Business – Economics – News

Before the commentary on the contents of this most interesting  piece of journalism, I wanted to address this is why having professional journalists that have the independence to report on critical issues in our society to assist in our self-governance is so important. Support good journalism buy purchasing papers that do real journalistic endeavors and sending them tips on important issues so they can make the news.

McClatchy’s D.C. bureau did a 5-month investigation on Goldman Sachs activities in the CDO (collateralized debt obligations) and how it sold those bonds as investment grade financial products (I believe AAA to Baa is the rating range for investment-grade), while at the same time they took out financial bets or “hedges” against them at the same time.  In Goldman’s defence, they maintain in the article that these departments had no knowledge of the activities that happened in the other.  In though this my the material fact, I find it hard believe that the senior management at Goldman didn’t have the “big picture” and in my opinion should of changed policy and disclosed their knowledge of the risks in these financial products.  The big question is, “was there fraud committed”?

McClatchy investigation has found that Goldman’s failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

“The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion,” said Laurence Kotlikoff, a Boston University economics professor who’s proposed a massive overhaul of the nation’s banks. “This is fraud and should be prosecuted.”

Analysis: If the bets were truly a “hedge” against risk, how much of these investments did they actually keep on their books (balance-sheet) during the time of the “hedges”.  Also, if they had much more exposure to the “hedging” products or insurance products than the amount of risk Goldman was protecting itself from, then I would say that is was more likely they had more foreknowledge then they are admitting too and at that point a crime was committed and needs to be investigated and prosecuted.