Investors who bought the security the SEC is suing Goldman Sachs over might not have been much better off even if hedge fund manager John Paulson hadn't influenced the collateral pool he hoped to short. This statement sounds insane, but it's supported by a new report from CNBC. According to experts that contacted CNBC, collateral manager ACA independently chose mortgage securities to make up the deal's pool of assets that performed horribly. This doesn't help the SEC's case.

CNBC reports:

ACA actually threw out 68 of the 123 securities suggested by Paulson. Those 68 securities had higher delinquency rates than the remaining ones, according to documents reviewed by CNBC. However, those documents show that ACA added 14 securities with lower credit ratings than the overall portfolio.

Documents also show that ACA added other securities with a higher percentage of mortgages from California and interest-only loans--two favorites of the shorts because they were perceived as having a higher chance of failure.

The apparent reason for adding these securities was that they had lower delinquency percentages overall. But they also has the very characteristics that Paulson and other shorts at the time believed would lead to higher delinquencies in the future.

This is a striking point. It implies that, even if ACA had chosen the entire pool with no input whatsoever from Paulson, the deal wouldn't necessarily have performed better. The SEC's case assumes that Paulson's involvement had an adverse effect on the performance of the deal. After all, if the deal had made investors a lot of money, no one would be angry about his influence.

But this report suggests that ACA may have quite effectively created an equally awful deal all by itself, even without any "help" from Paulson. The reality is that, in early 2007, nearly all subprime mortgage-backed securities were trading at prices higher than they would be a few years later. ACA suffered from holding the prevailing view that the housing market would be just fine. Paulson and some others bears were in a small minority, even then. Given that fact, the hedge fund manager's involvement seems less significant. This realization could cast further doubt on whether his involvement in selecting collateral was material after all.

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