How Do We Know Goldman Sachs is Guilty? Computer science

The investment bank Goldman Sachs is being sued by the SEC for allegedly selling an investment designed to lose money. The investment was built on a pool of mortgages that were likely to go into default. Initially, Erik Gerding at The Conglomerate (a legal blog) thought that the SEC would have difficulty winning the case, since Goldman had disclosed the contents of the pool. Then he had second thoughts, because of this paper, “Computational Complexity and Information Asymmetry in Financial Products”, by Arora, Barak, Brunnermeier, and Ge. The paper shows that even if you know the contents of the pool, detecting whether bad mortgages are hidden in the pool is an NP-complete problem, which is normally considered the hallmark of computational intractability.