Michael Lewis is having way too much fun with the SEC's Goldman Sachs case. This case has all the makings of a good Hollywood movie.You just can't create some of the characters involved -- "Fabulous Fab", the Frenchman! "Wall Street's Gordon Gekko is almost boring in comparison.

Michael Lewis Says the Bond Market Will Never Be the Same

By Michael Lewis

Posted Thursday, April 22, 2010 - 10:04am

If you happen to be sitting on the Goldman Sachs (GS) bond-trading floor, life must feel horribly unfair.

You did nothing worse than live by the ethical assumptions of your market—any money-making event short of obviously illegal is admirable—and now your own grandfather thinks you’re some kind of monster. Your world feels upside down: What was right is now wrong; what was good is now bad; what once felt like winning now feels like losing.

You are probably wondering: What next? What will the angry rabble—all those ordinary people who can never really understand your business—now demand that you explain to them, so they can disapprove of you all over again?

A few possibilities:

No. 1: Full knowledge of the inner workings of your proprietary trading desk.

In particular: The moment-to-moment dealings of your correlations traders from late 2004 (when they first exploited American International Group’s (AIG) idiotic willingness to sell cheap insurance on pools of subprime mortgage loans) until the end of 2007, when they would have taken most of their profits from the total collapse of the subprime bond markets.

Your bosses claim to have lost almost $100 million on the Abacus trade for which your firm is being sued. This seems, to put it mildly, disingenuous. In March 2007, the time of this particular Abacus trade, your prop traders were already short the subprime market. Would they really have taken a naked long position in a deal you helped to construct precisely so that it would fail without offsetting in some other way on their books?

Ritual Sacrifice

Sadly, it will not suffice to offer up Fabrice Tourre as a ritual sacrifice. No one is going to accept a then-27-year-old Frenchman, whose job was apparently to keep sweet the patsies on the other end of your trades, as the world’s authority on your trading positions.

His name isn’t even on the top of the list of Goldman traders listed on the $2 billion Abacus deal for which you are being sued. The name on top of that document is Jonathan Egol. Egol appears to have been the bond trader at the center of your Abacus program. The same Jonathan Egol who told fellow traders in 2006—a year before this transaction—that the subprime market was doomed.

The public eventually will ask: Who is Jonathan Egol, and what exactly was his game?

No. 2: A far better understanding of your relations with the inaptly named “CDO manager.”

Source:  http://www.bloomberg.com/news/2010-04-22/bond-market-will-never-be-same-after-goldman-commentary-by-michael-lewis.html