On Friday 4/16 the Securities and Exchange Commission charged Goldman Sachs and one of its vice presidents with defrauding investors by misstating and omitting key facts about a financial product related to subprime mortgages.
We didn’t really think the sub-prime mess was over, did we?
According to CBS MarketWatch, “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” said Robert Khuzami, director of the SEC’s division of enforcement.” Essentially, it’s a continuation of a tale of fraud, deceit and greed. Not unlike being in a coin toss with a two sided coin, the charges state that Goldman was selling their mortgages whilst involving a hedge firm to bet against them. The hedge fund would essentially bet on the failure of the same mortgages that were being issued by Goldman: the problem was, based on the charges, that they were partners in crime. Either way, the Wall Street giants come out profitable and the little guys (you and me) pay the price.
While America was built on capitalism, somewhere in the mix things have gone horribly wrong. The sub-prime debacle begat the foreclosure crisis, the foreclosure crisis brought on record unemployment, record unemployment brought on…well, you get the picture. Why? All in the interest of greed- not in terms that we as ordinary folks can understand, but in the eyes of those who already have more money than they could spend in 10 lifetimes.
The lesson in all this? Think of all those people that bought homes for less than 5% down with payments they could not afford because some salesman convinced them could be their dream home. Remember the old adage “if it smells like it and looks like it, it may be it?” When emotion is involved, as in a home purchase, often logic flies out the window and is replaced by illogical, irrational decision. When making a big decision or acquisition, look at it as a business deal, not a personal emotional incidence. Try to look at it as if you were a third party- can it really be as good as it sounds or looks? Because if it does, it’s usually time to run in the other direction…
