Monday, December 22, 2014

Understanding the Goldman Sachs Debacle

April 19, 2010 by  
Filed under economy, money

Last week, the Securities and Exchange Commission (SEC) announced a lawsuit against Goldman Sachs for civil fraud. 

Wall Street and its practices are foreign to me.  I know I’m angry, but can’t quite put a finger on exactly why.  MSNBC’s Dylan Ratigan explains the SEC lawsuit in terms that I can understand:

Put simply, here’s how the SEC claims it all went down: Imagine you are the biggest car company in the country. Goldman in this example, and a client, Paulson, comes to you and asks you to design a car that will crash.

So you make that bad car “CDO,” then sell it to people without telling them you cut the brake lines! Then when the car “CDO” hits a wall, you rake in the dough from the insurance you bought on the bad car before the crash. And you get paid twice! Once when you sell the car, and then again when it crashes and cash in your insurance policy!

Of course in Goldman’s case, they bought the insurance from AIG, which didn’t have the cash to back up its bets. Hence, thanks to the $180 billion taxpayer rescue, those bets paid Goldman Sachs back at 100-cents on the dollar.

Now that I can understand! 

Read Dylan Ratigan’s entire column.

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