Is Goldman’s Hardball Stance a Big Mistake?

Goldman pointed avoided discussing its pending SEC lawsuit directly on its conference call earlier today, but other reports suggest it is taking an even more pugnacious stance than its initial press released indicated. From Politico:

Goldman’s crisis strategy…is already clear: An attempt to discredit the Securities and Exchange Commission by painting the case as tainted by politics because it was announced just as President Barack Obama was ramping up his push for financial regulatory reform, including a planned trip to New York on Thursday.

“The charges were brought in a manner calculated to achieve maximum impact at point of penetration,” a Goldman executive said.

Yves here. It’s important to keep in mind that this is not the only line of defense the firm is taking (for instance, predictably, it is laying the groundwork to distance itself from Fabrice Tourre, the Goldman employee singled out in the complaint). Nevertheless, the problem with this line of thinking is twofold. First, even if the Obama Administration ramped this case into the foreground at a politically expedient time, it does not disprove the idea that the underlying charges may have merit. The fact that the UK’s FSA has launched a probe into Goldman conduct, and SIGTARP is looking into Goldman’s Abacus trades with AIG. Moreover,
Senator Carl Levin says “another big shoe is about to drop on Goldman” . the more closely Goldman’s conduct is scrutinized, the more troubling behavior is likely to come to light.

Second, Goldman’s actions are not playing well in the court of public opinion. That may not matter to Goldman, since its focus is on its franchise, and its clients thus far seem unruffled by the allegations. But the firm may fail to understand how unwise it is to cross swords with the authorities.

Now it is easy to dismiss the SEC case as a mere bit of political theater, and it is indeed impossible to tell at this juncture what the agency’s intentions are. While the markets took cheer Monday that the SEC leadership was split on whether to pursue the Goldman case, the tremendous public response to the case may have changed the political calculus around taking on Wall Street. Voters have long sought action, but the press and blogosphere frenzy may have succeeded in making politicians wary of being too closely aligned with big money interests.

When in doubt, the best policy to adopt when you have crossed a regulator is to show your belly. As reader MindtheGAAP noted:

Goldman, in its arrogance, is making things much more difficult for itself in the way it’s handling the issue.

Rule #1: NEVER get into a pissing match with your regulator. EVER!! The banks managed to co-opt and neuter the regulators (at least until now, perhaps), but those are very different things than just pissing them off.

Rule #2: NEVER get into a pissing match with your regulator when you know you’ve done–at a bare minimum–a lot of very bordeerline shady things for over a decade, and your entire business model is based on continuing to do those shady things for the indefinite future

Rule #3: NEVER get into a pissing match with your regulator when the public hates your guts.

Rule #4: NEVER get into a pissing match with your regulator when it gets harder for you to bribe your elected officials.

Rule #5: NEVER get into a pissing match with your regulator when your regulator can establish his career by taking you on and winning the pissing match, and may end his career if he loses.

Goldman should roll over and play nice *NOW*. They’re just digging themselves into an ever deepening grave every time they issue another press release or talk to the public (General Counsel saying that Goldman doesn’t believe that a Wells Notice is “material” and for that reason didn’t disclose this one and won’t disclose any others they may have been issued? Are they out of their minds??)

I don’t understand where Goldman got its reputation for brilliance from–their reaction to this shows a mind-boggling level of sheer stupidity.

The SEC loses if it backs down. Goldman loses if it keeps this up. The calculations here are sort of obvious…

Yves here. A supporting data point: I was briefly on an NPR program today just after the Goldman earnings announcement, and the reporter called Goldman’s unexpectedly high earnings “a public relations disaster.” That is probably true, and the exact reverse of how Goldman presumably sees it (as in good earnings would distract from the news on the litigation front, proves that Goldman’s business model is sound). If Goldman remains this out of touch, expect more examples of “God’s work” not going over so well with the heretics.

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  1. Tom Stone

    A “Wells notice” is not a material event? An ATTORNEY said that? I giggled for the first time in decades,THANK YOU YVES!

      1. Francois T

        Goldman’s thinking seems to be:”This can’t go very far…in a court of law.”

        And they maybe right. But the idea that they can be now and forever after above the court of public opinion is proof-positive that they are so out there in the Matrix, it’s not even funny.

        Although I do not agree with Econ of Contempt often, I think his take is spot on here:

        My sense is that they’re thinking, “You know what? The know-nothing talking heads can get all huffy if they want, but we’re right, and they’re wrong, and we’ve had just about enough of this shit. We’re taking it all the way!” [Cue the rah-rah blast emails.] While I kind of sympathize with that view (emphasis on “kind of”), I also think it’s incredibly short-sighted. Sure, having attention-hungry idiots constantly vilify you in the media eventually gets to you, but it’s still just words. This is the first time all that nonsense has turned concrete and hurt Goldman monetarily, not the culmination of some long series of events which has forced them to draw a line in the sand. So take a deep breath, and realize that this can either be a one-month story that you lose, or a two-year story that guarantees a steady stream of negative publicity and wears on morale, but that you win. Take the blue pill.

  2. alex

    The only way that Goldman mortally wounds itself in this will be by its own doing. And I can’t believe they’re actually trying to pull this off.

    “Look ye, countrymen and Thebans, this is Oedipus the great,
    He who knew the Sphinx’s riddle and was mightiest in our state.
    Who of all our townsmen gazed not on his fame with envious eyes?
    Now, in what a sea of troubles sunk and overwhelmed he lies!
    Therefore wait to see life’s ending ere thou count one mortal blest;
    Wait till free from pain and sorrow he has gained his final rest.”

    Truly, our Universe is a balanced one.

  3. prostratedragon

    They should let me pick the music for the GS building’s sound system. Up right now would be Clark Terry’s “Never.” I’ve got a couple of Mose Allisons for ’em, too.

  4. zerosum

    You Can’t Push People Around
    I Don’t Worry About A Thing (’cause nothin’s gonna come out right)
    Monster of the ID
    Your Mind Is On Vacation
    Fool’s Paradise
    Parchman Farm

    And so on.

  5. Frank Ohsen

    Euphemstically tinged opening minutes of Goldman’s recent meeting with ……

    “Mr. Blankfein, gentlemen of the Goldman-Sachs board, Mr. Storch of the SEC, (Goldman-Sachs, Retired), and of course our esteemed collegue, Mr. Barofsky, it give us great pleasure, Mr. Blankfein, to formally introduce you to Mr. Shit. Mr. Shit works very closely with Mr. Fan seated directly to your right. With formal introductions out of the way, Mr. Barofsky would now like to lightheartedly convene this important gathering by proposing a toast to what we hope will become undoubtedly a very energetically memorable and productive working relationship.

    With that Mr. Blankfein, the mike is all your’s”.

    1. readerOfTeaLeaves

      Heretic here….
      Wow, I giggled mirthfully during the post.
      The comments are at least as much fun.

      Just an offhand guess as to why GS isn’t ‘showing its belly’: an embarrassment of fleas would be revealed.

  6. attempter

    Nevertheless, the problem with this line of thinking is twofold. First, even if the Obama Administration ramped this case into the foreground at a politically expedient time, it does not disprove the idea that the underlying charges may have merit.

    You don’t need to disprove something if you can redirect people’s attention elsewhere. The Republicans have lived on this tactic since time immemorial.

    If we go by the record of evidence, Obama’s intention here is simply to make a deal and try to score some political points as the Dems roll out their sham finance bill. That’s why they all but invited Goldman to go with the bad apple defense regarding Tourre, and make a deal on that basis.

    But the evidence is also overwhelming that no matter what Obama wants to do, however meager, if you put up even the slightest opposition to him (from the right/corporate side only, of course; he’s happy to kick down against true progressives) he’ll cave in and retreat, because cowardice and the subsequent inability to follow through is one of his core traits.

    It appears Goldman wants to try out this route.

    As for ignoring the real politics of the situation, we know Goldman and the rest are all crazy by now. They’re psychopaths, and by now they have no thoughts and no program beyond stealing all they can as quickly as they can for as long as they can get away with it.

    It’s a 21st century version of the medieval Dance of Death.

  7. VenusVictrix

    It’s high time that Goldman’s dealings with AIG be scrutinized for evidence of fraud, but it’s not too reassuring that it’s taken so long to figure that out.

    A few points should make it very obvious that there was something unseemly about this relationship:

    1. Since Goldman was doing all of their deals with AIG, is it possible that the deals were all tainted, and that’s why they didn’t want anyone else to see them?

    2. Why did AIG amend their bonus plan for officers and directors – right after the Bear Stearns meltdown, when it was obvious that the subprime gravy train had finally derailed? (November, 2007)

    3. Why did AIG supposedly continue to guaranty credit default swaps for Goldman throughout 2006 and 2007, when they have stated on-record that the exited the subprime mortgage CDS business at the end of 2005?

    4. How did Goldman wind up losing $90 M on the Abacus deal at the heart of the SEC’s suit – and why wasn’t this one “insured” by AIG?

    Goldman has repeatedly claimed that they negotiated CDSs with AIG-FP to cover their subprime mortgage bets. But if they weren’t covered on this deal, were there others? And if so, how many? Absent evidence that these contracts really existed (since the derivatives were apparently “off-sheet”), how do we know that the entire AIG-FP/Goldman/CDS story isn’t just a cover-up? . . .

    . . . of the backdoor bailout to Goldman and their buddies.

  8. Jefferson

    Obama and the Democrats must establish their populist credentials by taking down the executive management at the Wall Street banks. Otherwise, Obama will become a lame duck President and Democrats will be tossed out of office in large numbers come November.

    The health care reform law will only become more unpopular as time passes. People now realize Obamacare constitutes nothing more than another giveaway to the insurance companies at taxpayer expense.

    The fact that Goldman was not given an opportunity to settle the SEC lawsuit prior to filing makes clear that the SEC intends to go for the jugular.

    There will be a continual stream of media leaks regarding obscene, expletive laced emails and conversations involving Goldman higher-ups regarding what dupes their clients are. Last Friday was merely an appetizer.

  9. Jefferson

    Apparently, at least according to the WSJ, Wall Street banks have begun shifting the lion’s share of their campaign contributions to the Republican party:

    Of the $34 million given by the securities and investment industry in the 2010 election cycle, 62% has gone to Democrats and 37% to Republicans, according to the nonpartisan Center for Responsive Politics. This year, major Wall Street firms have begun giving a larger share of their donations to Republicans. In January and February, political-action committees run by Citigroup Inc., Goldman Sachs, J.P. Morgan and Morgan Stanley donated twice as much money to Republicans than Democrats, a shift from 2009.

    From the WSJ article, it would appear Wall Street banks have realized a shit storm was coming their way from Obama and the Democrats.

  10. psychohistorian

    There is no amount of pixie dust that is going to stop this train wreck from continuing. But it will be interesting to see if military or other crisis misdirection is attempted.

    The public flailing of GS and others as the depth and breath of their malfeasance is pitiful. That said I have watched America’s imperialism for over 40 years and will believe real change has occurred when the US dollar is no longer the Reserve Currency.

    If we haven’t been able to eliminate the impact of faith based religions on public policy in spite of an initial Constitution that strictly forbade such then what are the chances of removing faith from the economic strategies fogging over the underlying rich/poor economic realities?

  11. MJPedroliEsq@gmail


    I am trying to get in touch with you via email regarding an initiative you will have interest, with like minded high profile personalities. Your name has been requested to contact. If you could touch base, my email is included.


  12. Doc Holiday

    Is FASB going to be investigated for its role in this mess? The FASB helped front-run all the fraud and accounting irregularities (it created).

    1. Fuld Says Lehman Used Repo 105 to Satisfy FASB Rules

    2. The FASB does not have regulatory or enforcement powers. However, whenever there are reports of significant accounting or financial reporting issues, we monitor developments closely to assess whether standard-setting actions by us may be needed. In some cases, a misreporting is due to outright fraud and/or violation of our standards, in which case accounting standard-setting action is not necessarily the remedy…

    Robert H. Herz

    It wasn’t us baby…. it must have been the narcotic runners…

    1. Thomasina Jefferson

      1. Fuld Says Lehman Used Repo 105 to Satisfy FASB Rules
      Don’t be fooled by that. If my recollection serves me right, then Enron did not violate the letter of accounting rules. The had Arthur Anderson design a set of policies that would not violate accounting rules, but still allowed them to misrepresent everything.
      It is possible, then, to claim compliance to the letter of accounting rules, while violating the spirit of same accounting rules.

      1. MarcoPolo

        That’s a good example. Enron went under because in spite of the lipstick they were broke. But Arthur Anderson went under, not because they broke the law, but because new business was afraid to go near them.

        1. Doc Holiday

          “Arthur Anderson went under, not because they broke the law, but because new business was afraid to go near them.”

          Exactly –> the quality control department for these narcotic dealers suddenly can look like they are selling really bad lethal meth, versus just helping push the shit that the banks on wall street are addicted to. The squid like to have financial euphoria and that which will make them stronger, but they obviously will stay away from that which will kill them! We need to undermine the food chain of these drug dealer mafia crooks – and maybe that begins with putting people like Geithner/Bernanke under tougher examination, where they has to respond to questions versus dodge every question and dance around off topics lectures that eat up “their” clock time — no more clock time for squid like Timmy, make that bastard sit there until he fully replies to serious questions, even if it takes 2 weeks! These financial terrorists need to be grilled just as if they are terrorists — versus giving them 2 minutes to whimper and evade accountability!

          * The author realizes this was not properly thought out, but please …. Yves, please, we stories on the lack of info being provided by these narcotic dealers! These hearings are all shams!!!

    2. a

      “Fuld Says Lehman Used Repo 105 to Satisfy FASB Rules”

      I’m no fan of FASB but didn’t Lehman have to go to the UK to get around US (FASB) accounting rules wrt its Repo 105 transactions?

  13. Sechel

    Sounds like Goldman is preparing to distance itself from Tourre, putting him on paid leave, canceling his FSA registration. They may be setting him up to be the fall guy. By letting Tourre take the heat, Goldman can still be ethical.

    It’s all going to be a factual dispute about what he remembers and what the other folks remember on the other side,” Greg Palm, Goldman Sachs’s co-general counsel, said in a call with reporters yesterday, without naming Tourre. “If we had evidence that someone here was trying to mislead someone, that’s not something we’d condone at all and we’d be the first one to take action.”

    By characterizing the case as a dispute involving a single employee, Goldman Sachs may be taking its first steps to publically distance itself from Tourre in the case, some lawyers said. That could reduce bad publicity and ultimately make it easier for the company to settle the case.

  14. Moshi

    MindtheGAAP’s position is generally true, but not in this instance. Once a dispute with a regulator passes a threshold and becomes a business model issue, the correct response is to contest the matter in full. Here the theory of the SEC that even sophisticated institutional investors need the (after the fact) protection of the unsophisticated staff of the SEC changes the established rules of the game upon which a vastly greater amount of business is based than is at issue in this case. Litigation expense, and even the loss of this case, is well worth the investment when viewed in the larger context.

    The setup here is for criminal liability for individual Goldman management personnel, and or the firm itself. That’s why Tourre is the only specified target in the civil action. Pressure on the junior guy to roll over on superiors. If the SEC were happy with a failure to supervise charge, they would have made it already.

  15. Gordon

    The Daily Reckoning reports that there is something very odd about Goldman’s stock market trading which has recently had results implausibly better than what would be expected of normal successful traders.

    Last year they made a profit on 244 days against only 19 days of losses. Moreover these are big profits; on 131 days they made over $100 million, up from well under 20 days in 2004.

  16. gigi

    A more realistic possibility is that Goldman will play dead after raising some fuss. Yes, they may wind up losing a bit more in fines but I suspect it is all calculated. If they were to lose on this minor issue, public opinion will not be sated. If they escalate, Obama can come out looking like iron man and then have Goldman bow to him. This theater would be much more appealing to the masses and much better for both Obama and Goldman. Obama gets his political victory, people think Goldman got what they deserved, attention diverted elsewhere, move on.

    Another possibility is that Goldman is being arrogant now but will come to its senses in a few weeks. From where I sit, I am unable to assess any difference from the previous case. The outcomes are the same, the difference is one of planning vs. happenstance.

    Time will tell…

  17. fresno dan

    What is astounding to me is how many in the MSM buy the GS defense hook, line, and sinker. In the Washington Post today Sebastion Malaby (apoligies if I misspelled that – as anyone can see, I cud not have surbived befour spel chek)
    says that the SEC case is weak – not on the merits, but on the whole idea that misrepresentation isn’t worth anyone’s time or effort. Incredible!!!
    Everybody knows that premium price for REAL maple syrup is for suckers, and to expect nothing but Log Cabin at normal and sucker prices. Everybody should know EVERYTHING is a sham.

  18. za

    This reminds me in so many ways of the Microsoft antitrust action in ’99. Another arrogant (and even more hated) company treats its regulator with disdain.

    Goldman’s story is even worse… at least Microsoft didn’t sell poison then take out an insurance policy on the buyer.

    Yes, he may have ultimately prevailed, but I bet Ballmer wishes he had these words back: “Screw Janet Reno!” That turned out to be the high-water mark for them, as a company and as a stock.

    It would be pure irony if Blankfein et al were revealed to be petulant, stuttering social inepts under the scrutiny of David Boies.

  19. Bob Falfa

    I’ll be surprised if anything much comes of this. I’m still working my way through ECONned and the complication/minutiae of the scam is beyond man on the street. I don’t think Enron would have gotten the play it did if it hadn’t been for the tapes of their traders yucking it up while they were figuring out was to shut down the power grid in Cali. Now GS earnings announcement on top of the investigation may ignite more populist fire, but numbers just make peoples eyes glaze over. The politicians know full well money, not pleasing the population, wins elections. GS can plow those 1st quarter earnings into someone’s campaign, the people who help them or … yeah right.

  20. Independent Accountant

    I agree with Attempter. The SEC’s case nothing for me. It looks like a Vampire Squid (VS)-SEC gambit to push through Dood’s toothless “reform bill”. VS is playing the role of Brer Rabbit who didn’t want to be thrown in the briar pathc. This reminds me of the “stress tests”. If the SEC were serious, it would have done nothing with this insignificant case and squeezed the SDNY US Attorney’s office into indicting VS, AIG and PWC for multiple counts of fraud in connection with the AIG bailout.
    This case is a headfake that Michael Jordan would be proud of.

  21. charles

    A view from Europe:
    I would not be surprised to see the case getting worse for
    GS given the arrogance of their line of defense and the very
    interesting investigation the FSA has just opened against GSI
    London, involved in the Greek debt “window dressing” and, according to some info by the LEAP-GEAB thinktank, another
    major country in Europe. Somebody please write also to Mr

  22. Vangel

    The government bureaucrats who failed to see the problem developing and were promoting the easy money policies, the accounting rules, and the laws that made the housing bubble are using the public distrust of Goldman (for good reason) to try to gain even more power. But I do not see how these charges would ever hold up in a criminal court. Many on the street thought Paulson was an idiot as they scrambled for ways to bet on the credit markets. Paulson provided them with the opportunity by creating synthetic CDOs that were sold by Goldman. The idiot managers who bought them are now looking to cover their butts and have found allies at the SEC. While the scheme may work by using public opinion to get cash out of Goldman, it will do more damage if it leads to increased regulation and provides cover for the people that created the problem in the first place.

    The bottom line is simple. The bubble was created by a systemic problem that was made possible by the way the financial system is structured. Unless the entire system is overhauled there will be no long term solution. That means that the big changes have to begin with the Fed, the GSEs, the rating agency oligopoly, and Treasury. If we want to get at the banks and brokers the best way is to let the market work and force competition by removing their protection and ability to do inside deals with the Fed and the Treasury.

  23. AK

    I see it differently.

    They just know more than us. I mean they know that decision to sacrifice them has been already made.

    So, instead of choosing to die quietly they decided to stand firm and fight for their lives.

    I respect Goldman’s decision even I view Goldman as a public enemy and as well I admire the elite’s decision to ‘kill’ them.

  24. Mannwich

    It’s not really “stupidity” per se, but plain old arrogance and lots of it. It must be smashed now.

  25. dmac

    I think it will come down to the quality of assets that where being sold.The jury is going to ask themselves why would anyone package these types of assets.

  26. akl

    Though I long for it to be otherwise, this is clearly kabuki. The eunuchs at the SEC pretend to be menacing, while GS pretends to be frightened. After some song and dance to appease the natives, GS settles–admitting no wrongdoing–and the administration flies the mission accomplished banner. There is much rejoicing. The end result is a positive for both Wall St (in the sense that it looks like they took a bullet by eating the Dodd bill and can thus go back to business-as-usual) and the administration (as they can claim to have been tough on those Wall St fatcats in time for midterms). It would be beautiful if it wasn’t so depressing.

  27. Scott

    Doesn’t it trouble anyone here that Goldman co-counsel Greg
    Palm stated yesterday there has been ‘no contact’ between GS and the DoJ?

    Bill Black in his testimony before Congress yesterday noted
    that “fraud is both a civil and criminal offense” with the distinction between the two being the standard of proof necessary to gain a conviction. So… the SEC conducts an investigation of Goldman and determines fraud was committed. Doesn’t it then call in the DoJ to bring a crimninal case? If not why not? If so then why did not DoJ conduct its own investigation? Did it review the SEC case and find it so weak as to not warrant a criminal investigation or was the DoJ instructed to not get involved?

    Of course Greg Palm could be lying and that would probably fit the template most here at “Naked Liberalism” would find most comforting.

    1. Doc Holiday

      “no contact’ between GS and the DoJ?”

      I’m shocked that DOJ still has an office building, let alone engage its time in looking for fraud or asking questions about what went on during the Bush years, in regard to all the criminal activities associated with the systemic subpime terrorism.

      I haven’t had time to look in depth, but the other day, I’m still looking at who filed what charges against Enron -=- all these agencies looked away, then, just as now — and the only reason Enron surfaced was because of a whistleblower — our justice organizations are apparently always in the hands of the crooks. The regulators are currently dancing around who didn’t do what, when, and then no one is held accountable ….. which is where this is headed, and meanwhile DOJ is pounding sand and some shadow agency that burns taxpayer cash, while they get larger bonuses. The new American motto needs to not be …. and liberty for all” , but instead, “we do less for more” … no, ….. , We do what wall street tells us … no, maybe, …. we are in the hands of the narcotic dealing mafia … closer, we serve our leaders in Vegas …. no, we use your money to help wall street make more money ….

      Sorry, can’t find the right words

  28. Hugh

    It is part of the Goldman mythos that they are the smartest guys in the room. But in September 2008, they had to be saved from extinction twice in a single week: first with the AIG deal and then, when Lehman blew, the conversion to a bankholding company. What saved them in both cases was not their smarts but their connections, the very definition of cronyism. Being the best cheat with the most pull does not equate, at least in my book, to being smart. A smart crook is an oxymoron.

    That Goldman would act as it has is completely predictable. It reminds me of the parable of the frog and the scorpion. The scorpion convinces the frog to carry it across a stream. Halfway across the scorpion stings the frog. “Why did you sting me? Now we will both die,” says the frog. “It was my nature,” says the scorpion. Goldman is run by and filled with gamers, riggers, and cheats. You have a multitude of people who made their career out of doing this kind of stuff. It is their much vaunted “culture”. Does anyone seriously expect them to act differently than they are?

  29. earnyermoney

    Rule #1 for ORahmaRod

    Do not piss on the shoes of the men who filled your campaign’s coffer.

  30. Doc Holiday

    Tourre “believes that he indicated” to investors that Paulson was interested in taking a “short” position on the deal, meaning he was betting against it, Greg Palm, Goldman Sachs’s co-general counsel, said this week.
    Pamela Chepiga, Tourre’s lawyer at Allen & Overy LLP, didn’t return phone calls and e-mails seeking comment. Goldman Sachs spokesman Lucas van Praag didn’t immediately respond to a request for comment.

    Should read —> Tourre “believes that he indicated” to meth addicts that Paulson was interested in taking a “short” position on the drug deal, meaning he was betting against it and he knew that the addicts were not thinking clearly, because they wanted to get higher, and consume more meth, no matter what the cost was to them or those around them, Greg Palm, Goldman Sachs’s co-general counsel, said this week.

    Should read — > Pamela Chepiga, Tourre’s lawyer at Allen & Overy LLP, didn’t return phone calls and e-mails seeking comment about the nature of meth addiction and the relationship between the dealer, the drug and the users. Goldman Sachs spokesman Lucas van Praag didn’t immediately respond to a request for comment about the relationship between the drug dealers, the addicts and the damage that has resulted from the lethal injections they are linked to.

  31. PTB

    I don’t understand why the SEC is arguing the case for institutional investors (ACA, IKB) who can quite easily defend their interests in a court of law. Private enforcement is clearly available to these supposed victims.

    Yes, the announcement of the case advances the cause of financial reform bill, but regulatory agencies shouldn’t be filing fraud suits to advance political agendas.

    The fraud announcement also coincided with the release of the Inspector General report on the SEC’s failure to crack down on the Allen Stanford ponzi scheme. Coincidence? Doubt it.

  32. been there done that

    Nothwithstanding the kinda funny postings regarding who owns the Magnetar story, Propublica posted illuminating letter writing between Rabo’s lawyers and Merril’s lawyers that Norma looks an awful lot like ABACUS. The heart of what will likely be the legal battle and to and fro’s in ABACUS is laid out nicely by these guys! Reps and warranties and reliance……………those pesky opinions and ackowledgements about what was repped and what was accepted. It is old fashioned arrogance that is masked by deal lawyers and deal players trying to “one up” each other and prove who is smarter than the other by being crafty about those oh so boring closing documents. Been there, done that……….

  33. MichaelC


    Depends on your point of view. I’m happy to see them continue this strategy.

    The emperor IS naked, and he’s ugly, but the crowd is still in the tittering phase. The fear of the influence of finance money in politics suddenly looks less threatening. They may be able to pay today, but the deals it needs the pols to do in order to keep the Wall St money train running tomorrow may cost the banks more than they can afford at the moment. And if the banks can’t pay big tomorrow, what’s the point in helping them today.

    I’m predicting Volcker’s going to be resurrected, with a vengance.

  34. bluffraise

    Here is a snippit from an article by Terrence Corcoran of the National Post.

    “The most obvious contradiction is in the SEC review of the case. It explicitly states that the company that picked up $900-million of the risk in ABACUS was the company that selected the sub-prime mortgage portfolio that served as the basis for the transaction. The SEC statement shows that ACA, an experienced mortage-investment conglomerate, participated in numerous detailed meetings to select the portfolio, working with Paulson & Company. “On or about February 26, 2007, after further discussions, Paulson and ACA came to an agrement on a reference portfolio of 90 [mortgage-backed securites] for ABACUS 2007-AC1.”

    Sounds to me like it’s a Tad subjective and will be hard to prove.

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