Goldman responds to CDO fraud charges

Or as Warren Buffett said "I have found from experience that it is impossible to do good deals with bad people no matter how good the legal documentation"

Caveat emptor, especially when buying from Goldman.

The typical problem with the regulators: they missed the important points and focus on the not-so-relevant-atl-all ones. Asking the right questions, that is the secret

GS saying they lost $90mm is disingenuous at best. Ask them how much they made on the overall relationship with Paulson that year. The only reason they retained any exposure to this was because they couldnt sell it all to their beloved clients before the mkt melted.

Does appear Goldman were "economical" with the truth. I think the moral of the story is that if you want to appear trustworthy you need to conform to the spirit rather than the letter of the legal documentation. Goldman is a master of trying to have it both ways of claiming they "care about results for clients and are acting in their best interests" while acting under legal documentation that states "no representations made whatsoever". Looks like they pushed it a bit far here and have become exposed from at least a public relations perspective

Goldman is NOT at fault here. This type of transaction is very common practice among hedge fund managers. Typically a hedge fund would provide most of the equity required in order to consumate the transaction (i.e. go long on first-loss). At the same time they have the freedom to short some of the names in the underlying portfolio if they feel appropriate, this is because they don't have the right to substitute the names in the original pool, the manager does, which in this case ACA (now defunct). As an equity investor of course Paulson had the right to work with ACA to select the names for the original pool. It is the responsibility of the investors ("AAA" investors to have done their homework!!!!)

If true, Goldman's statement that it retained a long slice of the capital structure is meaningful and the SEC complaint should have included that point. On the other hand, the defense that "it never represented to the deal's manager" that Paulson was a long investor appears duplicitous based on evidence in the complaint. More precisely, it appears Goldman tried to be vague and evasive so that ACA would reach a false conclusion that Goldman then did not correct.