Three and half years ago, a New York hedge fund manager with a bearish view on the housing market was pounding the pavement on Wall Street.Read the rest here.
Eager to increase his bets against subprime mortgages, the investor, John A. Paulson, canvassed firm after firm, looking for new ways to profit from home loans that he was sure would go sour.
Only a few investment banks agreed to help him. One was Deutsche Bank. The other was the mighty Goldman Sachs.
Mr. Paulson struck gold. His prescience made him billions and transformed him from a relative nobody into something of a celebrity on Wall Street and in Washington.
But now his brassy bets have thrust Mr. Paulson into an uncomfortable spotlight. On Friday, the Securities and Exchange Commission filed a civil fraud lawsuit against Goldman for neglecting to tell its customers that mortgage investments they were buying consisted of pools of dubious loans that Mr. Paulson had selected because they were highly likely to fail.
By betting against the pool of questionable mortgage bonds, Mr. Paulson made $1 billion when they collapsed just a few months later, the S.E.C. said. Investors, who bought what regulators are essentially calling a pig in a poke, lost the same amount.
For the record, that's how the game is played. Capitalism does not guarantee everyone wins. If you make bad bets you can loose. Paulson gambled and won. He lied to no one. He did not misrepresent anything he was doing. In fact he was quite open about it and was generally laughed at. Of course if Goldman was making false statements that could be a problem. But it would be Goldman's problem, not Paulson who was 100% above board in his dealings. All in all it sounds like the Times is trying to convict Paulson of being a smart investor who made a lot of money for himself and his investors when other people could not find their southern quarters with both hands in the dark.
For those who did not grasp this; Wall Street is not a charity operation. Before going there with your money, know your risk tolerances and don't play with money you can't afford to loose. Don't invest in anything you do not understand and stay out of debt.