Macaskill on markets: Goldman pins hopes on the Orient Express defence
The SEC fraud suit against Goldman Sachs has shone a spotlight on the exploitation of the useful idiots at the heart of the credit crisis. Goldman must now hope for similar suits against rival dealers so that it can try to deploy the Murder on the Orient Express defence – the argument that they all did it. But whether or not Goldman is joined in the dock by some of its peers, the industry now faces the most serious threat yet to its derivatives-based trading revenues and a business model of adopting multiple roles in the modern capital markets.
Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks
The rating agencies correctly attracted criticism for their role in offering a spurious security to investors in leveraged credit instruments. Their internal models were deeply flawed and agency officials proved to be easily manipulated by the investment bankers who structured trades.
The SEC suit over one of Goldman’s Abacus synthetic CDO trades shifted the focus to the external credit portfolio managers that were also played by bankers and some of their hedge fund clients, especially as the credit boom moved into its final stages.
The details of the SEC suit underline the sheer gullibility of many of the participants in the credit boom.