Goldman Sachs -- actual or political target

The action yesterday by the government in bringing civil fraud charges against Goldman Sachs is a move which will be popular with the average American. After all, these Wall street bankers earn fortunes each year and did so while they took part in trading mortgage backed securities that were a big part of bringing down the economy. Clearly, it looks like the Obama Administration has a big winner here. Or do they? Thanks to Steve Brill, a keen observer of Wall Street, for pointing out to me the flimsy nature of the charges against Goldman. Essentially, the government claims that Goldman arranged for the sale of instruments composed of mortgages to buyers who were unaware that the seller of the mortgages was shorting the investment (betting that the value would go down) and that the seller was consulted in the selection of which mortgages would be included in the package. Thus far, this is troubling -- not because Goldman did not disclose the identity of the seller since such disclosure is very unusual, but rather because the seller was secretly involved in selecting the mortgages to be included. Late yesterday, however, Goldman released a statement in which it point out two very salient facts: first, there were only two buyers of these instruments and the one who bought the majority of the mortgages is the one who selected which mortgages would be included after discussing it with the seller. This means that it was not secret that the seller was involved in selecting the mortgages -- he did it in conjunction with the main buyer. Second, Goldman itself took a long position in the transaction and suffered a net loss of $90 million, hardly a good reason to commit fraud.

So if the facts are as clear as goldman says, why would the Obamacrats bring the charges? there, the reason seems clear. Right now the Democrats need an issue that can bring them some public support as a way to recover from the healthcare fiasco. what better way than to attack Wall Street. Who cares if the attacks are invalid. No one will know until years from now -- and most importantly after the November elections -- that the government's case is without merit. Indeed, when you tie in the fact the Obama asked senators like Blanche Lincoln last week to stop negotiating with the Republicans to come to a bipartisan deal you see that this is all part of a concerted plan to paint Republicans as the defenders of Wall Street and the Democrats as the defenders of the people. To say the least, this is comical in view of the overwhelming support that Wall Street gave to the Democrats in recent election cycles (better than 2 to 1 in favor of the dems). Still, with a matter as complicated as these mortgage backed securities, it is not surprising that the Obamacrats hope to hoodwink the nation into thinking that they are actually doing something valid. Hopefully, the truth will get out.