What caused the financial crisis.

http://dealbook.blogs.nytimes.com/2010/05/04/debate-flares-on-goldmans-role-as-market-maker/

“Goldman was not a neutral dealer, but a soliciting placement agent,” Mr. Coffee told a Senate Judiciary subcommittee. “Acting as a placement agent for a securities offering that one has itself designed is very different from a dealer simply quoting a two-sided spread.”

“As a market maker, we are making buying and selling a thousand times a minute, probably,” Mr. Blankfein responded. “Advising is where people are coming to us for advice — people are asking us our opinion, where we have an obligation and duty,” he continued, attempting to illustrate the differences between the firm’s market-making activities and its advising business.

When acting as a market maker, Mr. Blankfein said Goldman’s clients “are not asking us for our opinion, we are not providing, we are simultaneously sell, buy, sell, buy.”

Therefore, by just bringing sellers and buyers together, Goldman insists that it did not have any duty, moral or legal, to disclose to its clients that a portfolio of synthetic C.D.O.s, had been built, at least in part, by another Goldman client, the hedge fund manager John A. Paulson, who the S.E.C. said was on the other side of the trade.

Mr. Coffee took issue with Goldman’s explanation, calling it a “straw man argument.” He argued that the firm was much more than a market maker in this case. By actively marketing the portfolio, Goldman owed its clients taking the long side of a synthetic C.D.O. the same level of care that they would get if they were buying a real C.D.O. made up of actual mortgages.

“Put simply, this is why they came to Goldman: for its expertise and skill,” Mr. Coffee said, referring to the clients that went long on the portfolio. “That the C.D.O. was instead a synthetic one and thus inherently involved a short side, and a credit default swap, changes nothing; the investor in the synthetic C.D.O. should continue to be able to expect that Goldman is seeking attractive securities, not dogs, to place in its portfolio.”

We have worse problems. No one who didn't buy at a stupid price and not borrow too much had a problem. The irresponsible causes this. If you were smart about your money and didn't do something that a generation ago wouldn't do with their houses and brokerage accounts, then there was no problem. So we have worse problems, the oil spill and terrorism. Those cause problems for everyone includeing people who were responsible. Let the irresponsible fail but we don't need terrorism or environmental disasters.

“That the C.D.O. was instead a synthetic one and thus inherently involved a short side, and a credit default swap, changes nothing; the investor in the synthetic C.D.O. should continue to be able to expect that Goldman is seeking attractive securities, not dogs, to place in its portfolio.”

If Goldman puts "attractive" securities in the portfolio which is somehow "good" for the longs, isn't that by extension "bad" for the shorts? Wouldn't they then be screwing the short side?

Maybe there's an argument to be made, but please make a coherent one Senator. And please copy a coherent one, RS.

Mr. Coffee is not a senator, he's a Columbia Law School professor.

The Abacus deal seems like a good example of what caused the financial crisis: banks gambling billions. It doesn't matter what Goldman did, what the credit ratings people did, what the mortgage lenders did, what the securitizers did, or what anybody else did. None of that would have mattered if banks hadn't placed billions of dollars of bets.

Wow, that's even worse, FGC.

Don't forget that biggest bettor of them all: Freddie/Fannie/Congress. To the tune of $5 trillion.

Maybe there's an argument to be made
Financial crisis was caused by information asymmetry and fraud

Goldman was not a market maker here. They were a placement agent
Abacus was a security not a trade. Goldman structured and created the security.
They allowed the longs to believe ACA selected the assets and omitted Paulson role
Not true the longs had to know there was a short
many synthetic CDO deals were banks hedging assets they owned
many synthetic CDO deals had the credits selected by the investment
bank and the CDS contracts put out for BWIC

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Rule 10b-5: Employment of Manipulative and Deceptive Practices

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.”
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