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Should Vegas take over Wall Street?

What happens if a Vegas odds­maker tells a baseball manager to stuff his team with second-rate, injured and likely-to-get-hurt players, but not inform the fans?

What if the oddsmaker then bets big that the team will be a big loser while management sells season tickets hyping a playoff run?

Once such shenanigans became widely known, people would squawk, yell foul and demand their money back.

I don't see much difference between that absurd scenario and the so-called Abacus investment cooked up by billionaire John Paulson and Wall Street's powerful Goldman Sachs.

With Paulson's guidance, Goldman put together a collateralized debt obligation, or CDO, from mortgage-backed securities — stuffed with subprime Florida mortgages — expected to fail, and then pitched it to clients as a hot investment.

Paulson shorted (bet against) the CDO and made close to $1 billion. Goldman protected itself with an insurance policy. And Goldman clients? They got hosed.

Goldman apparently did not think sophisticated investors needed to know Paulson was involved in betting against the very investment he helped create.

Is this capitalism in America or some type of crony transaction ginned up by Paul Newman and Robert Redford right out of The Sting?

Enter the feds. Finally.

The Securities and Exchange Commission on Friday sued Goldman for securities fraud. The feisty and influential Goldman denies wrongdoing and swears it will vigorously defend itself. Meanwhile, federal legislation seeking financial industry reforms pushed by the Obama administration is heating up in Congress.

Goldman is armed with enormous resources, from platinum campaign contributions to the best law firms. It may beat this SEC rap.

But it will surely lose something valuable: one more piece of what little public trust it may have retained after being involved so often in dubious transactions.

It was Goldman Sachs whose financial alchemy helped Greece hide its budget deficits for so long from the European Union and aggravated the country's collapse.

And Goldman is inextricably linked to the giant taxpayer bailout of AIG, which had insured billions in Goldman CDOs. So Goldman has already gained from Wall Street's federal bailout.

Not that Goldman is the only large and powerful firm to recently bamboozle American consumers and forfeit some of the public's trust.

Toyota delayed its recall and any public acknowledgment of a problem with sticky accelerators. On Monday, it agreed to pay a $16.4 million fine — less than 2 percent of the company's projected net income for the year ended March 31 — to the U.S. government for hiding potentially deadly safety defects.

And Washington Mutual, whose banking offices were spread across Florida, warped its business model to pay its mortgage officers more in commissions for making higher-risk loans. No surprise, WaMu became the country's largest bank failure. It's now part of JPMorgan Chase.

If only insiders can profit from such business deals, why ignore the obvious?

Let's outsource Wall Street to the Vegas Strip. At least then we'll all know the odds.

Robert Trigaux can be reached at trigaux@sptimes.com.

Should Vegas take over Wall Street? 04/19/10 [Last modified: Monday, April 19, 2010 8:22pm]
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