Goldman Commentary Linkfest – Blaming Paulson?

Goldman Sachs & The Truth, The Whole Truth, and Nothing But The Truth.  If you’re not clear on where I stand on this, read my post and the comment thread also.
Baseline Scenario’s Simon Johnson:  “John Paulson Needs a Good Lawyer.”  I put this link first (behind my own, of course) because I find it COMPLETELY preposterous.  I don’t like to give pixels to arguments that I find completely insane and without merit, but Johnson is not a fool, and he’s not a lunatic hypster, so I found this post to be incredibly odd.  Maybe someone hacked into his account, but I doubt it, because he went on Bill Maher to advocate the views he has in this piece.  Johnson writes: 
“Here’s the legal theory to keep in mind.  Mr. Paulson only stood to gain on a massive scale (or at all) if the securities in question were mispriced, i.e., because their true nature (that they had been picked by Mr. Paulson) was not disclosed.  In other words, the Paulson transactions at this stage of the game only made sense if they involved fraud.”

Well, that’s not even close to being CLOSE to true.  Paulson stood to gain because he did the work to value the securities in question, knew there were major risks, and knew that others didn’t know they were major risks.  He knew that everyone from the people on the other side of the trade to the ratings agencies were completely clueless as to the mispricing of risk, and profited from it.  In fact, my exact point in the comments of my earlier GS Fraud threads was pretty much exactly the opposite of Johnson’s claim – my point was that the fraud doesn’t really change the end result (the ignorance on the part of the buyers which resulted in their gross mis-assessment of the risk) at all.    Johnson’s final conclusion is:
“Mr. Paulson should be banned from securities markets for life.  If that is not possible under current rules and regulations, those should be changed so they can apply.  If that change requires an Act of Congress, so be it.”

If Paulson should be banned from securities markets, we should just shut down all securities markets, because Paulson is doing exactly what he’s supposed to be doing:  profiting from mispriced securities.  
NY Times:  a profile on Paulson
“Robert Khuzami, the director of enforcement at the S.E.C., explained that, unlike Goldman, the manager of the hedge fund, Paulson & Company, had not made misrepresentations to investors buying the security, known as a collateralized debt obligation.”

Steve Waldman expounds on the value of information, such as “who is on the other side of my trade.”  I voiced an opinion in the comments.  
Leigh Drogen: “Caveat Emptor!” I actually played a little Devil’s Advocate in the comments of Leigh’s post, but I love this quote from him:
“To those out there in the institutional investing world: It’s time that you start doing some god damn due diligence on the investments you make.  You’ve got to know who’s on the other side of your trade.  No one is forcing you to make any investment, when you sign that contract or push that buy button you’ve got to make sure that you have all the information.”
Stone Street Advisors: “On the GS Fraud Charges.”  Re: ACA
“Again, while I’m not a lawyer, from what we’ve seen so far, it looks like the investors’ shareholders may have merits to file suit against the firm’s management for breach of fiduciary duty, since its seems pretty clear that both ACA and IKB (and/or others) didn’t come anywhere close to conducting the kind of diligence required prior to undertaking such a transaction.  They were given a list of all the underlying RMBS and could have easily done the same research Paulson & Co. apparently did, but it seems that either they did – and simply had a rosier outlook for MBS/over-reliance on Ratings – and/or didn’t, in which case they have no one else to blame but themselves.”


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