is this the only way one can make money?

so in the recent crisis, there were some people who didnt lose much money and in made some cases made real good money.. Paulson Hedge fund, george soros and goldman sachs were few of those who bucked the trend and made profit. And this was supposedly because they were the smartest guys in the room and knew that this was coming . I remember that in goldman sachs presentation, one of the gentelman said that one of the reason that they did better was their risk management and they used long term investments rather than repo to fund the investments..

The recent SEC investigation is a bad publicity to this . Being smart has been always respected at least in US but defrauding and your investors is a big no-no at least with respect to reputation if not in terms of legality.

But from news report, the evidence doesnt look cohnvincing enough. Anyhow given the credibility and past history of SEC, I suspect that this case will go nowhere. Politically though this is a bomb shell. Everyone gets a whipping boy of its own. The finance reform bill will get a lift. Making derivative trades transparent has to be part of any reform bill and this incidence will make sure that such a provision is added if not present.

Another question of does the market clears in terms of reputation? Even if Goldman Sachs is not punished, shall this act as a reduced revenues for them since other investors shall be wary now. I would love to say yes but I am not sure looking at the evidences in current crisis. The investors at other funds are also playing with others money and they can come back and invest . What probably they will do is to use a consultant advice to protect their asses if this thing unravel.

There are sometimes a thin line between having enough freedom for taking risks for the good of business and esentially defrauding the shareholders. Doesn't it come back to corporate responsibility , a special sarben-oaxley for financial institutions!!