NEW YORK (
) -- The
, but there were a lot of other players involved in the subprime mortgage crisis.
"defrauded investors by misstating and omitting key facts" about its marketing of a collateralized debt obligation.
The SEC charges that Goldman Sachs worked directly with John Paulson, founder of
, and let him hand pick mortgage backed securities he would eventually bet against without disclosing Paulson's involvement or position to investors.
There are many other players who had a hand in creating the toxic, mortgage-backed securities market that triggered the financial crisis. Borrrowers bought houses they couldn't afford, and the brokers sold overvalued property to them.
The banks, which made five- and six-digit mortgages for people with insufficient assets or income, offered no money down and 0% interest for two years. The investment banks like Goldman Sachs bought and packaged these subprime loans into mortgage backed securities.
The rating agencies, which were paid by the Wall Street firms, gave these bonds a high rating to make them attractive to investors, namely pension funds. Lax regulation in Washington along with soft accounting rules exacerbated the problem until the MBS market blew up and took Wall Street down with it.
For now the focus is on Goldman Sachs, with more charges to other firms possibly to follow, and on Washington. Sen. Chris Dodd's (D., Conn.) financial regulation bill is expected to come to vote in the Senate as early as this week. The bill attempts to tackle the notion of "too big to fail" as well as institute strict securitization rules.
The opinon on these issues is varied and emotional at times. I asked followers of my
what they thought of the SEC charges, who they thought real villains were and what the best prevention methods are.
Chris Pitzel says, "GS did what any kid who had free reign of the candy store would do; eat all the candy! The better question to ask is why were they ... given liberties that most certainly were not equally available to all participants, individuals and corporations, in the economy?"
Marko Hristov argues, "GS is 100% innocent. They
've done everything
according to the rules. Maybe they are immoral, but at the end of the day it's just a business and ... Germans buying this CDO is their own problem."
Alexey Pushkin disagrees, "Yep, of course, like in the other story when GS helps Greece to hide debt and shorts Greece at the same time, that's just
the EU's problem, GS is innocent as an angel."
David Falo says, "
Is Goldman innocent? No. But, if you wanted to you could drag almost every Wall Street firm in and find shady deals with CDOs. If you want to go after the guilty, what about
and throw in the UAW? Where do you draw the line? The SEC did nothing while all this was going on, and they had plenty of info
and tips ... Just make sure we have loan
regulations and they are followed."
Daniel Steven defends Goldman. "Is it the crack dealer's fault people get high? Or is it the buyer's? ... I've made bad bets and my broker was not the problem. They've never given me a list of the people or companies on the short side of the trade. How did the German bank learn about Paulson being short anyway? Paulson's position had no effect on the underlying mortgages.
I own a Chevy, but there are a lot of people who don't like Chevys, so should my dealer reimburse me? What about it if wrecks? I can say these people were right ... and my dealer should reimburse and pay penalties. Well, three years ago Paulson was just another guy short on the position and he turned out to be right! What did GS do wrong? It's just a stupid witch hunt, and people love the blood in the water and circle like wolves. A lot of people hate big banks and would just point at Goldman and cry guilty before ever knowing the charge."
Who are the real perpetrators of the mortgage crisis?
Hristov says, "Rating Agencies for sure! Of course Countrywide was greedy, also GS and American people. But greed is not bad. Somebody in this chain must be responsible to give correct ratings."
Pitzel argues, "Alix, it's people. It's the idea that one can get rich by manipulating numbers in a computer, or peddling paper contracts that bind people's future labor without providing any consideration in return. It's the whole mindset of something for nothing."
Falo says, "It is simple, nothing bad would have happened if they never lifted the old regulations ... to buy a house you need 20% down or 5% FHA, last 2 years W2's,
and recent pay stubs ... By letting people have houses with "stated income" was insane. People who were flat broke or just made $35,000 a year were put into $700,000 homes, just to make a sale. The mortgage broker didn't care (long as he made a sale), Wall Street didn't care, rating agencies didn't care (and may not even know what is really in that CDO anyway) and the investors who bought have no clue, most were lied to."
Steven counters, "I think Greenspan said it best -- "the standard of living has increased." Sure, all these houses were foreclosed, but we got to build them, which gave people jobs ...
The crisis just stunk for wealthy people and irresponsible companies and investors who had everything tied up in this one single asset class ... As though having money gave them an excuse to be lazy about choosing their investments. If these investors had any sense at all, they would have been on the bond side and maybe they at least would have come out of everything owning the houses themselves, instead of the banks getting the collateral. People whine but it was just a bad season for some ... Rating agencies are laughable. That's like
saying I should buy a specific grill because it gets the George Foreman endorsement, haha! Suckers!"
What are the best prevention solutions?
Pitzel says "The key, largely, is to put control of the "money" back into the hands of producers, not consumers. When the Federal Reserve prints up new money, it should be handed to engineers, not bankers, for
an investment into the economy. Engineers, and not bankers, are the ultimate in investment professionals, as they, and they alone, are able to determine whether a project is feasible from a physical point of view ... Unlike, for instance, bankers who simply can call up Ben Bernanke and receive bailouts, lower interest rates, and loan guarantees if they make poor business decisions.
Alix joined TheStreet.com TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.