This isn't rocket science. Don't make is so complicated.

Say I'm a used car salesman. I sell you a piece of garbage. Shame on me. There are Lemon Laws to prevent that.

After you drive off in the piece of crap that I know will die, I place a bet with AIG that your car will die. That's it in a nut shell.

Aren't I a genius! What a way to make a living...

Thanks for the mention of AIG.
The flow-through back to GS of the insurance $$$ was one of the red flags. Not even the Treasury could stop a 100 ¢/dollar payout to AIG. Then the $$$ came back to GS.

Mortgage backs should be illigal.

Baseball anology:
If Pete Rose is barred from the Baseball Hall of Fame for betting against his Reds, should GS be likewise penalized for similarly betting against a product it was also pitching to its clients?

We have complicated supply chains in every modern industry, and quality doesn't seem to suffer. I am sure that Kraft executives gladly eat their own stuff, even though we don't require them to do by law.

This is about a division of Goldman that itself bet against the securities that Goldman was offering elsewhere. It's understandable that Goldman could be making offerings that go both ways, but betting against yourself just seems silly, and might not be illegal in this case. It certainly does go to intent, and it seems that's just what the Federal suit seeks to determine.

Those left at GS during the OOs were already mortified at not working at real hedge funds.

GS's job is to make money, preferably within the bounds of the law. Any additional commentary is jaw waggery.

All I know is it made the stock market drop -100 plus points Fri.!!

My republicans friends blame the Democratic administration for encouraging and demanding that the banks give out mortgages to anyone who wanted one in order to spread the wealth. How true is that statement?

Also, during that time period I kept my mortgage and home equity loans with my local credit union. I know they held on to my mortgage and I new my banker for over 15 years. I couldn't understand what was going on with the system and how could it keep going?

The Brazen Bull of Wall street bellows forth with muffled horrific screams of your children's dreams, incinerated on the pyre of greed fueled with your monies. The tears of the innocence’s can not satiate algorithms or derivatives of financial programs; gluttony is nauseated by your humanity. The brunt offering of your being waft up the spire rimmed canyons of Manhattan passed ground zero to circumnavigate the world, the four horsemen await to ride. Sulfur burns your lungs and blurs your mind as you cast your vote for democracy.

If it is a fact that Paulson picked the bonds in order to short the instrument, then That would be material info that should have been in the prospectus. Every trade has somebody on the other side. But if a product is constructed to satisfy one client's perspective
(bet) on the (any) market, that should have been disclosed. The package then could have been marketed to those who had a different take and wanted to bet against the "unnamed" client.

I have no sympathy for so-called "professional" money managers or traders who do not do their due diligence. If they - whether individuals, Bear or Lehman go bust because they made a bad bet - so be it. Why should we bail them out? (Unfortunately, these bozos often manage others' money and when they them turn it over to Madoff, their clients suffer.

These mortgage bonds or any securitization of cash-flows - and ANY and ALL derivatives are NOT that difficult to understand. And, as long as the prospectus includes proper disclosure, they can and do serve good purposes. Even if the triggers for price movement are based on the phases of the moon and the mood of Paris Hilton on any given day - given full and proper disclosure - why not - if there are buyers and sellers?

Just occurred to me: didn't the savings & loans used to be the main source of mortgage loans? Could any of the current situation have been prevented if they'd been reformed instead of shut down after the S&L crisis?

What I find most interesting is the geopolitics here. Can your guests speak to how the greatest pressure for financial reform may actually be coming from Europe? I assume that the major European banks were doing the same thing as Goldman, Citi, etc. But how/where does the constellation of political-economic interests in the EU come down on the widespread "control fraud" we've seen in the US?

Until individuals at these firms are held criminally and civilly liable, financial excesses will continue. The reason? All upside for them; no downside.

Risk? Borne by the investors and the public, not the bank employees. Reward? Hugely received by the employees (bonuses.)

Goldman is know for working in the grey.

Areas that are not regulated or where the rules are not clear.

Thats how they make thier living.
It is a well know fact.

I'm actually less interested in the legal issue than the ethical one - isn't it clearly unethical to sell me a potentially explosive product while also dealing with someone who bets that the product will explode.

How does the timing of the Goldman suit fit into the politics of the administrations' financiel reform efforts?

I think the focus on simply the criminality but the broader issue is whether these CDO's are structured to fail. The NPR (This American Life) /Pro Publica investigation of Magnetar shows thatinvested in 30 CDOs from the spring of 2006 to the summer of 2007, though it declined to name them. ProPublica has identified 26 and possibly intervened with the selection of the securities.

curious to hear any parallels or lessons between this case and that of ENRON, with regard to its legal business practices, its crimes and its penalties.

(The lessons from Enron were that the laws were mostly NOT broken & remain in place today, regarding offshore balance sheets and an almost religion around the obscurity of derivates).

Didn't the government try to prosecute two ex Bear Stearn employees for not disclosing "material" information to investors? Ralph Cioffi and Matthew Tannin.

And the both of them were eventually acquitted in November of last year.