Goldman Sachs Sued for Fraud

Just when Americans thought Wall Street had escaped any repercussions for helping to cause the financial crisis, the Securities and Exchange Commission shows it has a pulse!

The regulatory agency announced Friday that it is suing Goldman Sachs for fraud. The civil suit alleges that the bank knowingly created and sold a bad mortgage product in 2007, which the bank knew was destined to fail. It did this in cahoots with an influential hedge fund called Paulson & Co. that helped the bank select its portfolio of mortgage investments. The bank then marketed the portfolio to poor sap investors without disclosing the hedge fund's role. The hedge-fund manager went on to make big bucks, to the tune of $3.7 billion, by making bets against the U.S. housing market. The SEC suit also charges Fabrice Tourre, one of Goldman Sachs's vice presidents, with fraud ... This is the same VP who, according to the SEC complaint, also refers to himself in an e-mail as the "Fabulous Fab."

Until now, the government has not gone after any big banks for their role in creating the subprime mortgage market. News of the lawsuit quickly ricocheted throughout Wall Street and the blogosphere, and caused Goldman Sachs's stock to drop by 14 percent Friday morning. Still, apart from Americans' populist anger toward Wall Street and Rolling Stone's characterization of the bank as a "great vampire squid wrapped around the face of humanity," this marks the first speed bump for Goldman Sachs since the economic downturn and since the bank paid back its TARP money.