Obviously, I don't know where you stand on the issue of financial reform, the tighter policing of Wall Street, but if you haven't at least thought about it recently, you're either hiding under a rock or you haven't heard about the allegations against Goldman Sachs.
The United States Securities and Exchange Commission has levied a civil fraud suit against Goldman, basically accusing the banking giant of creating an investment product designed to fail, then betting on its failure to the tune of major profits.
Most of that probably isn't that disturbing to hear. In this era of hedge funds and terms such as "credit default swaps," we've gotten pretty accustomed to the notion of "shorting" securities -- betting on them to underperform.
But the thing about the Goldman allegations -- again, they are simply allegations right now -- is they really make you think about the fundamental stability of the system. After all, this was an institution generating billions and billions in real estate loans. If they then can create products based on risky loans they are generating and sell it to investors, knowing it's going to blow up, then profit from it when it does, there's a problem. There's a great New York Times article that explains the whole story, including the "Abacus" investment around which the SEC's charges center.
Is Goldman solely responsible for the risky loans that ultimately led to the real estate bubble burst? Of course not. Everybody was making risky loans. But this case brought against Goldman makes you wonder how many others profited from mortgage-backed investments they knew were doomed to fail?
If you were a regular Joe, sitting in an English pub somewhere when the Titanic made its maiden voyage, it's one thing if you bet on it sinking. It's another thing entirely if you're the captain, you bet big money that it's going to sink, then you steer it into the iceberg.
The issue of financial reform, more government regulation of the banks, is a touchy one. There's a financial reform bill in front of the U.S. Senate right now that has touched off some spirited debate, to put it politely. It's become a bipartisan battle (surprise), and where you fall on the issue probably centers around what you feel about government's involvement in the markets.
But no matter what you think about the issue of financial reform, you have to at least feel a little uncomfortable that an entity contributing to a disaster can do so while profiting massively from it. The credit crisis, the real estate problems that ensued -- those are things that are going to mess with the economy for many months, if not years to come. And mess with people's lives -- their jobs, their homes, maybe their health.
It just doesn't seem right, does it?
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