Goldman Sachs and their “Abacus 2007-AC1″ product were the subject of a Senate hearing yesterday. Unlike embarrassed johns appearing in court over the years, the “Looters in Loafers” (Paul Krugman’s term) made no attempt to cover their faces, despite having done much more damage to the community. Comments about the advantages of dealing with Las Vegas casinos over buying securities from Goldman Sachs were raised, leading Maureen Dowd to snip “You know you’re ethically compromised when Senator John Ensign scolds you about ethics.”. The bankers from Goldman Sachs were on the wrong side here, and it appears a vain hope that they will own up to it.

The perps argue that they’re just brokers, making markets in products in which both bulls and bears will be on opposite sides of each trade. That works just fine when we’re talking about Treasury bills or General Electric bonds or Microsoft common stock. It doesn’t work when the “broker” is actually cooking up the product in the back room. Legitimate investments are analyzed and discussed by numerous pundits, these were blessed by the “independent” rating agencies. As the rating agencies are paid by the sponsors of the toxic derivitives, their vaunted independence is about as amusing and as credible as the dead baby jokes we traded in grade school. In this case, it turns out that one player was directing that the worst-possible loans that the rating agencies would swallow were assembled for sale.

I seriously doubt that Goldman was alone on this, and this wasn’t the only product they cooked up. (You don’t need a product code with a year and a three-character identifier if it’s a one-time deal.) There should be some serious slapping of wrists and some disgorgement of profits, plus damages, and the rules need to change so it can’t happen again without someone doing time. If I Were King, it simply wouldn’t be allowed for a securities firm to make up their own securities to screw investors with.