The Congressional hearings were obviously more about political theater than truth finding but there is nothing new in that. Buffet undoubtedly knows more about investing than I do, but I still have some misgivings about the Goldman situation.
Investors certainly have a duty to understand what they are buying, just as sellers have a duty to understand what they are selling. By that standard it appears both Goldman and the purchasers failed. That said, one would expect the large banks that bought these defective products to have been comparatively sophisticated. If professionals were not able to see the transactions for what they were, I would think the average investor would be completely at the mercy of the investment bank in this sort of transaction.
The investment banks SHOULD attempt to be honest brokers in these transactions whether or not the law requires them to do so. It is hard to imagine that Goldman acted in good faith when they sold securities that were DESIGNED to fail as a way of allowing their large hedge fund client to make a few bucks.
I don't pretend to know whether Goldman did anything illegal, but the whole business doesn't pass the 'smell test'. It is hard to imagine that anybody would want to do business with Goldman in the future if they are in the business of setting up less preferred clients to take a hit to benefit more preferred clients.
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