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> But most damning to the narrative Taibbi wants to sell, Goldman got in trouble with eToys --- for underpricing it. I think you're underestimating Taibi's arg

> But most damning to the narrative Taibbi wants to sell, Goldman got in trouble with eToys --- for underpricing it. I think you're underestimating Taibi's argument if you think the IPO-ing firm being pissed off at a later date argues against Goldman pulling off a scam, or that under-pricing and over-pricing can't be part of the same scam. There are 4 actors here: a) Goldman b) Goldman's preferred clients c) The company d) The investing public The argument goes that Goldman underprices the IPO initially. Their preferred investors get cheap stock. The stock goes public. The preferred investors have agreed to buy post-IPO stock. This causes the stock to rise. This rise doesn't appear to the investing public to be artificial, but a stock with momentum. This causes the price to shoot up. At some point the insiders take their gain and sell their stock. They then reward Goldman by channeling a significant portion of their profits back to them by using their underwriting services. As a post-script, the thing that first struck me was, if they screw their clients, how do they get new ones. Well if you read on to the next section, Taibbi explains part of that puzzle too: "Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business." Losers: a) The company: they have less money to invest in their company's success, and fewer "long-haul" stock-holders than they would like. b) The investing public who buy high, sell low. Winners: a) Goldman's clients - buy low, sell high b) Goldman - they build long-term relationships with investors and skim some of the profit back directly Here's the eToys guy: After the deposition, he recalled, the S.E.C. lawyers began to show him some Goldman Sachs documents. He saw that one big firm after another had been allocated shares — and had immediately flipped them, even though Goldman had promised that its clients would support the stock. “That’s when I thought, ‘We really got screwed,’” Lenk told me. Although the experience still angered him, he now has 14 years’ worth of perspective. “Look at what has happened since then,” he said. “If you think eToys got screwed, what do you think happened to the country?” “What Wall Street did to us in 1999 pales in comparison to what they did to the country in 2008,” he said. http://www.nytimes.com/2013/03/10/opinion/sunday/nocera-rigging-the-ipo-game.html http://www.nytimes.com/2013/03/10/opinion/sunday/nocera-rigg...

tptacek 9y ago
Taibbi's argument is that simply by backing a company like eToys, it's participating in the sale of exploding watermelons to the general public. Nocera's argument is that not only was eToys not an exploding watermelon, but Goldman's IPO shenanigans possibly prevented it from surviving the 2000-2001 startup collapse. I don't see how the two arguments can be compatible. Note that it's not enough to observe that Goldman can be shady. It has to be shady the way Taibbi says it is, or else all Taibbi is doing is appealing to our emotional beliefs about Goldman. That's not journalism.
prostoalex 9y ago
> even though Goldman had promised that its clients would support the stock Maybe Goldman played coy, maybe there was a misunderstanding, or maybe the eToys guy decided to add some drama, but how can Goldman's investment banking arm promise anything? As far as clients are concerned, their relationship with Goldman is through brokerage and wealth management services, they are in full control of their accounts and can do whatever they please. This is akin to my bank promising some third party that by Friday afternoon I'll have a certain balance in USD or some specific precious metal in my safe deposit box. The only reasonable scenario where this pledge could ring true would be a Goldman-managed mutual fund or ETF buying those shares on the other end.
- camelite 9y ago
  > but how can Goldman's investment banking arm promise anything? Easy: they lie. Why is this so mind-boggling? > This is akin to my bank promising some third party that by Friday afternoon I'll have a certain balance in USD or some specific precious metal in my safe deposit box. You're just explaining why the company shouldn't have believed Goldman. And I agree they shouldn't. But it appears that they did believe them, for whatever reason. Perhaps it was the Goldman aura. Perhaps it was their top .01% sales staff. Perhaps it was knowledge derived from their client relationships concievably allowing them to choose long-term over short-term investors. Whatever. But Goldman being skillful liars is not some bizarre left-field theroy.
  - tptacek 9y ago
    What does this have to do with Taibbi's article?
  - prostoalex 9y ago
    What's the difference between a late-stage private round and a public offering? The shares start floating the day of the public offering. For general public to buy those shares, someone has to sell. To paraphrase Eastern philosophers, if the company goes public, but the daily trading volume for their ticker stays at 0, did it really go public? But who's going to sell? The company no longer can, having sold the initial allocation to IPO subscribers the day prior. The employees or early investors cannot - they have a lock-up period mandated by SEC. Only those who subscribed to the IPO at more or less market prices can sell, so almost by definition a successful IPO with good trading volume involves a lot of flipping. What would be a successful IPO in eToys interviewee's book? An opening bell sound and no activity?

tptacek 9y ago

Taibbi's argument is that simply by backing a company like eToys, it's participating in the sale of exploding watermelons to the general public. Nocera's argument is that not only was eToys not an exploding watermelon, but Goldman's IPO shenanigans possibly prevented it from surviving the 2000-2001 startup collapse. I don't see how the two arguments can be compatible. Note that it's not enough to observe that Goldman can be shady. It has to be shady the way Taibbi says it is, or else all Taibbi is doing is appealing to our emotional beliefs about Goldman. That's not journalism.

prostoalex 9y ago

> even though Goldman had promised that its clients would support the stock Maybe Goldman played coy, maybe there was a misunderstanding, or maybe the eToys guy decided to add some drama, but how can Goldman's investment banking arm promise anything? As far as clients are concerned, their relationship with Goldman is through brokerage and wealth management services, they are in full control of their accounts and can do whatever they please. This is akin to my bank promising some third party that by Friday afternoon I'll have a certain balance in USD or some specific precious metal in my safe deposit box. The only reasonable scenario where this pledge could ring true would be a Goldman-managed mutual fund or ETF buying those shares on the other end.

camelite 9y ago
> but how can Goldman's investment banking arm promise anything? Easy: they lie. Why is this so mind-boggling? > This is akin to my bank promising some third party that by Friday afternoon I'll have a certain balance in USD or some specific precious metal in my safe deposit box. You're just explaining why the company shouldn't have believed Goldman. And I agree they shouldn't. But it appears that they did believe them, for whatever reason. Perhaps it was the Goldman aura. Perhaps it was their top .01% sales staff. Perhaps it was knowledge derived from their client relationships concievably allowing them to choose long-term over short-term investors. Whatever. But Goldman being skillful liars is not some bizarre left-field theroy.
- tptacek 9y ago
  What does this have to do with Taibbi's article?
- prostoalex 9y ago
  What's the difference between a late-stage private round and a public offering? The shares start floating the day of the public offering. For general public to buy those shares, someone has to sell. To paraphrase Eastern philosophers, if the company goes public, but the daily trading volume for their ticker stays at 0, did it really go public? But who's going to sell? The company no longer can, having sold the initial allocation to IPO subscribers the day prior. The employees or early investors cannot - they have a lock-up period mandated by SEC. Only those who subscribed to the IPO at more or less market prices can sell, so almost by definition a successful IPO with good trading volume involves a lot of flipping. What would be a successful IPO in eToys interviewee's book? An opening bell sound and no activity?