“The role of a market maker is to make sure those they serve are getting the risk exposures they seek”, argued Lloyd Blankfein while testifying before the Senate Permanent Subcommittee on Investigations. According to this argument, Goldman had no fiduciary duty to its customers since it was not offering investment advice. But was Goldman a market maker or an underwriter in this synthetic CDO?

In early 2007, Goldman created a synthetic CDO (collateralized debt obligation) since one of its hedge fund customers, Paulson & Co., wanted to bet against the sub-prime mortgage market. That makes Goldman also an underwriter. Paulson was short on the CDO and Goldman had to take the other half of the trade as a market maker. In order to protect itself, Goldman purchased insurance on its long position from the likes of AIG. As the housing market fell, Goldman profited from insurance payouts while AIG was getting financial protection from the Fed. Investors with a long position in this CDO including IKB, a German bank and ACA, a bond insurance company together lost $1B. ACA’s losses were “backstopped” by the financial bailout.

At the heart of SEC’s case is Goldman’s failure of disclosure. IKB was allegedly told that a neutral portfolio manager selected the securities that went into the synthetic CDO, and not told that Paulson & Co. as well as ACA had a hand in picking securities. Goldman is also alleged to not have informed the markets last year when it received notification of a probe. Whether or not a hedge fund is participating in a trade (there naturally has to be a short side of the trade in a synthetic CDO) or whether they had a role to play in the composition of the CDO shouldn’t be important. Rather, it is important that the underwriter fully disclose the contents of the CDO and their risk tranche in the prospectus so an investor can make an informed investment decision on which side to take. Did ACA and IKB, large institutional investors do their due diligence before investing?

While the government is going after Goldman, many other banks wrote 2x-3x the amount in similarly risky CDOs. Today WSJ reported that the SEC may be investigating other firms as well.

On Dec 2, 2009, MOG launched All Access, an on-demand “all you can eat” streaming music service for $5/month. MOG was founded in 2005 by David Hyman, ex-CEO of Gracenote, has 15+ employees and is based in Berkeley, CA. They recently raised $5MM from Menlo Ventures, $1.5MM from Simon Ventures a few months ago and in late April 2008, MOG received $2.8MM from UMG and Sony. Earlier, company raised $3.2MM in two angel rounds.

MOG has struck deals with all 4 major labels, Beggars and Ioda to power this service. Their catalog is supposed to contain over 5M tracks and they report over 10M visitors to their website each month.

MOG’s search feature works like the finder in Mac and auto-completion suggestions on our website – each typed character narrows search results. Suggestions are displayed in categories as you type – artist, album and tracks, along with inline play options for each. You can play songs by artist, tracks in an album, or individual tracks.

MOG’s streaming service is entirely web-based; no client installs are required. You log into their site to access their catalog and your own music library. Their music player is smart enough to detect log in/out state and seamlessly switches between full-length streaming and 30-second samples. From within the player you can buy content, save it to your library (in the cloud) or add it to a playlist. Playlists can be shared with friends on facebook although I did not try this feature.

The play button in the artist category in search (or the artist detail page) kicks off a “slider”-based artist radio feature. On one end of the slider, MOG plays songs only by that artist – all the songs by that artist. This is very cool and interesting they’ve negotiated such an agreement with labels. At the other end, it plays songs by that artist and similar others, much like Pandora. In-between slider settings play various proportions of songs by the artist relative to similar others.

Their artist detail page is quite feature rich. In addition to the artist radio link, they show customers reviews and news (something we don’t support on our store). One can “follow” the artist so they are notified via eMail whenever somebody posts anything about the artist. Artist detail page also shows popular playlists containing tracks by that artist. Finally, the social aspect – you can see users who listen to that artist the most.

MOG’gers or MOG bloggers seem to be their prized value proposition. Apparently there is a huge community of such music bloggers who contribute to reviews and posts on the MOG site. In addition to the social discovery and sharing features mentioned here, one can follow trusted MOG’gers so you see their posts on your home page (a la lala). User profile pages are customizable but I didn’t spend time digging into the specifics.

Playlists are first-class citizens – they are searchable by artist/album/track, sorted, can be public or private, can be shared with social networks (MOG11) and see who is listening to your playlist. Creating playlists is pretty easy and cool with drag’n’drop feature to re-order songs.

MOG is linking to Amazon for the “Buy” buttons. I found links are sprinkled in more places than tracks/albums are available or downloadable. For example, at track level, the buy option is displayed even for album-only tracks. From the player window, the Buy option spawns a keyword search page to amazon that is improperly constructed. There is significant room for improvement if they integrate with the Associates API.

Finally, the lyrics feature that can be invoked through the music player. MOG apparently has 3M lyrics in its database. During my exploration, I couldn’t stumble on any track with lyrics although I played songs by top artists. They did demo the feature in their video. Source of the lyrics is unclear (user contributed vs. vendor provided).

Overall, the $5 price points seems very tempting for the instant gratification of listening to anything that I can think of (in MOG’s fairly sizable catalog), plus the convenience of accessing my music library from any computer. Other competitors (Spotify etc.) are charging more than twice that amount for comparable paid services. MOG doesn’t yet seem to have a similar “portable” experience for devices.

#1 – Farm Stories – thank god Facebook has put an end to Farmville auto posts
#2 – Agatha the astrologer
#3 – Treasure Isle
#4 – iHeart