Compared to what the government does to all of us, Goldman Sachs is a piker.
Yep. I disagree with people who think all the buyers of these CDO’s did not know that it was entirely possible that a short seller had input into the construction of these CDOs. I heard a guy on CNBC yesterday who said the political class in Washington is looking for a scapegoat for the financial crisis and is trying to pin all the blame on the private sector. The truth is actually that both the Clinton and Bush administrations artificially pumped up the housing market and the economy through excessive risky lending by Fannie and Freddie, and then some of the private sector lenders got caught up in competing with those GSEs. The federal government and many of the same people in congress who are criticizing Wall Street, are the underlying cause of the housing bubble and the financial crisis.
On this CDO deal, I don’t think Goldman did anything wrong except that as a general principle it’s unethical for a short seller to have any input into the construction of a long-side investment product. However it’s possible that all the buyers of these CDOs were sophisticated enough to know that shorts could have been involved in picking the securities, in which case Goldman was not involved in unethical behavior. But I’m also hearing a lot of deceptive talk that suggests that somehow Goldman knew at the time that these CDOs were sure to collapse in value, when of course AT THE TIME they sold these products nobody knew for sure what would happen to the housing mortgage market and these CDOs. Some people at Goldman clearly thought the CDOs would lose value, but that was just their opinion and prediction at that time, and nobody knew for sure what would happen. People involved in the financial markets constantly make predictions that are just their opinions at the time and always involve substantial uncertainty.
Goldman Sachs becomes the easy target because it's run and supported by Democrats. They're the whipping boy for government going in there, and nationalizing the entire investment industry with "reform".