A few moments ago, The Wall Street Journal reported that the Securities and Exchange Commission has charged Goldman Sachs Group Inc. and one of its vice presidents with defrauding investors by failing to disclose material information associated with collateralized debt obligations, or CDOs.

A CDO is a financial security made up of dozens of bonds, and each bond is comprised of hundreds of mortgages. The CDO is divided into several different tranches, or levels, and each tranche consists of different mortgage risk levels.

The SEC alleges that Goldman Sachs failed to disclose to investors that a major hedge fund, Paulson & Co., had played a major role in the creation of certain extremely risky CDOs, while at the same time betting that the same CDOs would fail.

This American Life's most recent program, entitled "Inside Job", highlights a ProPublica report on a hedge fund named Magnetar that employed a similar strategy. I have attached a brief story on Magnetar and the ProPublica report below.

This is all fascinating stuff. Once again, I encourage you to listen to This American Life. Ira Glass and his reporters have a marvelous way of making the complex seem simple.


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