Hedge fund legend John Paulson, who helped design the security that led to the government charges against Goldman Sachs, should be banned from the securities industry, says MIT economist Simon Johnson.
“Here’s the legal theory to keep in mind,” Johnson says.
“Mr. Paulson only stood to gain on a massive scale — or at all — if the securities in question were mispriced, i.e., because their true nature — that they had been picked by Mr. Paulson — was not disclosed,” he recently wrote on Business Insider.
In other words, the Paulson transactions only made sense if they involved fraud, Johnson says.
“If he was in any legal sense the mastermind — obviously he was, but can you prove it beyond a reasonable doubt? — then we are looking at potential conspiracy to commit fraud.”
And how should the hedge fund star be punished?
“Mr. Paulson should be banned from securities markets for life,” Johnson wrote.
“If that is not possible under current rules and regulations, those should be changed so they can apply. If that change requires an act of Congress, so be it," he wrote. "There is fraud at the heart of Wall Street. It is time to end that.”
Financial author Michael Lewis was a bit less harsh.
"What Paulson's doing is exploiting the idiocy of the system," he told The Washington Post.
"He used the securities-building process to build him something likely to fail."
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