Covering Goldman Sachs

The news that the SEC is suing Goldman Sachs for alleged fraud in a mortgage deal is an example of an important story that is difficult for news media to cover, partly because it is so complex, but they need to make the effort to tell the full story nevertheless and not degenerate into dumbing it down because it’s hard to understand.  A lot is at stake.  Although this is a civil suit, it could put pressure on the Justice Department to bring criminal charges against the Wall Street bank, and it could provide support for the administration’s efforts to regulate Wall Street more tightly. Not to mention the implications for Goldman Sachs itself, whose stock took a nosedive today on the news. With so much at stake, it’s important for the public to have a clear understanding of what exactly is alleged by the SEC and what the implications are. Although the public may be tired of hearing about obscure and bizarre financial instruments such as collateralized debt obligations and other mortgage-related securities, news media need to keep explaining what these are, how they worked, and why they were incredibly risky and opaque. A story last December by the New York Times did a good job of explaining what Goldman Sachs had been doing — peddling bad investments to clients, then making money by betting against the very investments it had been peddling. The Times story said SEC investigators wanted to know if Goldman Sachs and other big banks deliberately helped put bad mortgage-linked assets into these investment packages, knowing that they were likely to tank but peddling them to clients anyway. Today’s SEC lawsuit says Goldman Sachs in fact did so, and that this constitutes flat-out fraud. The key legal issue here is going to be the state of mind of the defendants — whether Goldman execs knowingly set up their clients or had no idea how disastrous these investments would be. The Times and the Wall Street Journal have done a fairly good job trying to explain all this, but they could do better, and more news organizations need to explain it clearly and show readers and viewers what this means. They need to strike a balance between showing the public how despicable Wall Street  bankers can be, on the one hand, while also being fair to Goldman Sachs — these are still only charges, and there is still a presumption of innocence. A lot is at stake, and journalists need to get it right

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