S.E.C. Files Suit Against Goldman Sachs For Fraud – Did the Algorithms for “Desired Results” Create a Secret Investment Plan to Devise Mortgage Failures?

Is Goldman still worried about their “code” used to write algorithms, you bet they are and perhaps not only due to a programmer potentially using a portion of the code to create another software program but from what we read today, there could be other secrets on the algorithmic code used to calculate to attain “desired results”. I did an interview this week where I mentioned the difference between “real” results and “desired results” and how algorithms are created that reveal both.

If you get down deep into the algorithms and the processes with some very talented programmers as to how they were written in the code it will direct inquirers to the basis of how the design was created. The algorithms are very complicated and feed and utilize a myriad of other financial algorithms and computations as well, so it’s not simple to back track and find each formula that created profit. I still wonder about how much useable code this guy really took as from what I have seen on the size of the files it doesn’t appear to be more than a module, but when combined with other modules the rules change a bit.

Goldman Sachs – Former Programmer Gets Indicted for Stolen Code – AKA Intellectual Property

Here’s a post I made last year as the stock market is not the only entity looking for “desired results” when it comes to algorithmic coding and the question of how this can enable the creation of fraudulent activities.

Goldman Stolen Code – Has Algorithmic Fraud Become A Business Model in HealthCare Too?

This post also from last years adds a little more content in this area.

AIG: You Bring the Nerds and the Algorithms and I’ll give you a AAA Rating…a little history from 1987

In the news today, almost daily we read about health insurance companies and their solutions for solving the cost of healthcare and it’s all algorithms and the issues we have is to determine what is a “desired” result versus “real” numbers so we can actually start living with factual information.

Health Care Insurers Suggest Algorithms and Business Intelligence solutions to provide health insurance solution

With all the “desired” algorithmic formulas today that seem to be producing less than realistic formulas for decision making processes today, no wonder we have additional “stress” all over the place and I think that in itself is one huge driving factor to a portion of the rise in healthcare costs. It sells more drugs in one area for those who are depressed and we are now starting to see “depression” algorithms on the web, so you can take a self test and see if your are depressed, and that I question as some areas in life today are still better with a human to human interaction and not an algorithm that may carry the “power of suggestion” to potentially enable individuals to self diagnose.

This is part too of what we battle today with “for profit” insurance companies too with regulation, are the algorithms for “desired results” to create profit or is the formula and program created going to yield better healthcare? You might find a little of both in there but as always the yield for profit comes first and if some people happen to get healthier or get better healthcare, than that substantiates the algorithms and programs. Anytime a company devises plans for better care, there’s always the 2nd hook for profit and sometimes the questions and methodologies used need to be questioned, as is happening with Goldman Sachs today with the SEC with investigating the scenario for “desired results” from complicated algorithmic formulations. There’s a lot of money out there in that code and Wall Street is the heaviest investor with business intelligence and related software/hardware in the world. BD

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

Goldman was one of many Wall Street firms that created complex mortgage securities — known as synthetic collateralized debt obligations — as the housing wave was cresting. At the time, traders like Mr. Paulson, as well as those within Goldman, were looking for ways to short the overheated market.

Such investments consisted of insurance-like policies written on mortgage bonds. If the mortgage market held up and those bonds did well, investors who bought Abacus notes would have made money from the insurance premiums paid by investors like Mr. Paulson, who were negative on housing and had bought insurance on mortgage bonds. Instead, defaults spread and the bonds plunged, generating billion of dollars in losses for Abacus investors and billions in profits for Mr. Paulson.

It takes time for such mortgage investments to pay out for investors who short them, like Mr. Paulson. Each deal is structured differently, but generally, the bonds underlying the investment must deteriorate to a certain point before short-sellers get paid. By the end of 2007, Mr. Paulson’s credit hedge fund was up 590 percent.

Mr. Paulson’s firm, Paulson & Company, is paid a management fee and 20 percent of the annual profits that its funds generate, according to a Paulson investor document from late 2008 titled “Navigating Through the Crisis.”

S.E.C. Sues Goldman Over Housing Market Deal - NYTimes.com