I'm still not sure if I want to write a full post about the Goldman charges, because (a) I don't have the offering docs, and (b) it's pretty clear that people are going to believe whatever they want to believe, facts/law be damned. But reading over the SEC's complaint yesterday, I was stunned by how weak their case is. Unless the SEC is holding back an absolute smoking gun, which is unlikely, Goldman is going to knock this weak shit out of the park. As to the merits, again, I don't want to get into it without the offering docs, but let me just say one thing: everyone keeps saying that Paulson had "significant influence" over the composition of the portfolio, as if that phrase means something. It doesn't. (Disclosure: John Maynard Keynes had a significant influence on my thinking.)

The debate inside Goldman right now is over whether to settle quickly, or take it all the way to judgment. I'm betting they take it to judgment. They probably could've settled with the SEC already, given how long ago they received the Wells notice. My guess is that the SEC was demanding too high a settlement, and that Goldman balked, wagering that the SEC wouldn't bring such a ridiculously weak case. Whoops. If I were there, I'd tell them to just settle, but then again, I was always the one saying we should settle. (I'd have advised settling after the Wells notice came, if only to prevent that "Fabulous Fab" email from ever seeing the light of day. If that's not worth a billion dollars, then what is?)

My sense is that they're thinking, "You know what? The know-nothing talking heads can get all huffy if they want, but we're right, and they're wrong, and we've had just about enough of this shit. We're taking it all the way!" [Cue the rah-rah blast emails.] While I kind of sympathize with that view (emphasis on "kind of"), I also think it's incredibly short-sighted. Sure, having attention-hungry idiots constantly villify you in the media eventually gets to you, but it's still just words. This is the first time all that nonsense has turned concrete and hurt Goldman monetarily, not the culmination of some long series of events which has forced them to draw a line in the sand. So take a deep breath, and realize that this can either be a one-month story that you lose, or a two-year story that guarantees a steady stream of negative publicity and wears on morale, but that you win. Take the blue pill.

53 comments:

Brian J said...

As someone who isn't well versed in this stuff, I try to keep an open mind. It's not that I think Wall Street is being unfairly attacked, but that I don't know about enough this stuff to make a firm judgment one way or another.

Your post is a good example of why I feel like that. I read lots of things that make me think, "Well, WTF?!?," but then I read your site, realize you and I probably agree politically in a lot of ways, and then realize it's not as simple as it seems.

I'm so glad Al Gore invented this Internet thing.

Anonymous said...

Let's say they decide the publicity is bad and settle. The news will die soon. But they've just admitted they have defrauded their clients and they have said yes.

At least now the clients can look at the case themselves and decide whatever the publicity. It'll still hurt their reputation and at least they can go down saying they put clients first.

They are in a tight spot with both options hurting them. What other options do they have?

JCH said...

I don't think any of their clients even begin to buy into this load.

Anon said...

I'm no lawyer either, but it seems like there are some major disclosure issues here about what was represented to ACA and buyers of the syn CDO. Isn't that the heart of a '33 Act violation, disclosure?

Sav said...

no lawyer here either, but didn't ACA pick the securities in question. they knew all the facts. what else did they need to disclose?

Did they just look at the rating and say yes?

septizoniom said...

you are either paid or a gull. please go read interfluidity for some real insight.

anne said...

In what sector - outside of finance - can companies legitimately sell products as they simultaneously bet money that the products would fail? Transpose this business model to pharma, auto, consumer products, meat packing - is it even imaginable behavior in those sectors?

Why is it okay on Wall Street?

I do not understand how seeking to profit on the failure of one's product is at all legal. But it is, apparently, on Wall Street.

Clearly, however, this is the kind of 'innovation' that helped dragged the economy over the cliff.

Anonymous said...

Can you please explain why you think it's such a weak case? Almost everyone else that I've read, including people that you'd probably respect, seem to think that if the SEC proves the allegations in its complaint, GS is in big trouble. Can you explain why you disagree?

Anonymous said...

Anne, this is obviously a rhetorical question for you as you asked before and got an answer. I guess inchoate outrage is simply your happy place....

Danny

sav said...

anne, what about people who sell seeds. The seed could grow into a healthy tree that gives a lot of fruit. or the seed could grow and not bear much fruit. the growth depends on outside influence water, sun, insects.

all we need is a market place for buyers and sellers who sell the plants. oh wait we have that. the flower shop just down the road.

the seller will sell the plants before they go bad. they are short. the buyer thinks the plant will grow to a healthy tree. they are long.

now the buyer can buy protection to ensure the plant grows. he buys pesticide, good fertilizer to ensure the value grows.

not the flower shop (the bank) sells the plant as well as the protection. it also buys plants from other people and buys the protection from someone else.

p.s man it took a while to come up with an analogy where the value goes up or down.

Anonymous said...

Initially I also thought that the SEC case was not that strong because Paulson's involvement may just be limited to providing the initial list and then ACA did its due diligence and chose what they thought was the best.
But now looking at more details I think the SEC case is pretty strong. The fact that right at the end, Paulson threw out all the Wells Fargo deals and ACA just said sounds ok. That is clear evidence that Paulson was materially involved in the selection process.
GS has to prove that Paulson had very little involvement, which the details prove not to be the case.

Anonymous said...

My favourite analogy for now is a high stakes poker table.

Caveat Emptor is fine -all big boys playing poker for real money. All the players know the risks that the cards might go against them. They also know that the other players are betting against them.

BUT - the players might think twice about sitting down at the table if they saw the dealer (ACA) and another player (Paulson) arranging the pack of cards before the game - in the office of the manager (GS).

Anonymous said...

To: Anonymous 8:47

With poker - you do not *routinely* get to inspect the arrangement of the cards before play.

In buying bundled securities *you do* have every opportunity to research the securities in the bundle.

So the analogy does not hold.

A previous poster's analogy re: "seeds" is more appropriate.

Seed quality can be tested and inspected.

If Paulson asked an agent to put together a portfolio of potentially high yielding seeds that were also prone to developing what is known as "seed-borne pathogens," and that under *certain conditions* this tendency to develop said pathogens would likely get worse - and - in Paulson's opinion, these *particular conditions* were very likely to occur ...

Then, the buyer has every opportunity to inspect these seeds and have them tested and then draw his or her own conclusion. Because in "real life" - seed testing is an actual business.

The buyer could then see that these particular seeds could payoff big, but are also very prone to poor performance if foreclosure rates accelerated - and in turn - the buyer could ask for either more yield to compensate for the risk or just walk away from the seed portfolio all together.

IMO - with the average joe or jane who buys a lottery ticket - the state has to calculate the odds and tell the buyer what they are.

In this business, the buyer is expected to read the prospectus and calculate their own odds.

If I pay Paulson $4 for a $3 lottery ticket and sell my ticket to someone for $5 - stating - "I need this buck right now - but you'll do well with this ticket ... I have a good feeling about these numbers" - and the numbers don't hit, is that *fraud* ...?

Does it matter that Paulson was involved?

I don't think so. Regardless of the transactions, the true odds were always in the fine print on the ticket.

Likewise, the true quality (i.e., the true odds) of the bundled securities were probably in the prospectus.

JH69

Anonymous said...

Anon at 7:32, why does GS need to show that? My understanding is that the SEC has to show that GS hid or materially hid the fact that Paulson was shorting the components of the CDO AND that this should be material to the investment.

I have difficulty seeing how the SEC is going to say with a straight face that GS hid this fact when ACA on many occasions met Paulson's team. I also have difficulty seeing how they can show it is material given that Paulson was NOT a known ABS player and what he WAS known for was being short. Given that ACA was supposedly investing and access to the same details on the underlyings that Paulson had but that they came to a different conclusion then how could it possibly be material? And if that is not enough they chucked out about half of what Paulson wanted included - and presumably could have chucked out 100%.

To me it simply smells political, hence targeting GS and not the "victim" nor the real winner.

Danny

Anonymous said...

"the seller will sell the plants before they go bad. they are short. the buyer thinks the plant will grow to a healthy tree. they are long."

In the entire history of the internet, this is possibly the single stupidest analogy that anyone has ever concocted.

The flower shop is not short. Going short means betting the plant will actually be a dud. At worst, the flower shop is indifferent to whether the plant grows into a tree or not. It makes money on the sale regardless of what happens to the plant. In reality, the flower shop has a vested interest in selling good plants that will grow into trees. Otherwise, it won't get return buyers, it'll get a bad reputation, and it'll go out of business. If anything, the flower shop is going to buy insurance on the plant dying so that the shop is covered from the losses that could generate in terms of loss business.

Moreover, buying pesticide is not analogous to buying insurance or a derivative. It is a capital investment meant to help the plant grow into a tree. Buying protection would be spending $1 for the guarantee that you'll be paid $10 (or whatever the plant initually cost) if the plant dies. If the plant dies, you only lost $1. If it grows into the tree, you'll make well more than your investment plus insurance.

"p.s man it took a while to come up with an analogy where the value goes up or down."

Being obnoxious only works if you're not saying something completely and totally idiotic.

Ryan W. said...

anne said...

I do not understand how seeking to profit on the failure of one's product is at all legal. But it is, apparently, on Wall Street.

Anne- How do you propose to have a market without a counterparty? If one person buys, another has to sell, no?

And if you do not have a market, you will not have liquidity. Selling stocks would be as expensive as selling a house.

Anonymous said...

"Anne- How do you propose to have a market without a counterparty? If one person buys, another has to sell, no?."

A seller almost never sells because he's betting on the product going down in price. He's selling maybe because he thinks it will go down (thinks it will go down, not betting and profitting if it goes down) or because he no longer has any use for the product. I sell a home to you not because I am betting it will go down in value (or even think it will go down in value), but because I am moving to another city or I just had a child and need a bigger home. I sell my used car to you not because I am betting the engine is about to blow up or even because I think the car is no longer any good, but because I want a new car with the latest technology. I sell you my shares in some stock not because I am going to turn around and bet on it going down, but because I think it might go down, or because I already made a 30% return and that's what I was hoping for and so I sell and I don't care whether it goes up or down from there.

Everybody, repeat after me: selling a product is not the same as betting that the product's value will go down in value.

Ryan's post was only slightly less stupid than the flower shop post. Really people, this isn't hard to grasp.

Anonymous said...

This is a totally inane "analysis". Who cares if "significant influence" isn't defined (which probably has more to do with the fact that the SEC has some fairly green trial lawyers than the strength of their evidence)?

As a former SEC lawyer, the governing test is whether there was a misstatement or omission of a "material" fact- i.e., something that a reasonable investor would have found important in their investment decision.

Whatever the "significant influence" Paulson had on the CDO structure, that fact was clearly material. Of course investors would want to know if someone shorting the CDO had ANY influence on the CDO, significant or otherwise.

Also, Goldman apparently went to great lengths to try to hide the actual role of Paulson, as the alleged role of ACA seems to indicate. That could prove a higher level of intent/scienter for criminal purposes.

If the SEC's allegations are correct, and they have any evidence backing them up, this is a slam dunk case. Now that being said, they may still settle (resources issue more than anything else, since trials take a long time and are subject to lots of risk, even for slam dunk cases). But to say the SEC's case is weak is to evince a total lack of understanding of 10b-5 or 17a.

Anonymous said...

It really isn't all that complex, and Paulson's involvement is important. Paulson asked GS to put together a CDO consisting of a number of mortgage pools. He gave GS a list of 123 pools from which to choose, of which ACA picked 55. GS knew Paulson was going to short the transaction, but led ACA to believe Paulson would be long, and did not disclose Paulson would be shorting the CDO. GS had a duty to disclose all material information. Failing to disclose that the person selecting the pools from which you are choosing intended to short the CDO once it was sold is clearly material information. Does anyone honestly believe that isn't the case? Also, I've heard there is no problem because ACA got to choose which of the pools were part of the CDO. Big deal, all 123 pools were dogs. Just because you only select a subset of crap from an entire set of crap doesn't mean you don't end up with crap.

Finally, there is ample evidence that GS knew the subprime mortgage market was cratering. There is a legitimate issue regarding whether or not GS should have disclosed that information.

Anonymous said...

Anon at 3:28, that is because in your house example the "value" of your house is not just the monetary cost. Your wife - or you - gets pregnant, in 9 months the house is going to be too small and so going to be worth less to you than it is before the event. So you sell...

With a financial product there is ONLY monetary value so the value of a product IS its price. Why would you sell a product that you believe is going to earn you outside profits?

Danny

Anonymous said...

Anon at 6:46, if it was so vital to know if Paulson was long or short - at the time - why in all the meetings didn't ACA ask Paulson? Or in the emails back and forth? Could it be that at the time ACA thought they were a sophisticated CDO manager and investor and that Paulson was a mediocre merger arb guy out of his depth and they were going to take him to the cleaners?

Danny

Anonymous said...

Danny - according to the complaint ACA was led to believe that Paulson would be investing approximately $200M in the asset. More importantly, the securities laws create a duty of disclosure, i.e., GS had a duty to disclose all material information concerning the investment. It isn't enough to say that the sophisticated investor should have asked questions. It is GS with the duty to disclose all relevant information, not ACA with the duty to ask all relevant questions.

Labron said...

Boyoboy, I've been all over the toobz on the SEC v GS tilt today, and this is by far the liveliest discussion.

And all because Mister Contempt took an absurd contrary position -- one that, tellingly, is more than adequately brushed off by one or more commenters calling themselves 'anon' or 'mous'.

I say "tellingly" because the anon mousie timidity is pretty much the view I take of this civil action [and keep in mind this is NOT an indictment; the plaintiff's standard is quite an important tranche below anything quite so 'awesome'].

In the spirit of 'I'm not a doctor but sometimes I like to play one while on dates', I've actually had occasion to prosecute these sorts of cases, but -- again with the tellingly tattle -- rarely if ever quite this much of "slam dunk" as on of the anonies has put it [It's the obligatory compliance with disclosure regs, stupids; well, just those who don't see this.] - and no, I don't mean that in the way of [George] Tenets, anyone.

...

Or ... maybe I DO.

See, the confused need not be foreced to pick between the 'weak simpering sauce' posed by Mister Contempt et minions on the one hand, and the 'mortal megalock broth' of the Band of Anon bros. Either way, the claim looks, and moreover READS, righteous as Baby Bear's just-right nourishing porridge.

The government can't lose for losing on this one: if it's too limp, then we need bigger enforcement powers;

if it's too strong, then How Dare You Sir! suggest this administration is in the tank for Wall Street [while the little goldies slink off with a bit of sore bum and a nickel short on their weekly allowance of a hundred bucks];

or if it's just right, well then, it'll be
Please Sir: Can We Have Some More?

Anonymous said...

Anon at 10:21, not sure that Paulson being a co-investor or not IS material AT THE TIME as opposed to now when we know he made a few billion shorting. Thats issue one. Secondly, I can't see anywhere in the offer docs that it says Paulson is investing 200m. Thirdly, if it was suggested this was the case and WAS material then WHY did they not ask the guy in ANY of the meetings. The obvious answer is because it was not a factor in their decision making.

Basically this is a mix of an incompetent investor trying to blame his mistakes on being mislead by an unpopular bank and a government trying to drum up some support for beating up the banks. Are we really that close to mayor or governor elections?

Danny

JCH said...

I'm lol. Go read the blogs when the two Bear Stearns executives were first charged. It was a slam dunk. It was a sure thing. The evil doers were going to do hard time.

Whoops.

Oh my, they're allowed to defend themselves? How come? What, there are standards of evidence? That's no fun. What do you mean I'm heavily relying on hindsight? Who, me, the guy with the noose, biased? What makes you think that?

State of Alabama - slam dunk - ExxonMobil - 11.5 billion - Alabama politicians were spending the money in the newspapers before the trial was finished - with interest, settled at under 200 million. Slam-dunk experts wrong again. Darn, hate it when that happens.

Anonymous said...

Anon at 11:22:

Paragraph 4 of the overview states as follows:

"Tourre was principally responsible for ABACUS 2007-AC1. Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre knew of Paulson’s undisclosed short interest and its role in the collateral selection process. Tourre also misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting."

Anonymous said...

Anonymous 6:46 / 10:21


Just to make sure I understand your presentation of the "governing test" ...

For example ...

An institution that has (for example) MIT and Univ. of Chicago MBAs --- plus a cadre of Quant PhDs on staff are presented with an investment opportunity. the team is managed by a handful of senior industry veterans.

This team does its analysis and concludes ... "We like it. Fair risk for fair return."

GS then says "Paulson wants to short this ..."

Is it reasonable to expect that this team would then say "okay, we don't like it anymore" ... ???

Particularly if Paulson said this before he became "the famous Paulson" that he is now?

I find this hard to believe because these are fixed income securities and Paulson does not determine or influence the ultimate outcome - ultimately it is the timely payments or lack of timely payments that determine the outcome. Paulson's forward view has no influence on that.

I can see this test being more applicable to equity securities ... as their stock prices can be materially affected by the public's perception of their "brand" ... particularly fashion or media stocks.

In this case, however, Paulson has no comparable influence. So, how material is his opinion or his intent?

JCH said...

If the SEC has a smoking gun, would they not have had to reveal that fact to GS by now?

Anonymous said...

Anon 12:42:

You are assuming that the synthetic CDO market is essentially transparent and that assessing risk on them was relatively simple. That simply is not the case. Look at it another way. Someone who studied these instruments very carefully believes that a bundle of 123 of them are complete crap. That person, who GS knows has a vested interest in those instruments failing, and intends to bet substantial sums on the fact that those instruments will fail, asks GS to find a buyer for a pool that must come from those 123 instruments. GS goes to you the buyer and tells you here are 123 instruments from which you can chose a bundle to purchase. GS also tells you that the person who assembled the 123 instruments will be investing $200M in the bundle (when in fact the exact opposite is true). Can you honestly say that the fact that GS misled ACA about the nature of the person assembling the pool isn't material?

I do not know how knowledgeable the folks at ACA were. I do know that many of the purchasers of these CDOs that were peddled were not that sophisticated, that many simply bought whatever the investment banking firms churned out, relying on the rating agencies (another collection of dunces), and there was very little understanding of underlying instruments that were within each of the CDOs.

In any event, the law is very clear that GS has a duty to disclose all material information concerning the transaction and also to make sure that all of its disclosures are not materially misleading. Also keep in mind, there are emails from Fabrice indicating that he knew the market for subprime CDOs was going down the tubes at the time.

Finally, I simply can not believe this is how we want our financial markets to operate, and that lavish incomes should be handed to the people operating in this way. We came disturbingly close to a complete financial meltdown because of this activity. To cheer it on and not force strict adherence to the law and regulations will only embolden those who let greed guide their every step.

Ginger Yellow said...

"Tourre also misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1"

Yes, that is the SEC's claim. If you look at the actual evidence the SEC provides, though, it doesn't really support the claim. It supports a claim that Tourre didn't correct a misapprehension by ACA that Paulson invested in the equity, but it absolutely doesn't establish that he or GS actively represented a long investment by Paulson.

JCH said...

Ginger Yellow, no point in informing the necktie party with the facts. Guilty or not, they have the man they intend to murder.

Define material. Lol.

And wowsa, Fabrice knew the future with absolute certainty. Stop the rotation of the earth. Nothing about to happen in the future that Fabrice doesn't already have figured out with absolute certainty.

His source: his ouija board. How dare him not disclose to ACA the results of his ouija board.

Anonymous said...

I'm anon at 6:46pm.

To the dude who threw out the overly convoluted example about quant traders who would want to know about Paulson's involvement, the answer is simple:

yes, they would want to know about Paulson's involvement. that may not impact their ultimate decision to invest, but it's something they would consider important as part of the "total mix of information" available. the allegation that Goldman went to great lengths to disguise Paulson's involvement (including misleading ACA) is pretty damning, if it can be proven.

to the dude who compared the case to Bear Stearns execs, let me introduce you to the difference between criminal courts (beyond a reasonable doubt) and civil courts (presumption). Huge difference. No one I know would ever have called the Bear Stearns case a slam dunk, because no criminal case ever is (see, e.g., OJ Simpson). But then again, the people I know are all generally smart.

Finally, many of you are missing the difference between ACA and IKB. The fact that Goldman misled ACA is NOT the basis of its 10b-5 fraud claim. The fact that they failed to disclose their arrangement with Paulson in their offering documents or in any verbal or written communications is the key.

The SEC's complaint lays out the arrangement with ACA to show intent. That they misled ACA so that investors would be totally unaware of the arrangement with Paulson. If true, this would pretty clearly destroy any defenses by Goldman that they didn't think this was material (why would they go to such great lengths to hide it otherwise)?

As I said earlier, IF the facts can be proven (and as a former SEC attorney, I tend to think they will be, because no way does the SEC go out there and charge a big firm like Goldman with something like this without big evidence; it's part of the agency's culture to be cautious), this is a slam dunk case.

If true, Goldman had a clear conflict of interest, it failed to disclose it to investors, and it went to lengths to hide it from investors. That's pretty much the definition of a "material omission" 10b-5/17a case.

Anonymous said...

To Anon at 6:46

Maybe the following from the NYT will be less "convoluted" for you:

Allen Ferrell, a law professor at Harvard, said the suit rested on an unusual definition of ***material*** information.

“We normally think of material information as specific to the mortgages, not somebody’s prediction about the future course of macroeconomic events,” Professor Ferrell said. “So who cares whether Paulson is bullish or bearish? Whatever his personal opinion is about the future course of housing prices, the question is, did the investors have access to the underlying mortgages?”

http://dealbook.blogs.nytimes.com/2010/04/20/a-difficult-path-in-goldman-case/?src=busln

Yes - investors / traders would WANT to know a ton of things. But what info are they ***legally entitled*** to receive? What info, in its absence, represents ***material*** misrepresentation ?

Hope that's not too "convoluted"
for you, counselor ...


Anon 2:41am

Re: "Finally, I simply can not believe this is how we want our financial markets to operate, ..."

I am not applauding this type of stuff. And if the SEC is using this as a way to let Wall Street know that this is how they will air out Wall Street's "dirty laundry" - caring more about exposing the dirty practices to "Main Street" and less about actually winning the cases, fine. These firms use the word "integrity" in their brochures all of the time. So when they are not acting with integrity and get called on it, fine.

But there is a line between being a "dick" and committing fraud - however. We are debating where that line is.

You mentioned the "financial crisis." There are other sides of the financial crisis. One you touched upon, one you didn't. The amount of these securities these firms had relative to their capital was a key problem with the crisis. That is a risk management issue vs. an issue of fraud (with the exception of at least Lehman, where it could be both).

The other part is buyers owning things that they don't fully understand. Dot.coms stocks and subprime homes at the retail level, bundled subprime securities at the institutional level ...

Anonymous said...

Sorry former SEC lawyer but GS DIDN'T "go to great lengths" to hide Paulson's involvement. ACA MET Paulson on a regular basis. They spoke to him via email on a regular basis. You claim that knowing he is short is a vital bit of info yet they never bothered to ask if he was investing. This is something which suggests that at the time it wasn't considered terribly important.

I think the SEC is gambling this will get past summary judgement to a trial some months down the line by which time they will have sufficiently muddied the waters to either gull the jury or via an ignorant, pliant press convince the world the eventual technicality GS plea bargins on is somehow serious.

Danny

Anonymous said...

Also former SEC lawyer, I always got the impression that having been caught asleep during a bubble the culture of the SEC was browbeat some guy into admitting a technicality and broadcasting it as some great blow against the nasty institution du jour.

Danny

Anonymous said...

Anon at 2:41, now guys who have been in the industry for 20 years count as widows and orphans? Exactly who IS a sophiscated investor then?

There is a reason we have this sort of crisis regularly and that is because people get greedy and go out and buy bonds with slightly higher yields backed by repayments by people who have not made repayments before or dot.com stocks with no profits or hope of one or Asian countries that steal overseas investor's money or every junk bond on the market or houses because "there is only a limit amount of space" and THEN when they lose money they are able to turn round and beat up the people whose door they were beating down to sell them the crap in the first place.

In Singapore, when people complained about losing money on LEH structured notes the Finance Minister told them EVERYone should know that additional yield means additional risk. One would hope that includes people who market themselves as experts for a living.

Danny

JCH said...

“We normally think of material information as specific to the mortgages, not somebody’s prediction about the future course of macroeconomic events,” Professor Ferrell said


Failed to disclose Paulson's ouija-board housing prediction to sophisticated "who the heck is Paulson" mortgage investors.

HempTwister said...

All we really need is to make some of that "Perfectly Legal" stuff illegal again.
It would be nice to get the corporatists in a pickle on what they support, though.

Anonymous said...

Totally agree with this post.
Imagine if someone brings an ETF with 50 stocks to market. The disclosure tells you what they are. Would it make a freaking bit of difference if they said "XYZ short seller is short these stocks and he told us to put these stocks into this fund so he can short it too." Wouldn't every investor say, "oh really, thanks, I've got my own view on these stocks." There would be, and you know this, a bunch of people who would buy it just to screw up XYZ's returns.

PMH said...

There is also the "court of public opinion." GS is unlikely to win that. And I would assume that during the discovery phase (I'm not a lawyer but I watch a lot of TV) there will be more "Fabulour Fab" e-mails.

The public doesn't even know what a synthetic CDO is. Most people think that Wall Street simply loaned out too much money to people who had little likelihood of paying it back. (And if you're a conservative Republican, you think that Wall Street was forced to do this because of government regulation / ACORN.)

At some point people will realize that the Treasury/FED absorbed AIG's obligation -- and at least some of that -- doesn't even tie back directly to mortgages (CDO's). Just to SYNTHETIC CDO's (CDS's).

I'm waiting anxiously for people in the streets w/ pitchforks taking on Wall Street. Maybe that won't happen. But it should.

Anonymous said...

PMH, exactly. Thats the point. I don't know a single real person with even a passing bit of knowledge of the markets who is even the tiniest bit sympathetic to the case. It is a clear cut case of politics, which is why GS went to the efforts to not only refute the actual case - which is virtually non-existent - but also to refute what the case is being portrayed as - which is that GS along with a guy who had some weird secret knowledge about the future sold to some innocent widow and orphan fund a series of bonds that were GUARANTEED to fail whilst making obscene amounts of money for themselves.

Danny

Anonymous said...

i hope all this moronic discussion helps your blog's revenue, b/c it offers nothing more of value to the world.

Anonymous said...

@anon 2:25 am 5/7/2010

Congrats - you have successfully posted the most worthless comment in the history of internet blogging.

You should be very proud ...

Anonymous said...

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anne said...

I do not understand how seeking to profit on the failure of one's product is at all legal. But it is, apparently, on Wall Street.

Anne- How do you propose to have a market without a counterparty? If one person buys, another has to sell, no? gw2 gold


And if you do not have a market, you will not have liquidity. Selling stocks would be as expensive as selling a house.

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My sense is that they're thinking, "You know what? The know-nothing talking heads can get all huffy if they want, but we're right, and they're wrong, eve isk and we've had just about enough of this shit. We're taking it all the way!" [Cue the rah-rah blast emails.] While I kind of sympathize with that view (emphasis on "kind of"), I also think it's incredibly short-sighted. Sure, http://www.safeeveisk.com/ having attention-hungry idiots constantly villify you in the media eventually gets to you, but it's still just words. This is the first time all that nonsense has turned concrete and hurt Goldman monetarily, not the culmination of some long series of events which has forced them to draw a line in the sand. So take a deep breath, and realize that this can either be a one-month story that you lose, or a two-year story that guarantees a steady stream of negative publicity and wears on morale, but that you win. Take the blue pill.

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