Goldman Sachs did not commit fraud and the insurance company that bought the product that is the subject of a government investigation should have known the risks, Bill Ackman, founder and CEO of hedge fund Pershing Square Capital Management, told CNBC Tuesday.
“I don’t believe that Goldman committed fraud,” Ackman said. “(ACA) took their own risks.
They’re sophisticated investors.” “I don’t think the (Securities and Exchange Commission) has a good case,” he said.
“Having been the subject of investigation in the past … I don’t feel sorry for Goldman Sachs, but they’re not being treated fairly.”
In addition, it would have been unethical if Goldman had disclosed that hedge fund manager John Paulson was shorting the housing trade to any investors taking long positions, Ackman said.
He argued that sophisticated investors have the information at their disposal to make their own decisions, and are also responsible for their own mistakes.
“Imagine that Soros and Buffett were on the two sides of this transaction,” he said. “We wouldn’t even be talking about this now.”
Bailed Out Banks Shouldn’t Take Big Risks
But the hedge fund manager said he thinks that banks the government would be obliged to bail out should not be making these kinds of trades.
“The real issue is should taxpayer institutions be allowed to take the risks they’ve been taking? No,” Ackman said.
“Banks shouldn’t be taking proprietary-trading type risks with average people’s money.” He also criticized the rating agencies and regulators for facilitating these transactions in the first place.
“If the rating agencies didn’t exist, this trade couldn’t have taken place,” he said.
Defending the Shorts
“I’m a short-seller,” Ackman said. “(Back in 2007,) more and more risk was hidden in the system by companies that couldn’t meet their obligations. Where was risk going? Into CDOs, etc. There was very little attention paid to it by regulators or rating agencies.”
“It’s only when the credit markets blew up that the rating agencies, regulators took notice,” he said.
Ackman is the subject of the new book “Confidence Game,” which follows the story of a research report that he issued in 2002 questioning MBIA’s “AAA” rating.
He called for a division between MBIA's bond insurers' structured finance business and their municipal bond insurance side, despite statements from the insurance companies that this would not be a viable option.
He has started a $150 million charity with his profit from shorting MBIA.
“I don’t need to make a case that shorting is socially responsible,” he said.
“There was no way to short the housing industry until the last few years. Had there been a mechanism to short earlier, the market bubble probably wouldn’t have been as big.”