I think the best way to explain SEC's Goldman Sach's lawsuit for fraud is valid, but I'm not exactly sure if this is a true lawsuit or just leverage so that GS does not stand in the way of Financial Regulatory Reform. After all, the last thing Obama wants is any delay on another bill that has to go through Congress.
Did GS (don't forget, we should still call it Government Sachs) commit fraud. Did Zero Mostel and Gene Wilder try to commit fraud by putting on the absurd musical "Springtime for Hitler" in the film The Producers? The only difference is that the show was a success--not a failure--so Mostel and Wilder could not get the insurance on a failed Broadway show.
Not the same with mortgage-filled collateralized debt obligations (CDOs).
Here's the fraud GS did--they sold a group of AAA-rated mortgages to investors that were not really AAA-rated mortgages. They were some--well, maybe a few--really good mortgages that would always be paid back. Then there were a bunch of crappy, subprime loans (interest only, no-income, no-asset loans) that might or might not be paid back and they added credit insurance so that they made it look like it was the best of the best in mortgage loans.
The investors, like pension funds all over the world (Norway, ICELAND, U.S.), invested in those CDOs because they thought those bonds were "safe" AAA-rated bonds that were provide a good yield or payback. Besides pension funds, of course, there are mutual funds and other people's retirement funds that lost money from these collapsed home loans that are worth nothing because they will never be paid back. Meanwhile, the investor banks made alot of money and so did the investment bank traders who made the trades.
So, was it fraud? Well, when a third-party who, coincidentally, was named Paulson "shorted" these CDOs, he was honest with his investors. He said these things suck and, indeed, he was right and made a ridiculous amount of money. The question is whether GS actually shorted their own CDO fund--which they sold to other investors as AAA. Did GS say that these things suck and, therefore, let's take out AIG insurance against it to insure ourselves and then short it so we make alot of money on these crappy loans, too?
Well, they did buy enough AIG insurance to help that company go bankrupt, which was bailed out because AIG owns a bunch of other insurance companies all around the world.
If you have time, go to AIG and look around. After all, as a taxpayer, you're one of the involuntary stockholders of the company. See how many of trillions of dollars they sold in insurance against derivatives or "bets" that these loans would fail.
So, a guy named Paulson is rich beyond the "dreams of avarice," Lloyd Blankfein, CEO of Government Sachs is rich with a $9 million salary last year and a bunch of investment bank traders made a heck of alot of money (six figures or more).
Now, why don't we bring back Glass-Steagall to split up investment banks like Goldman Sachs (which is now a commercial bank doing investment trading) with Main Street banks? Because nobody up on Capitol Hill wants it because nobody on the financial mountain top wants it. Wealth gets its way again, right?
Meanwhile, all those unemployed Republican teaparty participants don't like the current reform. Well, it's not like Republicans are going to bring back Glass-Steagall either.
Here's a little hint: Democrats and Republicans are both wholly-owned subsidiaries to Wall Street bankers (watch Dylan Ratigan's Friday show) and unless we elect Alan Grayson, Elizabeth Warren, Bernie Sanders or Ron Paul, don't expect anything to change.
More important, expect Goldman (Government) Sachs to get back up after SEC's little push today, dust itself off, and go back to business-as-usual on Monday. We the people, who think our Federal Government is finally getting tough, will soon forget about all this as we find out who wins American Idol and argue between those darn Republican/Democrat policies and we'll vote for and against in November.
I'm sure Congress is quaking in their boots.
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