Goldman Sachs Gets Theirs
The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.
As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.
And guess what? The bonds were insured through AIG! Which means the American taxpayers were left holding the bag.
When you buy a bond from an investment bank, you have to ask yourself: "Why is this bank selling this bond? If it's so good, why don't they keep it and make a big profit? After all, aren't they in business to make money?"
Which isn't to say that the bank may not, out of a spirit of perfect disinterested public spirit and good will, be denying itself scads of money in order to help your portfolio stagger into the black--- after all, they just may have hired Mr. Deeds, as played by Jimmy Stewart, as their fund manager--- I'm just saying you want to ask yourself, and your broker, this crucial question.
Because if you don't--- or if, as in this case, you ask the question and what comes back is a big fat lie--- you could end up on the short end of the stick while the bank sings all the way to the, um, bank. (Mixed metaphors come naturally to me on a Friday.)
Because, y'know, an S.E.C. lawsuit will punish the bank by fining it a smallish percentage of their ill-gotten gains, but it's not going to help you. You'll have to sue on your own, and that will cost you all the money that you've already lost.
Labels: goldman sachs