Friday, April 16, 2010

Goldman Sachs charged with fraud!

SEC charged the company and one of its vice presidents with defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages.

The SEC said Goldman Sachs (GS) structured and marketed a synthetic collateralized debt obligation, or CDO, that hinged on the performance of subprime residential mortgage-backed securities. According to the SEC, Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

So what GS was doing was selling a package of subprime residential mortgage backed securities to its customers knowing that they were overpriced and in a bubble while at the same time they were in a short position profiting at their client's expense.

So about the fine. GS was fined 1 billion dollars which sounds like a lot of money but when you look into the fine it's a slap on the wrist. The clients lost 30, 40, 50 percent of their assets because of this fraud that GS profited on. What percent of GS's assets was this 1 billion dollar fine? 0.09% of their 2007 assets. When you were losing 50.00% of you assets because GS lied to you they were losing 0.09% of their assets. This is around 1.1% of their 2007 revenue and 8.6% of their net income. So Goldman Sachs lost most people's life savings when they knew they were toxic investments and they get fined around a month of 2007's income (31.5 days)sounds reallllly fair to me.

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