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COMMENTS & ANSWERS TO FAREED’S QUESTION OF THE WEEK 04-25-2010(to remove your name or entire comment please email webmaster)
Last week we asked “Do you think Goldman Sachs is guilty of fraud. You can answer yes, no, or I don't know enough to say. Do you think Goldman Sachs is guilty of fraud? Yes? No? Don't know enough to say?
70% of you think Goldman Sachs is guilty of fraud, approximately 16% of you said no, and approximately 14% of you wrote that you don’t know enough to say.
Some of you like Hiqutipie, wrote that Fareed missed the entire premise of Goldman’s actions. “The entire premise was based on toxic waste that needed to be rated that wouldn't have been rated in a normal environment without which these bets couldn't have been made and
noone knows yet how AIG was convinced to backup these bets...The entire foundation of these bets was based on fraud which the tax payers around the world have to pay...”
Anne Dickershaid from Margate, Florida, said that while they may not be
guilty of fraud, “their actions were immoral. This is why we need
banking/Wall St. reform. BTW, Elliot Spitzer!! How could you have him as a guest? I know he paid a price for his actions, but here you have an immoral person debating and discussing an immoral act. I'm
disappointed in you.
Others defended Goldman, pointing out that “what the financial services organizations and government need to be held to account for is the
issuing of loans to clearly unqualified borrowers and the packaging of these loans when the problems they would create became rather
obvious. The government established objectives and rules of the road that the irresponsible members of the financial community quickly took advantage of for their own benefit and to the detriment of the country and the world. The rating agencies deserve to be severely punished for their AAA ratings on packages of BBB loans. They almost totally failed their duty to fairly rate financial products.
The US could use some Chinese style punishment. The sentences of key management people for such things as the tainted milk scandal or shoddy construction should be applied to some in the US
Anonymous
MORE:
"There are many ways of lying, but the most repugnant one is to speak the truth, all of the truth, while hiding the spirit of things." -
Mario Benedetti
Goldman was most definitely guilty of fraud. The company lied to its investors. It violated its fiduciary duty by misinforming or hiding
information from thems. Your contention that Goldman's actions were perfectly legal is a cynical defense of the indefensible and a scary
disregard for the spirit of the law.
Marilyn, in Oakland, Ca
Not guilty. A brilliant trader at the other side of the firewall
devised a strategy to benefit from market inefficiencies, and that's what capitalism is about. The fact that his strategy was not disclosed to the buyers of the CDO securities is in compliance with rules and
regulations imposed by the SEC and other regulators; hence the civil rather than the criminal charge. The facts may pose a "moral" question rather than a legal question of full disclosure to buyers of the
complex CDO securities, but again who has the "moral" authority to define morality in capitalism? I believe this is all the result of a
growing need to inflict some pain to the one investment bank that came out unscaved from the whole crisis and actually ended up making
billions of dollars by correctly identifying the problems in the
system and predicting the consequences, which is like punishing the one A+ student when all others flunked just because he/she took tutoring lessons after school and didn't share the extra knowledge with his/her peers.
German Estrada, Miami FL
Yes, I believe strongly that Goldman is guilty of fraud. Item number 4 under the overview of the SEC complaint indicates that Tourre also misled ACA, the neutral third party hired to evaluate and select the securities in the trade. Item 4 states: "Tourre also misled ACA into
believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-ACI (a long position) and, accordingly, that Paulson's
interests in the collateral section process were aligned with ACA's when in reality Paulson's interests were sharply conflicting."
Moreover, given the revelations from Levin's senate investigations on the credit rating agencies and the conflicts on interest that result in rating the securities of the issuers by providing the issuer the ratings that they desire, i.e., AAA when in fact the securities are not even investment grade and given that analysts from Moody's and S&P acknowledged that their models for analyzing the quality of securities had not been revised or updated, Goldman is guilty of fraud. This latter point is key because according to Richard Mendeles, author of
Collateralized Expolosive Devices: Why Securities Regulation Failed to Prevent the CDO Meltdown, models used by the rating agencies to
evaluate the quality of subprime mortgages have not taken into account the changing nature of mortgage products that are predisposed to
default, i.e., adjustablbe rates, option arms, etc. and also default in such cases is more likely because the borrower's ability to make payment was not determined, especially when 100% financing was provided to the borrower and appraisals were overvalued. Also, given the high
probability that Goldman exercised its power in the relationship with the credit rating agency to obtain high ratings on its securities, Goldman is
guilty of fraud. Lastly, the New York Times has reported that Goldman hired a former Fitch analyst to help it game the ratings system, Goldman is guilty of fraud.
Aramintha Grant
Not Guilty...just like a "bookie" they have to protect their money by leveling the playing field. Enough already! Leave them alone to conduct their business; we have bigger fish to fry!
Pam Malafronte, M.Ed Fort Myers, FL
Yes, they are guilty of fraud. When I read how they knew the investors had a high chance of failing and then they bet on it to fail and make tons of money on the backs of people who need their pensions etc. then I definitely think they are immoral and guilty o fraud.
Cheryl Newman
I think that Goldman Sachs is guilty of fraud. They are obliged to put into their prospectus all information which would be pertinent to an investor, regardless of how sophisticated that investor might be. I do not believe that they did this. Keep in mind that Goldman and other brokers were also gaming the ratings agencies, hiring analysts from Moody's and S&P, and not disclosing that they had done so. Private
placements also keep investors from knowing what the "spread" is. When investment banking firms were making 30-40% on these products - and that's not annualized, that's over the three or four months it took to put the mortgages in pools, structure the deals and sell them.
The SEC has recently come up with a great idea - and one which would have kept some of these things from occurring. Any time a new product is registered with the SEC, the filer must also file a computer program showing what can happen that would make investors money or lose them money. This program is to be on the SEC's website and it will be free.
Julia Cauthorn
Your question of the week: You want it simple... well that's not possible, otherwise that is labelling when the considerations go further. In
essence, Biblical compass, states quite clearly "neither a lender nor a borrower be". So right off the bat... one can make a call for fraud upon anyone practicing loans or borrowing of money.
Bye.
Guilt can only be determined by the legal system. The real question is whether gambling should be subsidized by taxpayers. Derivative creation and trading by tax-supported banks should be made illegal.
Jeanne Johnson,
Alexandria, Minnesota
The bookie commits fraud if they shave points. The real question is did Goldman shave points for the COD's. Are they guilty? You bet. Was it illegal, probably not.
Brian Shapiro
Yes, I believe Goldman is guilty of fraud. Although the investors had the opportunity to "see every card in the deck," for better or ill investors had turned over credit analysis to the ratings agencies and CDO managers for instruments of this complexity. Although investors saw the numbers behind the securities in the synthetic CDO, they could not possibly drill down to any level of granularity. Perhaps Paulson had access to this granularity by working to construct the CDO from the bottom up. Therefore, the fact that Paulson actively participated in selecting the reference securities is a critical data point that Goldman had an obligation to disclose.
Best,
MBA/MIA 2010
Columbia Business School/
