Law's Long Arm Reaches For Goldman Sachs The Securities and Exchange Commission filed a civil suit against Goldman Sachs Friday, accusing the firm of misleading its customers into buying risky, mortgage-backed securities that were designed to fail. Guy Raz talks to New York Times reporter Gretchen Morgenson about the case.

Law's Long Arm Reaches For Goldman Sachs

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GUY RAZ, Host:

Gretchen Morgenson was one of the reporters who uncovered the story, and she joins me from New York. Welcome to the program.

GRETCHEN MORGENSON: Thanks, Guy. Glad to be here.

RAZ: First, explain the background here. What did Goldman Sachs allegedly do, according to this suit?

MORGENSON: The SEC said that Goldman Sachs was putting together a pool of mortgage-related securities selected by an investor who was very negative on the housing market.

RAZ: This is an outside investor?

MORGENSON: Goldman Sachs helped him to do that. And they marketed the deal to investors without telling the investors that it had been selected by a person who was on the opposite side of them in the trade, a person who had a negative stance and wanted to profit from that negative stance.

RAZ: Tell me about Fabrice Tourre. He's now, I understand, a vice president at Goldman. What was his role in all of this?

MORGENSON RAZ: The SEC says that Fabrice Tourre was the key player in dealing with Paulson, in setting up the portfolio, in helping him choose the various mortgage bonds to put into it. He was sort of the key man in putting together this deal. And that's according to the SEC's complaint.

RAZ: Now Goldman is arguing that it did nothing wrong, right?

MORGENSON: The problem is there was what Wall Street rocket scientists call information asymmetry on these deals. Meaning, they were so opaque and so bizarre and complex that there was very little way that people could actually analyze what was in them. They relied upon the rating agencies to do so. So if you could gain the rating agencies, then you are off to the races.

RAZ: I mean it's almost like a casino. And in the casino, as you know, the house always wins.

MORGENSON: Well, that's right. But in this case, you know, you really have to ask the question if you are a customer of a firm like Goldman Sachs, you know, what are you to think? And, you know, I think that anybody who bought any kind of collateralized debt obligation from Goldman Sachs is sitting at their breakfast table this morning saying, hmm, I wonder what securities were in that collateralized debt obligation that I bought and I wonder who was on the other side of them. And that's important because these firms really live and die by the confidence that investors has in them.

RAZ: That's Gretchen Morgenson. She covers Wall Street for the New York Times. Gretchen, thank you so much.

MORGENSON: You're welcome, Guy,

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