SEC Sues Goldman Sachs

We at Housing Watch had to do a double take when the news came in. The Securities and Exchange Commission is suing Goldman Sachs, and demanding that it return money that the SEC charges was obtained through fraud.

The SEC? The same SEC that stood by as securities traders saddled teachers' pension funds with toxic products they didn't understand? The same SEC that let Bear Stearns, Lehman Brothers, and Merrill Lynch pile on debt like diners at an infinite all-you-can-eat buffet?

Welcome to the newly ferocious SEC, which is also investigating which investment firms used tricks to hide debt from regulators, the way that Lehman Brothers did.

But what's remarkable is that the SEC is taking on Goldman Sachs, an institution that almost alone has emerged from the financial crisis wealthier and stronger than ever. Goldman did so well in part because it bet early on that the housing bubble would implode, and it could collect on that bet with the help of the $80 billion Treasury bailout of insurer AIG. Now we're learning another secret to Goldman's success: It colluded, according to the SEC's allegations, in a scheme to bet against failing mortgage- securities derivatives, known as collateralized debt obligations (CDOs).