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The Goldman Deal: Adults Living Dangerously

April 21, 2010

By Steven Malanga

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There’s an old cliché about investing which holds that every transaction, even the sale of a single share of stock on a regulated exchange, has a winner and a loser. When you buy that share you’re obviously betting it will rise, and whoever sold it is figuring that it will fall.

Most small-time investors don’t see the market in such starkly zero-sum terms. But sophisticated players surely understand that is what much of investing is about, especially with complicated products like credit default swaps that explicitly let you place bets for or against a market.

It’s difficult to know at this point whether Goldman Sachs was a winner or a loser in the now infamous Abacus 2007-AC1 collateralized debt obligation that is at the heart of Securities and Exchange Commission accusations of fraud by the investment bank. The SEC claims that Goldman didn’t tell two big investment players who bet on the upside of the housing market through Abacus that hedge-fund operator John Paulson, who was shorting the market, had a hand in selecting the portfolio for the deal.

There’s an old cliché about investing which holds that every transaction, even the sale of a single share of stock on a regulated exchange, has a winner and a loser. When you buy that share you’re obviously betting it will rise, and whoever sold it is figuring that it will fall.

Most small-time investors don’t see the market in such starkly zero-sum terms. But sophisticated players surely understand that is what much of investing is about, especially with complicated products like credit default swaps that explicitly let you place bets for or against a market.

It’s difficult to know at this point whether Goldman Sachs was a winner or a loser in the now infamous Abacus 2007-AC1 collateralized debt obligation that is at the heart of Securities and Exchange Commission accusations of fraud by the investment bank. The SEC claims that Goldman didn’t tell two big investment players who bet on the upside of the housing market through Abacus that hedge-fund operator John Paulson, who was shorting the market, had a hand in selecting the portfolio for the deal.

Original Source: http://www.realclearmarkets.com/articles/2010/04/21/the_goldman_deal_adults_living_dangerously_98429.html

 

 
 
 

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