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> telling clients to continue to invest while GS was internally hedging for a fall. I think it's slightly more subtle than that. They didn't actively tell cli

by endtime 17y ago

> telling clients to continue to invest while GS was internally hedging for a fall. I think it's slightly more subtle than that. They didn't actively tell clients to invest - rather, they had clients who wanted to go long housing, and facilitated the trade without telling the buyers that GS thought it was a bad idea. At least, that's my understanding, based on talking to some people who spent decades at GS and left between six months and three years ago.

shrikant 17y ago
Ah the age-old corporate cop-out: commission vs omission.
- gloob 17y ago
  It's not Coca Cola's duty to keep you thin. It's not your bank's obligation to keep you solvent.
- sp332 17y ago
  They weren't paying GS to analyze the deal, just to make it.
hga 17y ago
Bingo. As this article http://www.theatlantic.com/business/archive/2010/04/goldmans-victim-in-sec-case-was-a-yield-chaser/39464/ http://www.theatlantic.com/business/archive/2010/04/goldmans... details, "Goldman’s ‘Victim’ in SEC Case Was a Yield Chaser": "The German bank on the losing end of the Goldman Sachs derivatives deals that have attracted the ire of the Securities and Exchange Commission was so absorbed in the pursuit of high-yield returns from financial instruments linked to the U.S. housing market that it preferred to lose one of its top executives rather than change course." Sounds a bit like what happened at Harvard; in that case, envy forced out the team that was earning them their high rate off return, leaving B Ark types who mindlessly continued the same strategy (it was so bad they neglected to unwind one position until they'd needlessly lost 1 billion dollars on it). In this case, their portfolio manager of the German bank in question predicted what would happen, was ignored by upper management, and then left. The bank was getting squeezed by the spread between their short term commercial paper and their long term investments like this one, e.g. others were noticing their reckless real estate bets as things in general in this market were starting to get bad. But they needed high yields to keep the game going (they got bailed out/bought out by another German bank in the end), so in this case (not the only one, I gather) they went to Goldman to get that. Others with a clue like Paulson (who was at the other end of the transaction) and certainly many at Goldman thought they were wrong ... but at what point do you get so sure someone is wrong that you refuse to do business with them? They were hardly the only ones betting this way! Note also that things get really ugly when everyone stops doing transactions in a market, which is exactly what eventually happened, resulting in unmarketable "toxic" financial instruments. We need liquidity in markets and I don't think it's the job of entities like Goldman to "pull away the punchbowl". That's supposed to be the job of e.g. the Fed, especially the NY Fed (headed at the time by our current Treasury Secretary).

by endtime 17y ago

shrikant 17y ago

Ah the age-old corporate cop-out: commission vs omission.

gloob 17y ago
It's not Coca Cola's duty to keep you thin. It's not your bank's obligation to keep you solvent.
sp332 17y ago
They weren't paying GS to analyze the deal, just to make it.

hga 17y ago

Bingo. As this article http://www.theatlantic.com/business/archive/2010/04/goldmans-victim-in-sec-case-was-a-yield-chaser/39464/ http://www.theatlantic.com/business/archive/2010/04/goldmans... details, "Goldman’s ‘Victim’ in SEC Case Was a Yield Chaser": "The German bank on the losing end of the Goldman Sachs derivatives deals that have attracted the ire of the Securities and Exchange Commission was so absorbed in the pursuit of high-yield returns from financial instruments linked to the U.S. housing market that it preferred to lose one of its top executives rather than change course." Sounds a bit like what happened at Harvard; in that case, envy forced out the team that was earning them their high rate off return, leaving B Ark types who mindlessly continued the same strategy (it was so bad they neglected to unwind one position until they'd needlessly lost 1 billion dollars on it). In this case, their portfolio manager of the German bank in question predicted what would happen, was ignored by upper management, and then left. The bank was getting squeezed by the spread between their short term commercial paper and their long term investments like this one, e.g. others were noticing their reckless real estate bets as things in general in this market were starting to get bad. But they needed high yields to keep the game going (they got bailed out/bought out by another German bank in the end), so in this case (not the only one, I gather) they went to Goldman to get that. Others with a clue like Paulson (who was at the other end of the transaction) and certainly many at Goldman thought they were wrong ... but at what point do you get so sure someone is wrong that you refuse to do business with them? They were hardly the only ones betting this way! Note also that things get really ugly when everyone stops doing transactions in a market, which is exactly what eventually happened, resulting in unmarketable "toxic" financial instruments. We need liquidity in markets and I don't think it's the job of entities like Goldman to "pull away the punchbowl". That's supposed to be the job of e.g. the Fed, especially the NY Fed (headed at the time by our current Treasury Secretary).