THE OTHER SHOE DROPS – AT 10:57 A.M. ET:  The very well-heeled Wall Street firm of Goldman Sachs, a money machine in overdrive, is being brought down to Earth this morning by a serious government charge, as The New York Times reports:

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.

COMMENT:  There is, of course, a presumption of innocence.  But we've heard about stuff like this for years, here in New York.  This, of course, has nothing to do with "free enterprise."  It is, if true, deception and corruption.  Jail terms should be served.

This is also the kind of thing that outrages ordinary Americans, who don't get ten-million-dollar bonuses or have four homes. 

Let's see how this turns out.  Bernie Madoff may soon have company in his federal housing.  Lovely rooms, just lovely.  And those curtains!

April 16, 2010