As I struggle to understand exactly how and why financial institutions inflicted so much damage on the American economy, I appreciate articles like this one from NPR.
May 4, 2010
Today, a conversation with New York Times financial editor Gretchen Morgenson, who has covered the world financial markets since 1998. She'll be discussing what's going on with Goldman Sachs, the Justice Department, and the SEC.
...Ms. MORGENSON: What the SEC really is saying is that they have omitted a material detail in the selling of this security. Here's how it was created. It was created with a very big hedge fund that was a client of Goldman Sachs.
It was called the Paulson and Company Hedge Fund, and it was run by a man named John Paulson, who has subsequently become very famous for making billions of dollars betting against subprime mortgages when people were still sort of thinking everything was fine.
Now, he and Goldman put together this portfolio of mortgages that were then sold to Goldman's clients. But the element that is at the crux of the case is Mr. Paulson had interest in this portfolio being filled with sort of toxic mortgages, mortgages that were less likely to perform well, that were really sort of on the precipice already.
So was it right for Goldman Sachs to sell such a portfolio to its clients without disclosing that this person who was selecting the portfolio had a negative bet on and was therefore opposed to the people who were buying it, who were hoping that it would perform and that the mortgages would continue to pay?
GROSS: So the suit names Fabrice Tourre, who is a vice president at Goldman, who helped create and sell these derivatives. How come the suit doesn't name the hedge fund manager who helped create the derivative and then betted against it?
Ms. MORGENSON: Well, John Paulson, the hedge fund manager who is involved, did not have a duty to disclose to investors his role in it because he was not selling the securities...