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Linus Wilson
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Dr. Linus Wilson is an associate professor of finance at the University of Louisiana at Lafayette. He received his doctor of philosophy in financial economics from the University of Oxford in England in 2007. He has conducted extensive research into the Troubled Asset Relief Program (TARP). He... More
My company:
Oxriver Capital
My blog:
Academic Research
  • SEC's GS Complaint is Lifted from the Book the Greatest Trade Ever  0 comments
    Apr 17, 2010 9:37 AM | about stocks: GS, DB, MS, JPM, BAC, XLF

    I have been reading more legal complaints lately because they often tend to be juicy reading.  (This extracurricular reading has led me to write a couple of papers with my collegue Lou Davis.)  When the U.S. Securities and Exchange Commission's (SEC) complaint against Goldman Sachs came out, I "bit the bullet" and read it.  It was a light and breezy twenty-two pages.  I liked it, but I got the impression that I had read it all before.  There have been a torrent of financial crisis books coming out lately, and I listened to the audiobooks for most of them.  Was this story from Fool's Gold, The Quants, or The Greatest Trade Ever?  I went down to my local Barnes and Noble, because it is hard to search for things in an audiobook, and I discoved it was in The Greatest Trade Ever, which was released on November 3, 2009.  

    Pages 179-182 in chapter 9 of The Greatest Trade Ever outlines how the hedge fund manager John Paulson and his subordinates sent lists of mortgage bonds that they wanted to short to Goldman Sachs.  Interestingly, Bear Stearns thought that allowing the short interest to select the content of the synthetic Collatoralized Debt Obligations (CDOs) was unethical.  ' did not pass the ethics standards; it was a reputational issue, and it did not pass our moral compas.  We didn't think we should sell deals that someone was shorting on the other side,' said a senior Bear Stearns trader on page 181 of The Greatest Trade Ever.  Goldman Sachs and Deutsche Bank's teams had no such qualms.

    I have never seen a flattering portrayal of Deutsche Bank's Greg Lippmann,who organized similar deals, and is a supporting character in The Greatest Trade Ever by Gregory Zuckermann and The Big Short by Micheal Lewis.  This is probably why Deutsche Bank's (NYSE:DB) stock was down more than most other Wall Street banks on Friday. 

    I suspect that Mr. Zuckerman will be rewarded for his very public tip to the SEC by eating into some of Mr. Lewis', also well deserved, book sales.

    Disclosure: I only have long positions in broad-based index funds. I do not have long or short positions in individual securities in the companies mentioned.

    Stocks: GS, DB, MS, JPM, BAC, XLF
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