The abacus fund was the name of the Fund that John Paulson setup.
Let me get the facts out of the way:
1) It is not possible to have a long and short position in the same instrument on the same account simultaneously. ... unless of course it was calls vs puts. but while they are both options they are separate instruments as you can go long/short/offset on calls or puts for a complete trade without using the other. i.e. sell call and buy them back to offset.
2) Of course they could have used another instrument to do this. that is going Long on the futures while buying puts. and that would be illegal. oh wait! thats called hedging. thats not illegal.
3) Of course again if the fund was hedging there is no fraud possible since the money would be with the fund, hence with the investors.
4) If the opposite position was in another account, another fund, or whatever that is also not illegal. Though NOW since these were not hedges they had to be naked shorts. But wait thats not possible, aren't there hundreds of articles that say Goldman, Paulson, Lehman, MS etc etc etc lost tons of money by buying into CDOs...
5) But that would mean, that these were in fact hedged trades!
6) Of course there is also the fact that banks, investment advisors, etc are obligated to tell all their clients what their other clients are doing, now in cases like this that would include internal propitiatory trading desks. OH WAIT! thats illegal too...
Whats the effing case again?
That they sold mortgages that the investors wanted to buy (unless they were forced to do so under pressure/on gun point... without a choice.... that would definitely be illegal)?
That they hedged?
That the investors who had the money and sensibility to invest in these risky exotic securities, did not know that they should have hedged against their trades?
That its common knowledge that every transaction needs to have a sound exit strategy, and factor in the worst case scenario (hence the hedge), in this case it would be that the investors and consumers could default?
Since, if this case has any base, can we expect Full disclosure of Speculation, Investment activities of citizens to get included with emails to the Patriot Act? Oh wait... where did I get that idea from!
Since banks can now be taken to court for not disclosing this information, can we add this requirement to lawyers too?
Ok back to the topic.. what I think of this case is:
For every vague law GS has been blamed to break there is at least one not at all vague law that clears them, the fact of the matter is that this case is not at all about lawful merits, but rather political gain by creating an emotional and moralizing case that will be won even without wining the real case. By using word like literally betting against homeowners etc.
enough said.
Of course, the problem with this attitude is that it actively works against the establishment of a Pareto efficient system, and I think we're seeing the results of that with the most recent economic downturn. I don't know enough about the laws to say whether your assertion that no laws were broken is true or not. All I can say is that I hope some laws were broken. If not, then this does not speak well of the US's ability to regulate itself in such a way that benefits the nation, rather than benefitting a select few.
How does that not constitute fraud?
BUT. ACA as an independent portfolio selection agent only selected 55 of those. And only those 55 were used.
But since the first 123 were selected by Paulson we should ignore this fact.
Since we have already dismissed that ACA independently selected the portfolio, we shopuld also dismiss the fact that ACA's parent company invested $900 million in the CDO, because they believed in the validity of their choices.
But then again how is that in any way saying that they approved of the contents of the CDO.
Since we have established this,let me try and convince some law firms to start a class action against all colleges, universities, b-schools etc for giving students multiple choice questions, to try and influence their judgement that the answer can be something other than the right one.
Not exactly the same case as Paulson, ACA and Goldman, but its soooo close!
Paulson had a list of securities they wanted to short. ACA selected what was (in their opinion) the best set of long positions from this set. Goldman then sold a synthetic CDO based on the long positions. The exact positions were disclosed, in explicit detail, to every buyer.
This is how nearly every synthetic CDO is constructed.
So it's clear that ACA sucks. I've never argued that wasn't the case. But ACA's suckage in no way bears on the fact that Goldman plainly lied about the selection process to longside investors (who clearly suck, as well).
In summary: everyone involved sucks, except maybe Paulson. Goldman's the only party that criminally sucks, though, at least that we know of right now.