Goldman Sachs (NYSE: GS) has posted a defense of its mark-to-market methods on its Web site. It's fairly detailed, and may or may not satisfy its critics. But the whole issue of whether Goldman under-marked certain CDOs is yet another example that the firm wields too much power in various markets.

"You guys are net short and you're driving down prices, are you creating a self-fulfilling prophecy? Were you in fact pushing the market down?" That was Philip N. Angelides, chairman of the FCIC, questioning the Goldman Sachs CFO during recent hearings, as noted by Bloomberg.

Goldman Sachs had a lot to gain via short bets and CDS positions with AIG obviously. But proving ill-intent in this area is difficult, and I am not sure what the industry-wide solution will be, apart from a robust market that delivers a tape of real-time prices the industry accepts. There is a always going to be subjective parameters and good old-fashioned wiggle room when it comes to valuing illiquid securities. A third party opinion might have helped.

For more:
- here's a Bloomberg article

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