Where's the outrage over Goldman Sachs's other mortgage foray?Read the original article(s) here
(FORTUNE) -- Back in 2007, before Goldman Sachs (GS, Fortune 500) had become a 24/7 whipping boy, my colleague, Doris Burke, and I wrote an article showing how Goldman had peddled a particularly wretched issue of mortgage-backed securities to its customers, and had also bet against the kind of mortgages that made up the securities.
Goldman hasn't been charged with any wrongdoing arising out of the issue we focused on, called GSAMP 2006-S3. But in many ways, it was a more outrageous deal than the Abacus 2007-AC1 "synthetic collateralized debt obligation" that provoked SEC charges filed on Apr. 16.
The SEC charge is that Goldman didn't disclose that John Paulson's hedge funds had helped assemble Abacus and were betting on a drop in value. However, all the allegedAbacus victims knew someone was betting against them, because that's how synthetic CDO's work: you can't have a long without a short.
But a regular mortgage-backed issue, like GSAMP is different. GSAMP investors -- who, like the Abacus players, were professional money managers -- had no way of knowing that Goldman had decided that the kind of mortgages GSAMP owned were real stinkers, and had made money betting against them. (Goldman says it didn't bet against GSAMP's securities, a statement I have no reason to doubt.)
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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage". In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia
Tuesday, November 2, 2010
Fortune Magazine has written a series on Goldman Sachs's issuance of mortgage-backed securites called GSAMP 2006-S3. These securities were "junk" because they either defaulted or were downgraded. GS earned money on fees and by hedging (shorting) their inventory of mortgage securities. GS filings with the SEC contain warnings to investors of the many pitfalls of buying these securites--ass covered! Moody's and S&P rated these securities.