April 29, 2010

PROFESSOR BAINBRIDGE:

Maybe Goldman sold investors some rotten eggs. Maybe not. So what? Goldman argues that it is being “railroaded by Congress for performing a normal market function—pricing risk and providing investment opportunities for grown-up investors,” which strikes me as precisely right. It is a central tenet of the federal securities laws that you’re allowed to sell rotten eggs, so long as you disclose that they’re rotten. So long as Goldman fully disclosed all material facts, the fact that Goldman thought the securities being sold were “shitty,” as one scatological email reference by an unwise trader put it, is not a breach of the securities laws. . . . It would behoove the US Senate to learn this history before they conduct their next perp walk.

I say hold Congress to the same kinds of standards they want to hold business to. They’d all be in jail — which, likely as not, would work no substantial unfairness . . . .