Following allegations of fraud at Goldman Sachs, hedge fund manager
John Paulson--who was allegedly involved in assembling the Abacus fund, though he hasn't been accused of any wrongdoing--is scrambling to reassure investors he won't be battered by the SEC's suit. Some of his clients, however, aren't so
sure. On Monday, Paulson held a conference call with about 100
investors. They raised doubts about Paulson's ability to lead
the massive fund and avoid legal troubles. Should Paulson be worried?
- Yes: You Can't Go After Goldman Without Nailing Paulson, insists Andrew McCarthy at National Review: "If you want to talk material omissions, to charge Goldman but not charge Paulson is pretty darn material. If what Goldman was selling was fraudulent, it can only be because what Paulson manufactured for sale was fraudulent. The two were in cahoots. If what Paulson did was perfectly lawful, Goldman can't be legally culpable for helping him do it."
- He's Also Got a Major PR Problem, writes Ira Stoll, editor of The Future of Capitalism: "The next phase of the anti-Goldman backlash is going to feature Congress or the press parading before the cameras real people who lost their homes when they defaulted on the mortgages that were at issue in the bet that Mr. Paulson asked Goldman to structure for him in the trade that is the focus of the SEC charges."
- No: Paulson Should Breathe Easy, writes Sebastian Mallaby at The Washington Post: "This is a non-scandal. The securities in question, so-called synthetic collateralized debt obligations, cannot exist unless somebody is betting that they will lose value. The firms that bought Goldman's securities knew perfectly well that some other investor must be taking the opposite position. It was their job to evaluate the Goldman offer and make up their own minds. One of the big losers in the deal was IKB, a German bank with a big business in mortgages. We're not talking mom and pop."
- Paulson Isn't the Villain, Magnetar Is, writes Felix Salmon at Reuters. He's referring to the hedge fund Magnetar Capital which also shorted mortgages: "From a systemic perspective, Magnetar had a much bigger effect — and a much worse effect — than Paulson... Magnetar was in many ways the engine which was responsible for many of the worst losses from New York to Dusseldorf. Those losses didn’t directly become Magnetar profits, because Magnetar was long equity and generally hedged in a way that Paulson and Burry weren’t. But they did end up helping to cause the biggest recession in living memory."