"Completely Wicked": Martin Wolf and Simon Johnson on Goldman Fraud Case

John Paulson and top associate Paolo Pellegrini have broken their silence on the hedge fund's role in the Goldman fraud case. In a letter to investors, Paulson told clients the firm's role in the Abacus deal was "appropriate and conducted in good faith," The FT reports.

Meanwhile, CNBC reports Pellegrini told the government he informed ACA Management that Paulson intended to short the Abacus portfolio at the heart of the SEC's fraud charge. If true, the testimony would undercut the SEC's claim that ACA was kept in the dark about Paulson's intentions.

It's important to remember that neither John Paulson nor his firm have been charged with any wrongdoing. But the jury of public opinion remains very much open.

Earlier this week, MIT professor Simon Johnson called Paulson the "trigger man" for the alleged fraud and argued the fund manager "should be banned from securities markets for life."

In the accompanying video, taped yesterday, the 13 Bankers author stressed there should (of course) be "due process" and a "full investigation" before any decisions are made. But, to Johnson, it appears as if Paulson and Goldman were running a "crooked roulette table," something that would get you banned for life from Las Vegas. "The same should be true for financial markets."

Martin Wolf, chief economics commentator for The Financial Times, conceded to not knowing enough about the specifics to cast judgment, although he dubbed the SEC's charges against Goldman "look very potent." (Goldman has denied wrongdoing and vowed to "vigorously" defend itself.)

"Far more than the fraud element - what worries me is what was legal," Wolf says, describing synthetic CDOs as "useless financial activity [which] adds nothing to anything useful in the world. There was absolutely no rational justification for the bet anyway."

Furthermore, the ultimate losers of this "pure bet" were taxpayers in the U.S., U.K. and Germany, he notes. "I'm very sore about that...it strikes me as completely wicked."

Vigorously agreeing, Johnson says the Abacus case gets to the heart of the problem with "too big to fail" banks: They took huge risks under the assumption that big gains would be kept private, and big losses would be socialized.

Essentially, that's the story of the credit boom and bust, something to keep in mind as the regulatory debate continues in Washington; as long as that structure remains intact, we'll have resolved nothing.