What was Goldman doing in the Abacus deal?

James Kwak of Simon Johnson's Baseline Scenario, says,

I recommend [a post by Randy Waldman], in which he takes apart Goldman’s claim that it was brokering a trade between a long side and a short side. Goldman likes to say this because it implies that the long side had to know there was a short side, and hence the failure to disclose Paulson’s role was not material. But that’s not what was going on.

Goldman was creating a new company (a CDO of any variety is a new legal entity) and underwriting bonds issued by that company. In this case, the company’s “business” was writing derivatives that were essentially highly customized credit default swaps (since the swaps mimicked what would have happened had there actually been a synthetic CDO). An underwriter’s role is to induce investors to put their money in the company it is underwriting, which means talking up the qualities of that company while also disclosing its defects; it is not to broker a trade between investors who want the company to do well and other investors who want the company to do badly. And even if the “company” in question is a synthetic synthetic CDO, that doesn’t change.