The case against Goldman doesn’t seem totally open and shut.
But in 2006, some inside Goldman began to worry about the fragile state of housing. Daniel L. Sparks, the Texan who ran the mortgage unit, sided with those who believed the market was safe. Two of his traders, Joshua S. Birnbaum and Michael J. Swenson, had placed a big bet that mortgage bonds would rise in value.
But this camp clashed with Goldman sales staff who were working with hedge funds that wanted to bet against subprime mortgages. Mr. Birnbaum told the team to stop promoting bets against some mortgage investments since such trades were hurting the market and Goldman’s own position, according to two former Goldman employees.
But a few desks away, Mr. Tourre and Mr. Egol were quietly working on the Abacus deals.
They were, former colleagues say, something of an odd couple. A slight man with a flair for salesmanship, Mr. Tourre joined Goldman in 2001, after coming to the United States to study business operations at Stanford. At Goldman, he courted investors like European banks and big hedge funds.
I guess the question is whether or not anyone in the company knew what the other side was doing? Maybe someone who reads deadissue can explain this to me, but from my perspective it looks like Goldman Sachs simply made sure that they would profit whether the market went up or down and then sold both positions aggresively. I am pretty sure that is not a crime, but I am certainly open to arguments about this situation.
Update: Looks like some other people are wondering about this case as well:
I got a query earlier today as to whether I’d want to talk about the SEC’s lawsuit against Goldman Sachs. I averred that I’m always happy to play political pundit (the suit and the revelations it contains highlight the need for strong regulatory reform!) but that I don’t actually know anything about securities law or have any idea as to whether or not the SEC’s case has legal merit. For the record, the guy who writes the Economics of Contempt blog is a lawyer working in the relevant field and thinks the SEC’s case is weak and the only real issue is whether the PR cost of a long, nasty fight is higher than the cost of just settling.
Back with my pundit-hat on, I note simply that when it comes to fraud the real scandal is very often what’s legal. There are all kinds of nonsense non-financial scam products out there (I saw an add for this over the weekend) along with the various quick fix miracle cures and all the rest. A lot of this stuff, along with the tarot card readers and all the rest, is “fraud” in the ordinary-language sense but not necessarily the legal sense