The statements from the Senators make it clear that they are not holding this hearing in order to find out what happened; that's the SEC's job. They're holding this hearing in order to be televised yelling at investment bankers. Claire McCaskill's rant was particularly irrelevant to the actual question at hand, but all of them are mostly trying to express outrage, not make any coherent assessment of the strengths of the SEC's case.
And what is the strength? It boils down to the question of what a material fact is. If you define a material fact as something that would have changed the actual performance of the security, then probably Goldman didn't fail in its duty. The garbage ACA picked on its own was allegedly no better than the garbage that Paulson chose. I'm not aware of any investors who were skilled enough to pick high-performing securities based on subprime mortgages.
And certainly, ACA's claimed motives seem more than a bit dim. They didn't know that Paulson was a housing bear? Or they thought he'd found the one set of securities he believed was going to outperform? Really? You know, I have a used car I could offload if you'll get the ACA guys down here to take a look at it . . .
But one can argue that a material fact should be defined as anything that might have made the investor think twice. Just as it is still murder to shoot someone who has just jumped out of a ten story window, it is still not right to conceal details from customers, even if you know that they're still bent on a destructive course. I find this argument pretty convincing.
That doesn't mean that a court will. There's quite a bit of case law surrounding what constitutes a material fact, and the judge is going to work off of that, not my neat philosophy-experiment intuitions. A lot of very smart people who know a lot about securities law seem to think that the SEC is pushing its luck on the law, if not the merits.
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