I have no idea what goes on in the WSJ OpEd offices.

I cannot tell you for sure that their Water Cooler is laced with LSD; I have no idea if they are drunk by the opening bell every morning. I’ve never done the research to see if key persons there played college football sans helmets.

But I can tell you that anyone of these excuses explains the unfathomably bizarre utterances that spews forth from that alternative universe on a regular basis. The asylum inmates there are willing to give even the most egregious offenses a free pass — so long as said offenses originates from a corporation.

The latest evidence of collective dementia was today’s syphilitic venture titled The SEC vs. Goldman. The editors, hellbent on proving they are only visiting here from Alpha Centauri, defend the actions of Goldie as “more a case of hindsight bias than financial villainy.

Rather than spend time dissecting the specifics, I prefer to direct you to the insanity’s source, and let you judge for yourself . . .


The SEC vs. Goldman
WSJ, April 19, 2010

Category: Derivatives, Legal, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “WSJ OpEd: “Material Misrepresentations? What’s That?””

  1. Vicky Ward says:

    Senior Goldman Exec Is Married to Former Head of ACA

    Friday, as news of the allegations of fraud at Goldman Sachs spread, I got a call from someone who works in the insurance business.

    “Check out the former head of ACA” he said referring to the now-defunct and formerly down-graded bond insurer who asked the-not-so-omniscient hedge fund manager John Paulson to choose which securities to put into the CDO, Abacus, that Goldman Sachs subsequently sold to two big clients, the German bank IKB and the Royal Bank of Scotland — without disclosing that Paulson would be shorting his own hand-picked stocks on the other side of the trade.

    Now the SEC’s complaint states that ACA had no idea that Paulson was shorting the stocks he’d been asked to select, yet my deepthroat was not so convinced.

  2. ubnutsagain says:

    What goes on inside the WSJOpEd office is much the same as what goes on in the comments here, and anywhere people get together and talk about some issue.

    It’s called opinion. Some opinions make sense, most do not. The latter do not because they are founded upon less than all the facts.

    As it relates to the SEC’s allegations against GS and GS’s behavior, the only opinion that really counts is that of the court hearing the case.

    Eventually we’ll learn, hopefully, some semblance of the truth.

    As one of my teenage daughters once said, “Patience is a virtue, and I want it right now.”

    We’ll just have to wait and see.

  3. philipat says:

    But it does seem to be moving in the “Fair and Balanced” direction? ;-)

  4. TakBak04 says:

    There was so much “spin” out there in the Mainstream Media today it was hard to keep up with it all.

    The “revisionism” on CNBC/CNN seemed to match the WSJ. Each seems to pick out it’s way of “looking back” to revise the facts that are already out there on record with honest factual reporting from many sources and in several books (including yours). Then there was the new tactic that the whole SEC action was “Political” because the vote was 3 to 2 and the three were Democrats so it’s a “political witch hunt” against the great GS. The word “witch hunt” was used as a talking point so identically across the TV medium and on several of the more right leaning blogs that it’s hard not to believe it wasn’t directly from one of the several “Think Tanks” that take turns sending the day’s message to their “usual sources.”

    I thought that Goldman’s stock was UP today was to be expected given the spin and the way bad news today is “contrarian.” I imagine the airline stocks will go up soon because the Iceland Volcano’s distruption will seem good for the markets in some way.

  5. dan10400 says:

    I dunno, it seems that it could be considered a political move to not vote to file charges by two of the votes as much as it is being spun as political to vote to file charges by the three. Either way, GS has seen better weeks. Might be able to say that again in the near future.

  6. RuffRednSore says:

    Given the favorable spin the MSM is giving GS, this battle will be tough, and the SEC will have to play hardball. Although the SEC has the goods, and hopefully more information will surface, it appears the cable news shows will frame this as politically motivated. And after several months of that framing, the public will get confused. I mean, if the media can push the U.S. into a pointless war with Iraq, they’ll make it look like Lloyd IS doing God’s work. And half the population (more than half in the red states) will believe it.

    And if the 3-2 split along party lines at the SEC is any example, just imagine the outcome if GS is found guilty and they appeal it all the way to the Supreme Court. It will be a 5-4 decision along party lines in Goldman’s favor. Bank on it. Oh, and no doubt they will financially support an opponent in the November election for any Congress person who votes for financial reform, since the Supreme Court gave corporations that green light.

  7. cognos says:

    I have no love of GS… and even LESS for the WSJ editorial page… – but your WRONG here – this govt case is ludicrious:

    1 – Every financial transaction has a BUYER and a SELLER. The seller does not want to be disclosed! That is one MAIN ROLE of broker-dealer investment banks. (“Who wants to buy $1B Qualcomm? Steve Cohen is selling!”) Duh! Every buyer knew this was a “synthetic CDO” which meant… someone wanted to create a synthetic “short” position. Clearly the person who wanted to PAY the deal spread to the buyer wanted to do it only on a agreeable reference set. SELLERs want to sell what they want. Just as BUYERs want to buy what they want.

    Goldman just matches them up! Discloses fair details and find an agreeable price.

    2 – Almost EVERYONE thought this stuff was AAA. That it could NEVER lose money. The whole point was that real-estate values were “safe”… so if you mixed up 10 different, even “subprime” real estate deals. Even IF there was some fraud component… behind 30% security in the deal, the 70% AAA was “safe”. Moody’s and S&P rated it AAA. Every research guy on the street (Bear, Lehman, and yes — Goldman) thought this stuff was a “buy”.

    Dont re-write history and pretend… “everyone knew this was crap”. Did you short it? (that bet paid about 1,000 to 1). Very few did. I was involved in a $2B subprime short of the lower BBB tranches. Everyone thought we were just going to pay $40M/yr and end up losing money on the trade.

    3 – Actually, the AAA is coming back fast. Different vintages which 1-yr ago priced at 20-40 pts (out of 100) now have moved up to 40-88 pts. Give it 2 years. The rating agencies probably will end up CORRECT and the AAA is totally protected. Will never lose $1 of actual principal.

    So then, the art of Paulson’s trade… was actually just understanding the banks, due to poor regulators and the stupid “mark-to-market” rules that had been installed in 2007 with FASB 157… would encourage a forced unwind. A cascading crisis… the stuff isnt really “toxic” at all. Hmm..?

  8. SOP says:

    Now this is the more like the Barry I remember – the “expect no mercy” Barry.

    This could rattle the markets, especially if the rest of the fraud at all levels is exposed and serious penalties are handed out (criminal and civil).

    But if they clean house on wallstreet now, the world will have confidence in US markets again. And we will desperately need that confidence in the decade ahead.

  9. alfred e says:

    What’s going on here? As if I don’t know.

    Tell me again who owns the MSM?

    And where there buds and vested interests lie?????

    Rupert who?

  10. mikenmar says:

    “Every financial transaction has a BUYER and a SELLER. The seller does not want to be disclosed! That is one MAIN ROLE of broker-dealer investment banks. (“Who wants to buy $1B Qualcomm? Steve Cohen is selling!”) Duh! Every buyer knew this was a “synthetic CDO” which meant… someone wanted to create a synthetic “short” position. Clearly the person who wanted to PAY the deal spread to the buyer wanted to do it only on a agreeable reference set. SELLERs want to sell what they want. Just as BUYERs want to buy what they want.”

    It isn’t a problem with not disclosing the identity of the seller; it’s a matter of failing to disclose that the seller chose the reference set.

    It’s the difference between: (1) Player poker with an anonymous person, where the house deals the cards; (2) playing poker with an anonymous person who gets to choose which cards get dealt.

  11. Transor Z says:

    Barry, this WSJ op-ed isn’t LSD-induced. This is sophisticated argumentation and there are good minds being applied to craft it. Clearly everyone in the biz (financial-political) knows that there’s a lot at stake here.

    From a legal perspective, the SEC has named a particular individual that it believes it can prove concocted and disseminated the fraudulent statements here. The individual was management-level and is now a VP. Under corporate scienter jurisprudence it is likely that that person’s fraudulent intent can be imputed to his employer GS — if the SEC can prove their allegations in the complaint.

    The minimalism of the government’s case is a strength here, not a weakness. It is simply spin-doctoring for a public audience to raise the bar and demand of the SEC that it expose “real villainy.” To paraphrase Freud, sometimes a case is just a case.

    This case is what it is, and we shall see where it leads in due course.

  12. DL says:

    This is, of course, not merely a moral issue, but a legal one. It remains to be seen how strong the SEC’s case will be. It also remains to be seen how large the damages would be, were the trial to run its full course, with all the attendant appeals, motions, and delay tactics.

    I don’t know the facts of the case. But it may turn out, for example, that Paulson played a role in only selecting 15% of the MBS portfolio. At the same time, Paulson was a “nobody” back in 2007. So it may be simply that GS was guilty of failing to disclose that a “nobody” had a hand in selecting 15% of the portfolio, and that the “nobody” had a short position in the overall fund.

    Suppose that, in the end, GS settles out of court for $75M. If that should be the case, then perhaps the authors of the WSJ article will be seen to have been not so far off base.

    (I’m just trying to play “devil’s advocate” here)

  13. Charlatan says:

    The Editor in Chief of theStreet.com wrote this in an OpEd piece today: “This is such a pathetic case and the whole thing smacks of desperation. Regulators must have been under some pretty intense political pressure to make such a big deal out of something so lame.”

  14. wisedup says:

    It is amazing how much good spin you can buy for measly million. As for the A*A connection, lets assume that you are big-wig in not so big/profitable company. If your “associate” mentioned that GS would be calling pitching a proposal that would give your company a couple of million easy and would significantly boost the fortunes of said associate, wouldn’t it be human nature to approve the pitch real damn quick with few questions asked? Pity the prosecutor that tries to unravel that little piece of gossip.

  15. farmera1 says:

    The WSJ supports Goldman, I’m shocked. I could write the Forbes article on the Goldman charges right now and be fairly close. Republicans on the SEC Board vote for Goldman, now that is a real surprise. If the case ends up before the supreme court, I predict the vote will be split along party lines, much like the vote to give the right to unlimited contributions to corporations.

    Does anyone else notice a pattern here.

  16. Here in America, we have a thing called laws.

    In this case, the relevant law is Rule 10b-5, which prohibits public companies, their officers, and employees from making:

    “any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”

  17. Julia Chestnut says:

    Tranzor Z is right in a very important way: all the SEC needs is a foot in the door. Especially given the extreme hubris with which Goldman responded to the complaint, the SEC’s lawyers are going to find some really great stuff as soon as the document review process gets ramped up. And if they fail to turn over the documents. . . .remember, that is another crime altogether. If the SEC just turns loose a few lawyers who still really believe in the securities laws, this is going to get good.

    Watergate was just another break in until there was a huge coverup and hard evidence of contemporaneous instructions from the very top (or a hole in the hard evidence, as the case may be). Just relax and watch the show.

    WSJ is a tool of people I despise. I don’t read it anymore, and I had been picking it up every week since high school. If I wrapped fish in it, I’d be afraid they would be rotten before I got them home.

  18. [...] benefits of a legal education, or who do not remember their Series 7 tests, this is a refresher: Pay attention eejits, this is important: Rule 10b-5: Employment of Manipulative and Deceptive [...]

  19. hammerandtong2001 says:

    It makes no difference
    if you’re short or long.
    What matters only is…
    If you’re right, or
    If you’re wrong.

    In April of 2007, I’d suspect that if the long side knew Paulson was short, and that he hand-picked some of the tranches, there would have been a genius at ABN AMRO right there saying, “Paulson is a fool; I’ll take this trade and beat his ass…”

    No one knew in 2007 that housing and real estate would collapse in unprecedented fashion. Some people may have indeed “thought” it would, but no one “knew” it. And that includes Paulson, GS, ACA, ABN, IKD, and everyone else too.

    Paulson had the courage of his conviction — and he was “right”.

    But that became true only as history and events unfolded.


  20. wisedup says:

    4 hammerandtong2001, how about I run a Ponzi scheme and tell you that you can invest with safety since “No one really knows that it will collapse. Some people may think will but no one really knows it will. Share the truth of my convictions and history will prove you right”.

  21. lalaland says:

    @cognos – if you are selling a house you know is defective, you have to disclose the defects; you can’t claim it’s your interest as a seller to NOT disclose defects. If you sell a gold ring at 24k prices but you know it’s just gold plated the fact that you know it’s fake doesn’t entitle you to mislead a buyer just because you have a material interest in the sale. same should apply here.

    Also, BR, I assure you it’s not LSD. People on LSD have better things to do than figure out how to make money.

  22. ancientone says:

    The only way to read the editorial is to give them money. I’m not about to do that. I’m not going to subscribe to that filthy rag just to read their wingnut editorials!

  23. swag says:

    Here’s another article begging for a smackdown: http://advisorperspectives.com/commentaries/acm_041910.php

  24. DoctorOfLove says:

    It’s a terrible case, and with all of the evilness that is the vampire squids, this is the best the SEC could come up with? Every trade the vampire squids make is a felony on purpose, just because they can. They consider it a plus, kind of an intellectual challenge. This is the the best the SEC can find?


    “lalaland Says:

    @cognos – if you are selling a house you know is defective, you have to disclose the defects; you can’t claim it’s your interest as a seller to NOT disclose defects. If you sell a gold ring at 24k prices but you know it’s just gold plated the fact that you know it’s fake doesn’t entitle you to mislead a buyer just because you have a material interest in the sale. same should apply here.”

    Wrong. Absolutely, positively wrong. Sales are buyer beware, as is, where is, unless a statute requires otherwise (which frequently for houses they do) or you were stupid enough to offer representations. The vampire squids are never that stupid.

    If you offer a ring and say “I’ve been told it’s 24k, but regardless, I offer it as is” then guess what. You are offering it as is.

    Big bois in German banks are on their own. Any customer of the VS is always, positively, on their own. No one who trades with the VS could ever argue they didn’t know who they were dealing with.

  25. TennesseeCPA says:

    Why the BR rant against the WSJ? Maybe WSJ sees things differently. They said the Dodd bill gets better with every draft. I’ve never had a blog – is it an unwritten rule that you have to be against everything that someone else says. Or does it come from fighting for space with 14 million other NYers. State what you’d like to see and let WSJ and anybody else state what they’d like and we (the readers) will help you evaluate what’s flowing from head to fingers to keys to screen. G’head Barry, we’ll help.

    But really, professional investor or amateur, every trade has an “other” side. If I’m buying, I figure somebody else is selling. And vice versa. Somebody’s right (hopefully me) and somebody’s wrong. The pros that bought those CDO’s were not babes in the woods saying, “Gee thanks Goldman for making this available to me.” They knew somebody was on the other side. They thought they were right. Happens everytime there’s a trade. Hardly anybody looks to the broker (GS) to take care of them if they’re wrong. Was Goldman supposed to protect the buyers from the downside?