It is time for the government to punch these guys in the neck:
Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.
Goldman’s own clients who bought them, however, were less fortunate.
Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.
Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.
Look- this isn’t just some crank writing for Rolling Stones- this is the NY Times. It is common knowledge these guys are crooks, and yet there will still people who defend them here, in the comments, because they were just smarter than other folks and knew how to operate the system. It is a disgrace, and they should have to pay a price.
El Cid
o hai i haz a thot for a synthetic derivative based on what i’d like my privit propty to be valued in some imajinary future i can has trillions of dollars please and bonus hurry hurry thx
scrappled
It’s not that they’re smarter folks, really. That’s not what bothers people. It’s that they’re above the law in this country.
djork
All I want for Christmas is a guillotine.
stevie314159
In a normal world, if you were a customer of Goldman Sachs, by now you’d realize that they have absolutely THEIR best interests at heart and not yours. Why would you ever STAY as a customer of theirs?
And yet, the sheep continue to line up to be shorn.
Robin G.
I have no respect for the “operating the system better” defense. The guys who programmed Mario Bros. could race through the game in minutes, knowing all the cheat codes — because they WROTE THE DAMN GAME. It’s ridiculous to compare them to the ten-year-olds who got the system for Christmas. I fail to see how this is any different.
(Yes, I know how badly I just dated myself with that comparison. NES still kicks Wii’s ass, though.)
The Gimp
A diary I just posted at GOS. I think John might like it.
Link
geg6
Happy holidays, America! Love and kisses, Goldman Sachs.
Hawes
Goldman Sachs makes Ebeneezer Scrooge look like Santa.
FREE PAUL VOLCKER!!!
And give him a regulatory flamethrower.
The Tim Channel
Since Obama won’t even go after those who tortured toddlers testicles, what makes you think he would ever go after ‘common criminals’?
Enjoy.
Brick Oven Bill
Nature abhors a vacuum, and in the absence of an engaged electorate (throughout world history, males, in some manner participating in the economy), this is what you get. Congratulations.
The modern Left equals Goldman Sachs, who, in case anybody didn’t notice, owns this President. I judge that they fooled Bush, not a tough job, but they own Obama. The Bankers surely have the Columbia Records.
Goldman is not capitalism. Goldman is the opposite of capitalism. A functioning capitalistic government breaks up companies when they get too large to force competition. In our World of Nurture, Goldman has become the government.
“Long Term Greedy”
J. Michael Neal
No, John, I’m not defending them, I’m saying that you still don’t know what you are talking about. They are sleazebags, and we need to put them out of business. I’m just still very skeptical that they are, in any legal sense, crooks. Keep in mind that there’s a second side to all of these trades.
I am extremely sympathetic to the people whose pensions got torched. I have very little for the people who were running these funds. They are, theoretically, professionals. They should have known that you can’t get those kinds of returns without risk. The idea that Goldman can bully and mislead Calpers into buying toxic assets without any idea of what it is doing is either pure fantasy, or an indication that the people at Calpers were so grossly incompetent that *they* should be criminally indicted.
Yes, it is sleazy to create bonds that people will pay you for while having so little confidence in them that you short them yourself. On the list of sleazy transactions out there, though, this doesn’t rate very highly. Given the hysteria over wanting to cash in on the housing boom, my guess is that Goldman didn’t have to work very hard to sell this stuff. It really is what people wanted. So, shut down the sleaze merchants, but hold your biggest contempt for the folks who thought they could get big money for free, namely the buyers. Those people really did fall off the rutabaga truck. You can’t get 15% returns on risk-free investments, and, if you think you can, don’t blame someone else when your portfolio blows up. Not if you want to call yourself a professional.
bago
@Robin G.: You are obviously unfamiliar with the speed run. This is where people exploit things the designer never intended.
Seriously, watch the quake speed run. At least until the grenade jump.
SGEW
Not to disparage the wise words of Ice-T (i.e., don’t hate the player, hate the game), but I kind of hate the game and the players.
I don’t like thieves.
MikeJ
@J. Michael Neal: Amen. You said what I wanted to, only smarter.
Find the guy that green lit “Flip This House”. He’s the one that should be strung up.
J. Michael Neal
@stevie314159:
Everyone always realized that Goldman had their own best interests at heart. I can’t imagine anyone running a pension fund ever thought otherwise. On the other hand, it is just as stupid for them to think the things that they did, so maybe they did believe in the Goldman Fairy.
All that means is that no one should ever have trusted them with their pensions. There really is only so much protection you can provide to complete idiots, and anyone who bought this stuff for a pension fund was an idiot.
Again, I leave your average investor out of this condemnation, but the number of average investors who get calls from Goldman salesmen is miniscule. The people who run pension funds aren’t average investors, and they should know better.
panicbean
McClathy news reported this 2 months ago. Good to see the NY Times is catching on.
http://www.mcclatchydc.com/goldman/
I hope it stays front and center, but that is not likely.
Merry Christmas, John and Crew!
colleeniem
I would prefer that they were punched in the soul.
J. Michael Neal
@colleeniem:
Good luck. They sliced those into tranches and sold them off years ago. Probably shorted them, too.
Wilson Heath
@Brick Oven Bill:
Stop with the “skins in the game” nonsense. It’s complete drivel. Obama owned by Goldman, maybe, but this is too stupid to keep peddling.
Brick Oven Bill
1. Goldman originated the majority of the Collateralized Debt Obligations and sold them when Paulson was Chief.
2. Goldman was not holding the CDOs when they went sour.
3. By the time the CDOs went sour, Paulson had installed himself as Treasury Secretary.
4. As Treasury Secretary, Paulson engineered the taxpayer bailout of the banks.
What can we learn from this? The deal to me had to be:
“Hey Paulson, these crap-bonds you sold us were based on completely fraudulent assumptions. What the fuck? Under contract law, you are going to buy these back at face value.”
“Now listen, you stuttering twit, you either get your ass over to the Treasury and have the American taxpayer bail us out, or we are going to go after you and your company. In the Discovery Period, we will hang you.”
“As CEO of this scheme, there is personal exposure and your children will be picking through the dumpster behind Kentucky Fried Chicken looking for scraps when we are through.”
Notice that none of the purchasers of the crap-CDOs have sued the originators.
colleeniem
@J. Michael Neal: That would explain current unashamed behavior. I’m pretty sure they’re overleveraged with only a 30-to-1 (soul) ratio.
El Cid
This is clearly the fault of Jimmy Carter, Barney Frank, ACORN, and black people.
Thadeus Horne
@Brick Oven Bill: Congratulations, Bill!
You seem to have broken the seal on your own personal vacuum chamber and rational thought is slowly seeping in. These are some of the more cogent thoughts that I have ever seen you submit. Keep up the good work and stay on the new meds; They seem to be working.
PS. Did you ever get your water system working?
Michael D.
@J. Michael Neal:
And, keeping in mind that I know only a little about investing, I agree with this.
It’s really not true to say that “Goldman screwed the little guys like us.” Little guys don’t do too much investing with Goldman Sachs. At least not as I understand it.
That does not mean that the little guy’s money isn’t mixed in with GS stuff. Of course it was. But it was invested by financial experts who are supposed to understand what a good investment is and what a bad investment is.
When I give my few hundred bucks a month to Fidelity**, I choose what funds to invest in. My expectation is that the man or woman who is managing that fund manages the risk associated with it. They should know that X, Y, or Z is very risky, and choose to remove it from the portfolio.
So, it’s not the little guy who was was fooled. It was supposed experts.
Goldman is the Satan of the investment world, and it should suffer. But the experts who put your money with them, and who should have known better, deserve a lot of the blame.
**And I will note that, although I lost money like everyone else, I am very happy with Fidelity and I don’t think I lost as much as I could have elsewhere.
woody
Goldman is in essence no different from Bernie Madoff, except more employees.
People invest with ’em because they believe they’ll profit from their “shady” dealings, not get burned by ’em.
schrodinger's cat
I have to second what J Michael Neal said. Short-selling may seem unethical but it is perfectly legal. I just finished my first semester in the PhD program for finance. I am interested in understanding the reasons behind the current financial collapse. I have been collecting related articles in the popular press about the bank bailouts. I spent the last semester focusing on bank failures. I am in the process of building a wiki for this project. If folks here are interested I could post a link to the wiki when I am done, probably sometime next week.
One of the reasons behind the current crisis from my rudimentary research so far, seems to be the dismantling of the regulatory infrastructure put in place after the Great Depression.
DecidedFenceSitter
@schrodinger’s cat: I’d be interested, if only as an amateur watching this all play out, and generally getting called on by my friends who go “Hey [DFS] you’ve got an MBA what the fuck is going on?”
Of course my usual response is, “They put an MBA in charge of Finance and didn’t check his work.”
Svensker
@djork:
Win.
MattF
It’s a pretty clear example of market manipulation, IMO. You pump up the value of securities in a narrow market, and then wait for the pumped-up market to crash when it runs out of buyers. There’s also a novel insider trading angle, since the securities in question were manufactured specifically for this purpose.
schrodinger's cat
The OTC (Over the Counter) derivative market is opaque and what is needed is an option clearing house like the one we have have for equities (CBOE) in Chicago. Frontline had a good show on this, a few months ago.
Emma
Every time I hear one of those pension managers scream about Goldman Sachs or any of the others, I want to grab hem by the collar and ask them, “where the hell were you brains in all of this?” Except that I realized a long time ago that it’s not a matter of brains; it’s a matter of ego (look at me, the hotshot manager) or fear (if I don’t make as much money as Joe at Podunk College I’m out on my ass). For individual investors it was the lure of all that “free” money. That’s why so many people signed on with Madoff even when their brains should have been telling them something stunk in Denmark and it wasn’t the herring.
So when it was time for me to chose the place to put my meager retirement funds years ago I parked them in TIAA-CREF’s most conservative offerings. Everyone laughed at me until this past year. I lost maybe five grand total, which has been already made up. I know someone who lost a cool half million.
Them financial folk, they don’t know half the stuff they think they do.
daveNYC
It’s not even that, it’s that they’ve managed to find a marketspace where every screwjob they pull on people can be brushed away with the magic words ‘caveat emptor’. The stuff they were selling was about as safe as a Pinto full of rabid pit bulls, but because it was in the world of finance, they get away with selling it to the rubes.
schrodinger's cat
@DecidedFenceSitter:
I will post a link, when I am done. Thanks for your interest. Also it is not just Goldman but many influential academics have been relentlessly pushing deregulation for a quite a while now.
schrodinger's cat
@Emma:
Index funds are the best way to go. Managed funds never do as well index funds and it is a mystery to me why people still invest in them.
ThatLeftTurnInABQ
@J. Michael Neal:
Add me to the amen chorus singing in the background behind JMN.
There is a larger issue here. Goldman and their ilk are a symptom of a bigger problem. Our stock and bond markets were awash with way too much cash chasing too few low or moderate risk investment opportunities. That is inevitable in an economy suffering the terminal stages of toxic income and wealth inequality. The super rich cannot possibly consume the share of national wealth they’ve gotten hold of, so they have to invest it. The middle class and below don’t have that problem.
Money is like the wave-particle duality in physics – it has Janus like qualities. It is both a store of value and a transactional lubricant, and both qualities are essential for our society to function well – our economy works best when neither aspect is dominant. Keynesian and Austrian economics each choose to focus on one of these aspects more than the other and work best at explaining the way the economy works when the aspect they focus on is dominant.
But we need a healthy balance. And right now the way to get back to some sort of balance is to get much of the money currently held by the investing class into the hands of people below them who will spend it. And the only way to do that is to bring back the confiscational marginal tax rates of the FDR – Truman – Eisenhower era. It was those rates, not just the Keynesian stimulus of the New Deal and WW2, that stabilized our economy in the 40s and 50s and created the great middle class of the mid-20th Cen in America.
Emma
Cat, of all the options open to University employees, TIAA-CREF is the best. I’ve never had a hysterical moment with them, at least investing as I did. My other option did good too — but that was indexed to small caps. So far *crosses fingers* so good.
schrodinger's cat
@Emma:
I agree, husband cat, who is in the academia is invested in them, but even they have many choices you can invest in. Index funds are always better than actively managed in my opinion, since you are also saving on fees.
Left Coast Tom
@J. Michael Neal:
How would this differ from the idea of a casino putting it’s own chips on the table rather than simply taking their cut from their client’s bets? If Wall Street firms want to run a casino then shouldn’t we expect them to keep their own chips off the table?
If they want to act like financial intermediaries then that’d be cool, but they seem bored with that idea.
dmbeaster
The law should require disclosure when selling these bonds that Goldman was betting against their value. That is what makes this behavior quasi-criminal. It does not matter how sophisticated the buyers are – creating and marketing securities that you are betting are overvalued is fraud unless you disclose those bets as part of your marketing effort.
This is just idiotic foolishness. Goldman is the epitome of free market capitalism, which inherently tends to destroy free markets. That is the history of unregulated capitalism – go take a history class for the time period 1870 to 1920, or read Josephson’s Robber Barons.
A functioning liberal government does regulate the markets to keep them from becoming rigged or fraud ridden, as is the natural tendency of unregulated free markets. Too bad the conservative “free market” advocates believe in undoing all that.
kay
I think my favorite Goldman story of the year was their charitable initiative.
Grants to send small business owners to attend community college. Because what every small business owner needs is every free evening hour spent at a community college. Sign me up! Sleeping was sort of a luxury anyway.
A “mentor” at Goldman. I just thought that was hysterical, and so indicative of the arrogance.
If there’s anyone who knows how to run a pizza parlor or landscaping business, it’s one of these guys.
Maybe they can tell me how to “short” my neighbor’s house when I get them on the phone.
Dr.BDH
“Index funds are always better than actively managed in my opinion…”
If you cruise over to Vanguard, you’ll see that their 500 Index Fund 10 year return is -0.65%, while their Selected Value Fund (actively managed) has a 10 year return of 8.70%.
Vanguard has several actively managed funds that beat not only the 500 Index but their specific benchmark. You can look it up.
jpe
The late Tanta from Calculated Risk:
schrodinger's cat
@Dr.BDH:
Are these actively managed funds more risky?
On an average index funds beat most actively managed funds ( when you look at risk and return, i.e. most return/ risk) . So there may be periods where certain actively managed may have a better return, but may be more risky.
From a risk-return perspective index funds are hard to beat, so for an average risk-neutral investor they are the best bet.
kay
@woody:
Well, sure, we can’t ask that they act ethically or look past the next bonus period, that would be really mean, but should we really allow them to advise small business, as a half-ass mitigation PR gesture?
I mean, relying on their “mentoring” small business owners will screw every person in town, and eventually go out of business, because they won’t leave anyone with any money. They’re not like Goldman. They’re not getting a bail out.
I don’t think their business plan should be widely adopted. I think the average small business owner has a better long term, um, STRATEGY. It’s simple. Don’t screw your customers, because they purchase your goods and services. I’d like to avoid….contagion. Like an ethical quarantine idea.
burnspbesq
I am not here to defend certain actions allegedly taken by Goldman.
But John, with all due respect, if “these guys are crooks,” where are the grand jury investigations? And you’re not going to convince me that the U.S. Attorney for the Southern District of New York has no incentive to pursue an investigation – remember how Rudy Giuliani’s political career got started?
I’m not sure that under Title 18 as currently written, gaming the system better than anyone else is a crime. If you can write a criminal statute that covers the conduct you find objectionable and isn’t unconstitutionally vague, and get both houses of Congress to pass it and the President to sign it, great.
But let’s be clear: not all objectionable behavior is criminal. The rule of law means you go after the bad guys with the Title 18 you have, not the Title 18 you wish you had.
schrodinger's cat
@kay:
The problem goes far beyond Goldman, its the system that is broken. If not Goldman, someone else will use it to their advantage.
Dr.BDH
“Are these actively managed funds more risky?”
The Index 500 Fund has still not regained it’s 1999 value. I’d call that’s risk. The market as a whole has had a bad decade but several of Vanguard’s actively managed funds are finishing the decade with admirable returns. You can evaluate them yourself, or subscribe to The Independent Advisor for Vanguard Investors and let Dan Weiner do it for you.
And the actively managed funds have low fees, too.
I’m not against index funds but by definition they can’t outperform their index and since even small fees reduce return, they always underperform.
Vanguard pushes index funds for several reasons, many of them valid, but I think one major reason is that they can’t be blamed when the fund loses money!
Walker
It is probably true that what they are doing is perfectly legal. But the cost of this to society is so high that GS employees should be taxed until their take home pay is equivalent to that of a WalMart employee.
JoePo
Next time there’s a riot, I’m gonna say, “Oh no, can’t you see those looters are just gaming the system? It’s the work of any good capitalist.”
kay
@schrodinger’s cat:
Yeah. Okay.
I think screwing your customers is sleazy and incredibly short-sighted. Let’s hope these “business leader” mentors don’t pick up the phone when the couple who own the local dry cleaners call for advice, huh? A Goldman-mentored small business owner army could bring down a whole community.
Maybe they should just hand out the grants, and skip the mentoring.
I don’t know what happens if everyone starts behaving like this. You know, the little people, who actually have an lifetime investment in building something mutually beneficial and useful.
schrodinger's cat
@Dr.BDH:
I don’t think we have a disagreement, some managed funds may be better, but it is extremely difficult to “beat the market”
and if you are invested in an index fund you will at least do as well as the market.
burnspbesq
@JoePo:
Ummmkay – but when you say that, can we mock you unmercifully for the stupidity of what you are saying?
Looting is burglary, plain and simple, and can be prosecuted under existing criminal statutes. At the risk of becoming a broken record, let me ask you what existing criminal statutes are violated by the Goldman behavior you find objectionable.
I have a dog in this fight, but it’s not named “Lloyd.” It’s named “Rule of Law.”
schrodinger's cat
@kay:
I am not a fan of Goldman’s dealings, and if they have broken laws they should be punished. All I am saying that the problem goes beyond well beyond what Goldman tried to do
and got away with. Their community outreach program does sound like window-dressing.
JoePo
@burnspbesq: Do I have to put a /jk after I make a sarcastic statement? Is that what we’ve come to?
burnspbesq
And it’s unheard of to have cranks writing for the Times?
See, e.g., Miller, Judith
schrodinger's cat
By risk I mean something more specific, the variance of the
returns of the stocks, the fund is invested in. The more stocks you are invested in, lower the variance, or standard deviation
which are the measures of volatility or risk.
Most high return strategies have correspondingly higher risk.
DecidedFenceSitter
@schrodinger’s cat:
Which is why I’m flabbergasted at the assumption that businesses should shoot for an 18% return or higher. Seems the sort of strategy that will doom an organization in the long term, because it isn’t sustainable. There’s only so much blue ocean out there to swim in.
jm
While I agree with John’s point here, his opening sentence is just spitting into the wind. The government has no intention of holding Goldman Sachs accountable. Goldman didn’t do anything “illegal”. It accomplished this by buying the government policy-making process directly affecting it. To even discuss these scumbags (Goldman and the government officials) without ridiculing regulatory capture is pointless in the extreme.
This post should have included that the government officials currently responsible for overseeing Goldman are President Barak Obama ($39M from FIRE sector), Senate Finance Committee Chair Max Baucus ($3M from FIRE sector) and House Financial Services Committee Chair Barney Frank ($401K from FIRE sector).
It should be a journalistic convention that any time any politician is mentioned in relation to a policy outcome, relevant campaign contributions received by him or her be included. Stories would start making a lot more sense. And maybe, just maybe, the institutional corruption itself might become an issue.
CalD
B-b-but, Elliot Spitzer consorts with prostitutes!
schrodinger's cat
@DecidedFenceSitter:
Why 18% who came up with this number? I think another problem is people don’t understand numbers all that well. If you are just starting out it is easy to grow at a higher rate
going 1 to 2 is a 100% increase but going from 100 to 101 is just 1% increase, that’s why India’s and China’s economies are growing at a much faster rate than a mature economy like the US. You can apply the same logic to companies as well.
burnspbesq
@JoePo:
sorry – but there are some regular commenters here who would say shit like that and mean it.
bago
It would seem charitable to tell your client you have bought insurance against your investment’s failure.
William
I’m sure this will rile people, but I don’t think the douchebags are the real problem.
More than a decade ago, I worked for financial traders. I can promise you that sociopaths like Egol will always be willing to do whatever approximately legal thing that makes them money. Expecting otherwise is like expecting a feral dog not to get into the trash cans. Unless you are prepared to institutionalize the reptiles among us (which is the solution I’m for), you’re going to have to live with them.
You will also never eliminate the fools that will soon be parted from their money. Indeed, our reasonably well regulated society creates people like that. If 99.9% of your experiences with commerce are trustworthy and positive, it’s no wonder you figure that 0.1% will work out well, too. Just look at all the people rooked by Countrywide, et al.
Given both sets of people, the best we can do is put ’em to work. Every time a douchebag suckers a fool, that’s an opportunity for us to improve our laws and regulations. The real problem isn’t that people are getting screwed. It’s that we let the cons go on so long and at such scale that the con men are mistaken for productive citizens.
Alex
Poor word choice: “gonads” not “neck”
J. Michael Neal
@Left Coast Tom:
and dmbeaster:
No. Really, no. The ability to both buy and sell the same thing is essential to the functioning of the markets, and I mean that in a good way. Further, in this case, *all* Goldman did was sell the bonds. They created them, they sold them, then they used the shorting process to sell more of the than they actually created.
Let me re-emphasize that, because it’s important: all they did was sell. Sure, they told the people that they were selling them to that they were a good buy, but so what? Zero isn’t a magical bound; it’s just an arbitrary line. To a large extent, the disclosure that people want was there all along: Goldman could have created the bonds and then kept them if they thought that they were huge money makers. They didn’t; they sold them. That should tell the buyers something right there, though a part of what it says is that Goldman doesn’t want all of these bonds on its books.
Again, the idea that more disclosure (in this particular instance; it’s different in other cases) would have changed anyone’s behavior is a fallacy. The people buying these bonds are perfectly capable of making their own assessments of whether the bonds are a good buy. If they are relying upon what the Goldman salesman is saying, beyond a representation of the actual contents of the security*, then they aren’t doing their job. The fault here is not with Goldman; it’s with the people running the pension funds.
*If Goldman misrepresented this, I agree that fraud was committed, but I suspect that that was only a small fraction of the cases.
The real problem here is more subtle, and that’s that there needs to be a division between investment banks and hedge funds. People like to argue that the repeal of Glass-Steagel was a key part of the build up to the crisis, and I just don’t buy it. That division was between commercial banks and investment banks. In the end, there are a number of good reasons why they shouldn’t be separated, and the reasons why they should aren’t that critical.
It’s the disintegration of the wall between the investment banks, which provide services to businesses and collect most of their money in fees, and the hedge funds, which make their money by active trading and taking risks, that caused this portion of the crisis. If the hedge funds lose tons of money, it’s not that big a deal; if the investment banks collapse, it is.
For the most part, the wall between the investment banks and the hedge funds wasn’t regulatory. It had more to do with the ownership structure of the investment banks like Goldman. When they were partnerships, and the partners were the ones who had all the money on the line, there were real limits on the risks that they would take. When they incorporated, and it was outside investors who bore the risks, they exploded.
I don’t really know how to rebuild that wall, but that’s where it needs to be. Coming up with a strict enough definition of an investment bank that you can regulate the split is hard. Defining what constitutes excessive risk taking is equally problematic. Investment banks need to be able to trade the same sorts of things that hedge funds do in order to hedge positions. That’s the origin of the term “hedge fund,” even though they typically aren’t about hedging any longer.
I don’t know the answer. But let’s at least start with the right questions.
William
@jm:
That’s a genius idea.
I’m wondering if we could do that with a simple Firefox extension. That would only work for the people who install it, but it would still nicely demonstrate your approach. Or perhaps we could do it as web app, where you paste in the URL of any story and it annotates the politicians appropriately.
Hmmmmmmm…
Thoughtcrime
I remember something about capitalists will sell you the rope to hang them with. Do we have enough rope yet?:
http://market-ticker.denninger.net/archives/1752-There-Is-No-Way-Out-Of-This-Box…..html
http://market-ticker.denninger.net/archives/1788-Thou-Shalt-Steal.html
LongHairedWeirdo
This strikes me as a bit complicated.
Did Goldman *hedge* against failure of the CDOs? Did they buy insurance sufficient to cover their position?
Or did they do the equivalent of buying a huge life insurance policy on someone, “just in case they run into an untimely accident” a few months before that person “fell down an elevator shaft… onto some bullets.”
AhabTRuler
You say that as if it actually means anything anymore.
Here’s a little hint: it don’t.
ETA: Remember, criminality is not in the act, but in the intent.
Left Coast Tom
@J. Michael Neal:
In my comparison to a casino I’m not looking for disclosure – the other person to whom you were responding was, but I think the two of us were saying different things. I’m looking for a prohibition because I see the act of producing and selling securities one doesn’t stand behind as hopelessly corrupt. If Goldman were acting as an intermediary then they’d be producing securities that in their professional opinion were good for likely purchasers of those securities, taking their cut as a fee, and not shorting the securities. Instead they were acting like a casino putting chips on the table, actively betting against customers in a game that they’re running, and from which they also extract fees.
I think your subsequent comments about separating investment banking from hedge funds is more directly related to my casino-with-chips-on-the-table comparison.
Left Coast Tom
Is it the word casino that’s twice put me in moderation today?
Edit: seems like it.
jpe
No; they were purchasing insurance from their counterparties. And those counterparties knew as much (the purchaser of a CDO is the seller in a CDS contract, so they knew that Goldman was the CDS buyer)
There’s nothing devious about that; Morgenson is just trying to play on the ignorance of her readers to make it sound sinister.
jpe
If I’m buying a synthetic CDO, then I know simply by dint of the nature of the contract that the seller is betting against that value.
The Other Steve
I discovered you make more money personally if you follow the flow instead of screaming at the rain.
So while I agree with you in principle. My practice is…
KA-CHING!
Lex
@panicbean: I’m glad you pointed this out so early in the thread.
I read this post and was reminded of the scene in “Patton” in which Bernard Montgomery leads his British army into Palermo, Sicily, in 1943, and bands are playing and everybody’s cheering and he thinks he has gotten there ahead of the Americans, only to pull into the town’s central plaza and find himself face to face with a bunch of Detroit-made Sherman tanks as the music stops.
Matt Taibbi and the McClatchy DC bureau, step out and take a bow. You other poseurs can all go home.
JMS
Wow, that guy was my stand partner freshman year in the orchestra. Another case of Princeton in the nation’s disservice, I guess…