedly Goldman buyer ACA is married to Goldman deputy general counsel”?
12) How many other derivative dealers have been front running their clients?
My comments: Slowly the details emerge on the greatest fraud perpetrated on the American people. As we discussed on numerous occasions the public wants blood so let’s see if the rule of law still exists in the United States.