Investment commentator Jim Cramer, who used to work at Goldman Sachs, says he doesn’t believe the Security and Exchange Commission’s allegations that the investment bank committed fraud by creating collateralized debt obligations of subprime mortgages and selling them to hedge fund Paulson & Company, which then made billions by shorting the CDOs.
“I also think that there is simply an important issue here that the government is leaving out,” Cramer writes at thestreet.com.
“Goldman does not sell washing machines. They do not sell vacuum cleaners. They sell pieces of paper that are fully disclosed, and you can go long or short them based on the info,” he said.
“There is no guarantee. There never has been.”
Cramer argues that Goldman’s clients are sophisticated investors who are able to review and understand the material they are shorting or buying.
“The information is available,” he says. “They have the ability to do more due diligence than just asking the rating agency.”
According to CNBC, Goldman created a CDO for hedge fund Paulson & Co. that allowed for a bet against the value of housing.
Goldman hired an independent company, ACA Management, to vet the product before it went on sale and then released a report telling potential buyers exactly what was in there.
So did Goldman do something illegal when it vetted the product, letting everyone know what was in it? Or was the buyer just plain stupid for wanting it in the first place?
“I think the latter,” Cramer says.
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