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I've read the ProPublica article. This is even more of a stretch. Deals exist when there is demand on both sides. There can only be demand for both sides of th
by byrneseyeview 17y ago
I've read the ProPublica article. This is even more of a stretch.
Deals exist when there is demand on both sides. There can only be demand for both sides of the deal when there's disagreement about how the deal will perform. Goldman is being sued because one of their customers was right, and one of their customers was wrong. If the mortgage bubble had not collapsed, would credit default swap sellers and CDO buyers be penalized for profiting from the shorts' demise?
- siavosh 17y agoThe issue wasn't a disagreement in valuation, this is totally valid as you point out. The fraud allegation is because they were an advisor to their clients, and supposedly they misrepresented the valuation of products when then knew the value was something else.
- billjings 17y agoIf they had misrepresented their deal, then yes. If Goldman Sachs lied about matters material to the valuation of the deal then they've committed fraud.
- prodigal_erik 17y agoDeals also exist when the parties have different risk tolerances or time preferences for money. If I sell you my car because I need a down payment for a condo, that doesn't mean I think the car isn't actually worth what you're paying. If I know it isn't worth what you're paying because evil mechanics swapped all the working parts with bad ones, and I hide that from you, that's fraud.
- billjings 17y agoOr deals can exist because the stuff being traded is simply worth different amounts to different people. Like the gentleman who made his money selling ice to India in an article earlier this week.