Was what Goldman did with Paulson & Co. on the Abacus synthetic CDO that is the subject of the SEC complaint all that different from what Merrill Lynch and JP Morgan Chase did with the Magnetar hedge fund on CDOs called Norma and Squared? And at a certain point, does an industry practice become so common that it's ordinary and customary in the trade, so it's a little weird for a regulator to retrospectively call it fraud?
I've defended Mr. Paulson in the past from the charge that he was "parasitical," but reading the SEC complaint, even though he is not charged with any wrongdoing in it, made me think worse of him. It's one thing to short a stock or something that already exists. But it's something else to create something that didn't already exist and that has to be sold to someone else just so that you can make money by shorting it.
Anyway, if Washington winds up filing charges against Merrill or JP Morgan similar to the ones against Goldman, it'll be quite something -- first the government tells us we have to spend hundreds of billions of dollars saving these guys, then the government tells us that, oh, by the way, they are all a bunch of frauds.
The other point is that somehow, the SEC has the power and legal authority to bring this case against Goldman Sachs even though Congress hasn't yet passed financial "reform." What a wonder.