preview

The Wall Street Journal Model: Goldman Sachs Charged With Fraud

Good Essays
The Wall Street Journal Model

Goldman Sachs Charged With Fraud

The Goldman Sachs Inc is a Wall Street’s titan that was able to survive during a financial crisis as a result of deceiving its clients. During the financial crisis it was charged for deceiving its clients for having sold to them mortgage securities that had been designed secretly by John Paulson’s hedge-fund firm. After designing the securities John made a killing betting for the collapse of the housing market. But Goldman denied the securities and Drexel Burnham who was carrying out investigations succumbed as a result of criminal insider trading. Due to that the charges the firm was to undergo were unfounded and Goldman fought to defend its reputation. Civil charges against Goldman and Fabrice Tourre which was one of Goldman’s star traders marked one of the major attacks that the government made on Wall Street. According to Roben & Paula (2010) the deals that the company had made are believed to have caused the financial crisis that was experienced by the nation as well as the whole world.

Regulators claim that Paulson’s firm was allowed by Goldman to assist in designing a Collateral Debt Obligation (CDO) financial investment which was built from specific sets of mortgage assets that were risky hence essentially set CDO to failure. While all that was happening CDO investors were not told anything about the role of Paulson nor were they told about his intentions. In the year 2007 Mr. Paulson walked home with $4 billion for having bet correctly on the collapse of housing.

According to Securities and Exchange Commission SEC, Mr. Tourre played a role of piercing the bonds together and then touted them to the investors. And before the housing market had collapsed...

... middle of paper ...

...pest slide since it was publicized. That fall affected the shareholders who lost a lot on their investment for a mistake that was not theirs. Having noticed that the fall in the value of shares was because the firm did not comply with the law, the stakeholders and the community lacked confidence in the firm hence their will to invest with it reduced. That negatively affected the operation of the firm in terms of returns which reduced. The employees who were also shareholders were as well affected since they lacked trust in the management. Hence firms are supposed to be transparent while making deals and should involve all the stakeholders.

Reference

Roben, F., & Paula, D., (2010). When it comes to its role in the financial crisis, goldman sachs

has a message for the world: not guilty. not one little bit. Business Week; 4/12/2010, Issue 4173, p30-38, 8p
Get Access