Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.
The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.
Goldman’s stock is in free fall right now.
It’s a civil suit, so there will be no frog-marching of Goldman executives to central booking (alas). There’s less to this than people like me would hope for. Henry Blodget says that because this isn’t a criminal matter, the hated bank will likely get off easy. Excerpt:
Goldman Sachs will have to write a big check, and then it will be fine: Goldman will likely say the charges have no merit and then, in a month or two, settle with the SEC for a few hundred million dollars (chicken feed). Goldman will then defend itself against the civil lawsuits that arise from this and probably settle those as well. There may also be follow-on lawsuits for other CDOs and products Goldman created. Those, too, will likely be settled or dismissed. Bottom line: This will cost Goldman some money, but not enough to matter to investors.
UPDATE: More and varied commentary from expert contributors to a New York Times conversation.
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