Cramer Doing Better In the Light of This Sunday Morning

(c) 2010 F. Bruce Abel

As bad as Cramer was on Friday afternoon on CNBC, he does a lot better on his Mad Money gig Friday night, discussing the Goldman Sachs story. Study what he says after "The Bottom Line." This part is crap.

And the key part about Goldman having a duty never, never, to disclose the name of the party on the other side of the trade, is one thing; not disclosing that such a party, unnamed, chose the collateral, is the crux of the case of the SEC.

This from http://www.madmoneyrecap.com/
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Nor, do I condone the behavior of Goldman or the named in the matter that I am about to describe… it does not smell good to me… I do not want to be associated with it myself… but I am not sure that there was anything illegal… I am not sure that there was anything immoral, or even unethical about it, when you pull it apart… so let’s do so.

First, Goldman Sachs created a product for a firm, Paulson & Co… a hedge fund, that at the time, was not known as a particularly smart client…Paulson came to them and said, look I want to make a bet against the value of housing, I think housing has gone up too far… Goldman wanted to be sure that the piece of paper that was created to do that was vetted properly before Goldman sold it to others… so Goldman hired an independent firm that was supposed to investigate whether the product was defective… meaning if there was fraud in it… and the ADC did exactly that as a rating agency… they put out a document, this document actually… ABACUS 2007-AC1... I read it today… and I have to tell you, after looking at it, I do not think that I ever would have bought this piece of paper… never… but not everyone was as bearish on housing as I was in late 2006, when this basket was put together… and I could see where a less informed client might actually want to buy this.

Now, remember no one stuck a gun to the head of the client… a very sophisticated German bank, and said that you must buy this paper… however, a sucker was born the minute the trade was made… and the lost book soon after … did Goldman do something illegal when it put this booklet together? Showing everything that was in it, totally transparent… or did the very sophisticated German bank that bought it just do something really stupid when it made the purchase? I think the latter… oh, and memo to the Federal Government, you tell us that Goldman Sachs should have told the Germans, who was on the other side of the trade, that this genius Paulson was betting against the buyers? That Paulson was the seller? That is hogwash… you and I both know government that it is strictly forbidden to give up a clients name to the other side of the trade… it is forbidden… how can the Government not know that? How can that be part of the case?

Oh by the way, Paulson was a nobody back then… so who cared… but let’s put it in terms that are not as obtuse as collateralized debt obligations or credit default swaps… let’s go back, let’s say that it is 1999, remember the year of the top of the tech bubble… and let’s say that a hedge fund comes in, the hedge fund that requested to short this housing basket, and that hedge fund was negative on tech stocks in 1999... let’s say that the best way to play that short, to bet against those, the funds that own tech was to create a basket like this that was made up of actual tech mutual funds… and the funds endorsed that, they did not fight that… was there fraud in putting that basket together? Oh, I do not think so… in fact, the bet against tech would have actually gone bad two months later… incredibly, when I know very few people thought, the NASDAQ gained another couple of thousand points…like lightning… and it was only that run that it collapsed.

Housing was like that too… exactly like that going into 2007... enjoying an incredible run that most thought was totally sustainable… we now in hindsight say, what a bunch of jokers were those guys who owned the tech mutual funds in 1999, going into 2000... but before the dot.com crash, these people were making money hand over fist… more than I had ever seen in my life… just as the German bank thought it would back in 2007, when few believed that housing would collapse… this was a great piece of paper if you thought that housing was going to be sustainable… remember, only now do we regard the client who wanted this negative basket created, as the greatest investor of our lifetime… he could have been the goat… the goat, for heavens sake, just like the short sellers of tech… when NASDAQ went from 2500, to NASDAQ 5000 almost over night.

In fact, we learned today, that Goldman actually lost some of the money with this security… they lost $90m on ABACUS 2007-AC1... does that absolve them? I do not know… but I can tell you this… I think that before today Goldman looked to the world like they had figured everything out… and was the only genius in the room… today it seemed more like that Goldman had rigged the market in their favor… I know right now the SEC is under tremendous pressure to bring cases… I know that the government very much wants financial reform… which, by the way, even in its most arduous hard hitting reformers hitting proposals would we not have prevented this event from occurring… I favor financial reform… put simply, if you were in the SEC, it is a great time to bring this case… to expose the way the business works … to try to punish the firm perceived as the most arrogant and least reformed in the room… and while it may be a terrible personality trait, arrogance is not illegal.

Remember, when I see fraud, I am probably the only guy who goes on TV and tries to find these people guilty myself… every day I wish that I had subpoena power…I am the only one who has a Wall Of Shame… who has tried to hound and pursuit anyone who I thought did something that would hurt you… you know that about me… I do not think this was one of those cases… if I did, you must know that I would care less that Goldman Sachs helped me get my start… or if I have friends there… as I always say, this show is not about making friends… it is about making money.

The bottom line…

Still from http://www.madmoneyrecap.com/

In this case, you did not get hurt… and I do not think that the client who bought the product did either… No, I like a vigilant prosecution… but not an overzealous prosecution… yet, that is exactly what I think happened today against Goldman Sachs… and I believe that many of you will come to see that the client was unsophisticated and bought it wrong… that Goldman did the right thing as a middleman broker… that the guy who put it together just got real, real lucky… and I think that you will see it exactly as I do as time goes by.