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At the points in time when the securities were being sold, they were not known-bad Do you honestly believe that? There is no reason whatsoever to suppose they

At the points in time when the securities were being sold, they were not known-bad Do you honestly believe that? There is no reason whatsoever to suppose they didn't know these CDO's were rubbish. However, there also wasn't any reason for them to care: they profited a bunch, which is what an investment bank should do. If they hadn't, they would have gone down, instead of other banks and institutions. This is cut throat capitalism: there is no room for considering ethics or the public good.

yummyfajitas 17y ago
They certainly believed they were rubbish. However, a belief that the market will swing in a certain direction is not the same as knowing a product sold is rubbish. In fact, the CDO's were not rubbish. The CDO's are supposed to pay off in a certain way based on market outcomes, which they did. Goldman simply believed the market would go one way, while buyers thought the market would go another way.
- mschy 17y ago
  The story conflates timelines, as does the discussion. It makes it hard to take any of it seriously. For the vast majority of the time that those products were sold, the mechanism for profit was to keep a piece of the highest risk (and highest return, in theory) piece for the bank. This is not a mechanism that works, at all, if one believes the products are rubbish. That said, you make a good point that it's entirely possible to sell a product that you don't like for yourself, without doing it in bad faith. If you came to me and said "i want to put all my money into commercial REITs", I'd find a way to make the transaction happen. But I wouldn't put my money in with yours.
mschy 17y ago
There is no reason whatsoever to suppose they didn't know these CDO's were rubbish. The fact that they held on to the highest risk portion of them as their intended means of profiting from the sale is pretty solid evidence.

yummyfajitas 17y ago

They certainly believed they were rubbish. However, a belief that the market will swing in a certain direction is not the same as knowing a product sold is rubbish. In fact, the CDO's were not rubbish. The CDO's are supposed to pay off in a certain way based on market outcomes, which they did. Goldman simply believed the market would go one way, while buyers thought the market would go another way.

mschy 17y ago
The story conflates timelines, as does the discussion. It makes it hard to take any of it seriously. For the vast majority of the time that those products were sold, the mechanism for profit was to keep a piece of the highest risk (and highest return, in theory) piece for the bank. This is not a mechanism that works, at all, if one believes the products are rubbish. That said, you make a good point that it's entirely possible to sell a product that you don't like for yourself, without doing it in bad faith. If you came to me and said "i want to put all my money into commercial REITs", I'd find a way to make the transaction happen. But I wouldn't put my money in with yours.

mschy 17y ago

There is no reason whatsoever to suppose they didn't know these CDO's were rubbish. The fact that they held on to the highest risk portion of them as their intended means of profiting from the sale is pretty solid evidence.