Published on April 30, 2010 | by LawNews
The Washington Times Publishes Prof. Ronald Colombo’s Op-Ed
This month’s announcement of the Securities and Exchange Commission’s securities-fraud civil suit against Goldman Sachs is a perfect example of what ails our society today – and why attempted regulatory fixes are in many ways analogous to rearranging the deck chairs on the Titanic.
The pertinent facts are largely uncontested. Goldman Sachs helped its client, the Paulson & Co. hedge fund, create and sell mortgage-based collateralized debt obligations (CDOs) that were designed to fail. This was done for the purpose of giving Paulson & Co. something perfect to bet against (via the purchase of credit default swaps). Being the full-service firm that it is, Goldman then helped sell these designed-to-fail CDOs to its own clients. Goldman collected millions of dollars in fees along the way by helping create the CDOs, helping sell the CDOs and even providing the necessary credit default swaps to Paulson & Co. As the housing market collapsed, the CDOs declined in value. Goldman’s clients who bought into the CDOs lost approximately $1 billion in total. Conversely, Paulson & Co. pocketed approximately $1 billion in total from the swaps it held.