I think not.  This is a politically motivated action brought against GS by an SEC controlled by the Obama Administration.  That motive is to demonstrate to the public that the Federal government will hold accountable banks for activities leading to economic damage.  There is a lot of pressure on the Obama Whitehouse to attack and punish "Wall Street" in retribution for the economic crisis and housing crash.  Goldman is the "poster child" for perceived banker abuses and is seen by some as the cynical and greedy conductor of fraud to take advantage of innocents.  But in reality, the processes charged in the SEC case as fraudulent are typical everyday practice. 

The people on both sides of the sub-prime mortgage CDO trade are large, institutional investors who should know their risks and be prepared to accept losses.  This is true of any trade.  There are buyers and sellers of every financial instrument and subsequent winners and losers.  It is common, in fact, for financial instruments to be created by "market makers" like Goldman Sachs at the request of a buyer or seller who believe they have insights that will allow them to profit at someone else's expense. 

This is how financial markets work.  The market maker may have an opinion of its own about which side is right and which side is wrong.  For this reason, an independent third party is brought into to assess and vet the investment vehicle to insure it is fairly created and accurately represented.  This appears to have happened with the GS CDO in question. 

Jim Cramer, who at one time in the early 1980s, worked for Goldman Sachs and understands the inner workings of the investment banking world, explains what happened:

Before people went too far in their attacks on Goldman Sachs, as today’s charge of fraud by the SEC will train even more proverbial guns on the Wall Street titan, Cramer felt the need to clarify the case. He wasn’t exactly defending the firm, but he wanted viewers to know exactly what happened.

First, full disclosure: Cramer got his start on Wall Street at Goldman [GS  160.70    -23.57  (-12.79%)   ] , and he still has friends there. But he insisted that that was in no way the reason he was challenging the SEC. He said that while he wouldn’t want to be associated with the trade, that didn’t mean there was anything “illegal … immoral or even unethical about it when you pull it apart,” he said.

So here it is pulled apart:

Goldman created a product, a collateralized debt obligation, for hedge fund Paulson & Co., which “at the time wasn’t known as a particularly smart client,” Cramer said, that allowed for a bet against the value of housing. To make sure the product was vetted ahead of its sale, Goldman hired an independent company, ACA Management, to do just that. And they released a report telling potential buyers exactly what was in there.
 

Now, Cramer would never have bought the CDO, but not everyone was as bearish on housing as he was in late 2006, which is when the product was put together. Though he could see how less informed clients may have found it attractive. But in the end, no one forced people to buy this CDO. And “a sucker was born the minute the trade was made,” he said, “and the loss booked soon after.”

So did Goldman do something illegal when it vetted the product, letting everyone know what was in it? Or was the buyer just plain stupid for wanting it in the first place?

“I think the latter,” Cramer said.

He likened the situation to the tech boom of the late ‘90s. If someone created a similar product to bet against these stocks, it would have been an entirely legal, but losing proposition until 2000. It was only after that run that the bet would have paid off. Well, housing was exactly like that, Cramer said, going into 2007. And the buyer of this CDO fully expected to continue making money, only to be shocked awake when the market collapsed. Now Paulson & Co. is known as a house of genius, while the people who went long on housing are the fools.

We learned today that Goldman sunk $90 million of its own money into the CDO. While Cramer’s not sure if that absolves the company, he does know one thing: The SEC is under tremendous pressure to bring cases against Wall Street right now. And he knows that Democrats in Washington are fighting for financial reform. So this is a great time to bring this case before the public and punish the firm perceived as the most arrogant and least reformed in the room.

But while arrogance may be a terrible personality trait, Cramer said, it isn’t illegal. And he’d be the first person to call out Goldman if the company were wrong. But he doesn’t think this is one of those cases. If anything, this was a case of “overzealous prosecution,” he said.

“That’s exactly what I think happened today against Goldman Sachs,” Cramer said. “And I think you’ll see it exactly as I do as time goes by.”

The DOW punched through 11,000 at the open on Monday, April 12 (after moving through briefly on Friday) and the SP500 will possibly close above 1200 today, on Tuesday. If these two levels hold for the rest of this week, then a new psychological floor will be established.

The round numbers like 1000, 1100 and 1200 are easy for most casual investors to remember and relate to, so they do act as psychological barriers, both up and down. The true technicians can find many shades of grey in between those levels, by using various moving averages like 21 day or 100 day and stochastics / oscillators. But the round numbers are the stronger. Once four days pass, the duration defined by IBD's William O'Neil as having some permanence, the barriers become difficult to break down.

With 11,000 and 1200 setting up as new floors, then the obvious targets become the next round number up, 12,000 and 1300. Given continued good news on earnings and revenue growth, even at a slow pace, economic strengthening, and digestion of problems like Greece, those targets will become a reality by year end.

Jim Paulsen and Ed Keon, two very thoughtful and accurate forecasters, believe that the economy has turned a corner and that revenue growth will take up where profits growth has already gone. It has been a lack of "top line" growth that has kept the market in check. Paulsen and Keon both believe the indicators show the economy strengthning. A stronger economy in combination with high "operational leverage" from very trim corporate operations, will be earnings and cash flow rocket fuel if revenue grows significantly the next 12 months.

This throws a big question on the PIMCO "New Normal" thesis. If the economy picks up due to so much government stimulus and a generally strong global backdrop, US GNP could grow above 5% in 2010, which is of the "Old Normal" recovery variety. This would be a big change from where the market currently values the economic prospects and would take the DOW and SP500 up another 10-15% if it proves true.

Oil continues higher towards $100 by July. It pulled back on the mini-panic yesterday morning, from $87 to $84. But the bottom for now seems to be at $80. Short of any major economic disasters, the price must go higher. Demand is only increasing around the world.

The data show that the use of oil per capita in America is over 25 bbls per year. In the growing economies of Asia (India, China, etc) and Latin America (Brazil) where 2/3 of the world population lives, the per capita use is less than 2 bbls. As those economies "Westernize" their population will require more oil. Even if the developing world only gets to 10 bbls per capita in the next 20 years, where will all that oil come from. A quick estimate will be a requirement to more than double current world production of around 85 mm barrels per day. That is just not possible. There isn't that much more oil to find. Oil companies today have a hard time just finding enough oil to replace the depletion of older wells.

Price is what must give. The only way to balance is through higher prices that bring down Western demand.

Today, I bought additional PennWest (PWE), using the July $20 Call and Put Options. I sold the July $20 puts for $0.55 to pay the time premium on the July $20 calls which cost $1.75 with PWE trading today at $21.45. $20 is the new floor for PWE with 2006 price of $30 being the new target price.

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Learn how to invest dollars and prosper; or don't learn the way to invest and continue to invest and lose money. It is pleasing to invest cash when you're profitable. Have a financial education and see for yourself. You'll NEVER feel left out once you discover how to invest with a sound investment technique. Let's start that financial education at this moment.

INVESTMENT Basics

You can not put together a complete investment strategy without an understanding of the investments that are included in the package deal. Nor can you assemble your own house without knowledge of the pieces, parts, and tools required. Give full attention to investment principles before you decide on what plan to go with, or you may not be able to finish the job successfully. This means that you must understand the investment factors of stocks and bonds, and how they compare together and to other investment alternatives.

Only then can you discover ways to invest and put together the entire investment strategy. Like I said, it's exciting to invest when you're making dollars; but you've got to begin with the investment basics. Almost all individuals do not know stocks from bonds. Begin by reading articles or other publications that get down to the basics. For example: how to define stocks, what are their disadvantages and potential advantages, and how do they compare to bonds and some other investment alternatives.

Now you are all set to learn about mutual funds, which are the investment of choice for the majority of average investors. For the majority of people they are easy and simple and best way to invest in stocks and bonds, plus various other asset classes. Mutual funds are simply investment products that are professionally managed for you personally. To pick the right funds you'll need to understand the asset class they invest in: stocks, bonds, money market or specialty (other).

HOW TO INVEST

Now you're ready to understand how to invest and put the pieces together with a sound investment strategy. ASSET ALLOCATION is a crucial part of your investing and financial education, because how you allocate your hard earned dollars to the various asset classes will determine your success or failure... more than anything else. Simply put, how much should you invest in stocks vs. bonds vs. other investments? This is also called your asset mix. It really is much more important than what specific investments or funds you pick.

Once you've put a balanced portfolio of investments together you've got a great foundation. But if you want to continue to build and prosper you'll need an ongoing investment strategy to make additions and changes over time as needed. Read articles on investment strategy, asset allocation, and how to invest. It will all come together for you if you start at the beginning and build a step at a time.

Learn to invest like your financial future depends on it. With Uncle Sam in debt up to his eyeballs and employers fighting to survive, it does.
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The role of the Federal government is very simple, and is outlined in the Constitution in Article 1, Section 8. Congress's only roles are to establish national security (defense) and commercial regulation in all its forms including bankruptcy law, patent law, banking regulation, foreign trade, etc. And that is it! Everything else legislated by Congress jeopardizes the very idea of democracy.

Because I am compassionate, I accept a very minimal social safety net, as opposed to entitlements. A safety net should keep people from suffering, but should not allow some to live the good life on another's dime.

The best prescription for healthcare, as part of that social safety net that most of us agree is needed, is to convert the industry to a utility. Just like electric, gas and communications utilities, healthcare would be subect to regulated fees at the state level to some minimum federal level of service. This preserves the sovereignty of the states (which will be the subject of at least one Constitutional challenge of Obamacare) that are expected to administer the current and future Medicare, but without additional funding by the Feds.

The big advantage of state-administered healthcare programs is that it keeps decision making closer to the taxpayers and beneficiaries, and preserves the opportunity for innovation amongst states. One state might find a better way than another and pass that approach along. This, along with multiple private administrators of the programs, much like multiple telecom carriers, will preserve the benefits of competition.