Seems the SEC is just catching up to the finance blogs.
The New York Times article, Banks Bundled Bad Debt, Bet Against it and Won (great title, about sums it all up!) outlines some new investigations.
Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.
Gee, there's Tim's name again. Funny how that pops up all of the time in connection with these Ponzi derivative schemes.
How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment.
While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.
One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.
Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.
If someone else is aware that putting together fictional mathematical models filled with bad loans and then rating them up, dumping them of on unsuspecting clients, collecting fees for doing so, then making internal bets all of the products that company just made and sold would tank...
is illegal, let me know. If it was a swimming pool, these guys would be in jail but for some magic reason, all things financial are just considered innovative.
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”