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I can understand Apple, Xbox, PS3, iPad, Linux, Solaris, etc. fanbois ... but can't understand the Goldman Sachs variety. GS is one of the scummiest of Wall St

I can understand Apple, Xbox, PS3, iPad, Linux, Solaris, etc. fanbois ... but can't understand the Goldman Sachs variety. GS is one of the scummiest of Wall Street's firms, which is saying something. That they were selling MBS tranches to clients, then simultaneously taking out options that would pay GS money when those exact same tranches failed, really tells you all you need to know. GS' crimes are so varied and so well documented, I find it hard to believe you could not be aware of them. Simply asking yourself "what part of this investment is something you would expect a commercial bank to invest in" as you reflect that GS is classed as a commercial bank in order to have access to Fed lending at essentially 0% interest, should perhaps give you pause. EDIT: note for clarification, that the MBS tranches were assembled/packaged by GS themselves; GS was not simply selling a third-party product.

RickHull 16y ago
> That they were selling MBS tranches to clients, then simultaneously taking out options that would pay GS money when those exact same tranches failed, really tells you all you need to know. No, it doesn't. This not necessarily scummy or a conflict of interest. GS could have hedged its own long positions, for one (i.e. still net long). Or GS could even be net short, overall, and still have independent divisions, advisers, or traders who are individually long.
ShabbyDoo 16y ago
"That they were selling MBS tranches to clients" Did they tell their clients that these investments were sound? In 1999, I could have called my financial advisor and told him I wanted to buy Pets.com (or whatever) stock. He might advise me against it, but would have sold it to me. And, he might have had it shorted in his personal portfolio at that time without disclosing this to me. Does that make him a bad guy?
- yummyfajitas 16y ago
  Actually, to make the analogy to Goldman closer, your financial advisers wife would be the one actively managing his personal portfolio. And his wife would be legally barred from telling him what positions she held. http://en.wikipedia.org/wiki/Chinese_wall http://en.wikipedia.org/wiki/Chinese_wall
  - ShabbyDoo 16y ago
    Interesting. So, some SEC regulations required there to be a Chinese wall between the part of Goldman which was betting against the MBS market and the portion of Goldman which was selling long to clients? If this is the case, then those complaining of the practice must believe that Goldman had some moral obligation to ignore SEC rules.
    - yummyfajitas 16y ago
      A better question is, "what parts of Goldman do not have Chinese walls between them?" To be fair, some information leaks over the walls. For example, consider investment advice. Within a bank, you have "Investment Advice", and you have !Investment Advice. IA doesn't really get to talk to traders, all they do is provide unbiased recommendations to clients. However, there is another department, which I'll call "Conflict of Interest Watch" (CIW, the name varies from bank to bank) which tags every report from IA with possible conflicts of interest. So if someone in IA writes a report about Facebook, some computer system in CIW will apply the label "Warning: GS has a business relationship with Facebook." So an analyst can write a report, submit it, and read the tags to determine if Goldman is doing business with Facebook (of course, reading the newspaper is also permitted). The SEC fines the company $200k per report if they fail to report a relationship and $80k if they report a nonexistent relationship (to prevent companies from just tagging every report as "conflict of interest", a response to Wachovia doing exactly this). A certain investment bank (maybe Goldman, maybe not) is currently devoting tens of millions of dollars to doing a better job of this.
      - ShabbyDoo 16y ago
        Wow, so those complaining about Goldman's seemingly two-faced behavior are implicitly complaining that the firm was actually following SEC regulations?
- patrickgzill 16y ago
  I believe the best known of the ones that failed was called "Abacus" - there is a lot of documentation publicly available. From my viewpoint, representing an investment aas having a particular rating from Moody's or S&P would indicate that they told their clients the investments had a certain ratio of risk/reward. Common stocks have no ratings from Moody's or S&P; these are interest-bearing investments that supposedly have a certain rate of return per year; though unlike CD's they do not have a fixed lifetime as mortgagees can repay a mortgage early, or refinance, without penalty.
  - ShabbyDoo 16y ago
    I wasn't so concerned with the specific nature of the investment vehicle in question as it seemed the complaint about GS was simply that they had sold to a client a product which they implicitly had deemed a poor choice.
    - patrickgzill 16y ago
      Not being a securities lawyer I don't have a 100% accurate answer for you; however I would say there is a difference between common stocks which have no performance guarantees and bonds/warrants/etc which do have guarantees (with risk/reward taken into consideration of course).
- anonymous246 16y ago
  Umm wrong analogy, unless I've not understood. The difference is that Goldman (analogous to your broker) soliticited you to buy the product Goldman had created. And then having sold it you, bet against you.
  - ShabbyDoo 16y ago
    In that case, I concur that the practice is questionable. The grandparent had not made this clear.
allertonm 16y ago
My theory is that the set of GS fans and the set of Ayn Rand fans is very similar. The appeal of GS to the randroid mindset seems obvious. (Update: amused by the accusations of blasphemy.)
- chailatte 16y ago
  My theory is that your theory came from not reading any of Ayn Rand's book.
- SwellJoe 16y ago
  "Randroids" hate the Federal Reserve. Are you at all familiar with Rand's work? Because I can't imagine how you could possibly come to this conclusion if you were. Note that I have not made any argument in favor of being a "randroid", and I'm not looking to argue with you about whether Rand was right or not about anything. I'm just pointing out that you've made an utterly ignorant statement.
- tptacek 16y ago
  I couldn't be more creeped out by Ayn Rand-ian philosophy, and I like Goldman.
cynicalkane 16y ago
GS' crimes are so varied and so well documented, I find it hard to believe you could not be aware of them I'm aware of the Abacus incident and something involving a relatively small number of subprime loans in Massachusetts. Since this is hardly variety, I have to ask, what other "crimes" are you referring to? Can you provide some of this extensive documentation? Because in all the time I've been following this crisis, I haven't seen anything else, and would love to learn more. Caveat--the documentation must be actual evidence of crime.
- patrickgzill 16y ago
  Concerning Abacus, GS paid $550 million in fines to the SEC, not a small sum. There is also the $650K fine and the $27 million fine impoosed by the British over the same issue: http://topnews360.tmcnet.com/topics/associated-press/articles/2010/11/12/116788-goldman-fined-650000-disclosure-lapse.htm http://topnews360.tmcnet.com/topics/associated-press/article... Perhaps I should ask you to comment on the HFT issue, which from some perspectives, appears to be front running of legitimate trades, and which GS is involved in? There is plenty more, just a few samples from e.g. http://en.wikipedia.org/wiki/Goldman_Sachs#Controversies http://en.wikipedia.org/wiki/Goldman_Sachs#Controversies include: 1. Insider trading resulting in 2 convictions 2. Helping Greece cover up (lie about) their true debt positions - since Greece is a country, rather than a human or corporation, criminal charges are a near-impossibility; Further, there are many bloggers who are examining pieces of GS behavior - you may or may not choose to believe them. Some of the ones that are critical include zerohedge.com and http://boombustblog.com/ http://boombustblog.com/ run by Reggie Middleton (part free, part subscription). A TV journalist named Max Keiser, rarely seen on American stations, is also critical; books such as "Chasing Goldman Sachs" also have their own take on GS.
  - cynicalkane 16y ago
    The insider trading happened in 1986, and there's nothing about Greece in that Wikipedia link. I asked for actual evidence to back your assertion, and you linked a non-source and told me to read a blog. It seems like whenever finance is brought up, the standards for what constitutes information just die. All I need to see is, Goldman can be clearly shown to have done X, where X is either a) illegal or b) unethical according to some standard philosophy of finance[1]. If Goldman is so evil as people say then this shouldn't be hard. [1] For example, consider the repacking of low quality housing debt and selling collateralized debt based on it. The underlying assertion is that Goldman should have stopped selling them when many of the most sophisticated buyers didn't understand how dangerous they were--to say nothing of the salesmen.
tptacek 16y ago
Goldman was scummier than Lehman, how?

RickHull 16y ago

> That they were selling MBS tranches to clients, then simultaneously taking out options that would pay GS money when those exact same tranches failed, really tells you all you need to know. No, it doesn't. This not necessarily scummy or a conflict of interest. GS could have hedged its own long positions, for one (i.e. still net long). Or GS could even be net short, overall, and still have independent divisions, advisers, or traders who are individually long.

ShabbyDoo 16y ago

"That they were selling MBS tranches to clients" Did they tell their clients that these investments were sound? In 1999, I could have called my financial advisor and told him I wanted to buy Pets.com (or whatever) stock. He might advise me against it, but would have sold it to me. And, he might have had it shorted in his personal portfolio at that time without disclosing this to me. Does that make him a bad guy?

yummyfajitas 16y ago
Actually, to make the analogy to Goldman closer, your financial advisers wife would be the one actively managing his personal portfolio. And his wife would be legally barred from telling him what positions she held. http://en.wikipedia.org/wiki/Chinese_wall http://en.wikipedia.org/wiki/Chinese_wall
- ShabbyDoo 16y ago
  Interesting. So, some SEC regulations required there to be a Chinese wall between the part of Goldman which was betting against the MBS market and the portion of Goldman which was selling long to clients? If this is the case, then those complaining of the practice must believe that Goldman had some moral obligation to ignore SEC rules.
  - yummyfajitas 16y ago
    A better question is, "what parts of Goldman do not have Chinese walls between them?" To be fair, some information leaks over the walls. For example, consider investment advice. Within a bank, you have "Investment Advice", and you have !Investment Advice. IA doesn't really get to talk to traders, all they do is provide unbiased recommendations to clients. However, there is another department, which I'll call "Conflict of Interest Watch" (CIW, the name varies from bank to bank) which tags every report from IA with possible conflicts of interest. So if someone in IA writes a report about Facebook, some computer system in CIW will apply the label "Warning: GS has a business relationship with Facebook." So an analyst can write a report, submit it, and read the tags to determine if Goldman is doing business with Facebook (of course, reading the newspaper is also permitted). The SEC fines the company $200k per report if they fail to report a relationship and $80k if they report a nonexistent relationship (to prevent companies from just tagging every report as "conflict of interest", a response to Wachovia doing exactly this). A certain investment bank (maybe Goldman, maybe not) is currently devoting tens of millions of dollars to doing a better job of this.
    - ShabbyDoo 16y ago
      Wow, so those complaining about Goldman's seemingly two-faced behavior are implicitly complaining that the firm was actually following SEC regulations?
patrickgzill 16y ago
I believe the best known of the ones that failed was called "Abacus" - there is a lot of documentation publicly available. From my viewpoint, representing an investment aas having a particular rating from Moody's or S&P would indicate that they told their clients the investments had a certain ratio of risk/reward. Common stocks have no ratings from Moody's or S&P; these are interest-bearing investments that supposedly have a certain rate of return per year; though unlike CD's they do not have a fixed lifetime as mortgagees can repay a mortgage early, or refinance, without penalty.
- ShabbyDoo 16y ago
  I wasn't so concerned with the specific nature of the investment vehicle in question as it seemed the complaint about GS was simply that they had sold to a client a product which they implicitly had deemed a poor choice.
  - patrickgzill 16y ago
    Not being a securities lawyer I don't have a 100% accurate answer for you; however I would say there is a difference between common stocks which have no performance guarantees and bonds/warrants/etc which do have guarantees (with risk/reward taken into consideration of course).
anonymous246 16y ago
Umm wrong analogy, unless I've not understood. The difference is that Goldman (analogous to your broker) soliticited you to buy the product Goldman had created. And then having sold it you, bet against you.
- ShabbyDoo 16y ago
  In that case, I concur that the practice is questionable. The grandparent had not made this clear.

allertonm 16y ago

My theory is that the set of GS fans and the set of Ayn Rand fans is very similar. The appeal of GS to the randroid mindset seems obvious. (Update: amused by the accusations of blasphemy.)

chailatte 16y ago
My theory is that your theory came from not reading any of Ayn Rand's book.
SwellJoe 16y ago
"Randroids" hate the Federal Reserve. Are you at all familiar with Rand's work? Because I can't imagine how you could possibly come to this conclusion if you were. Note that I have not made any argument in favor of being a "randroid", and I'm not looking to argue with you about whether Rand was right or not about anything. I'm just pointing out that you've made an utterly ignorant statement.
tptacek 16y ago
I couldn't be more creeped out by Ayn Rand-ian philosophy, and I like Goldman.

cynicalkane 16y ago

GS' crimes are so varied and so well documented, I find it hard to believe you could not be aware of them I'm aware of the Abacus incident and something involving a relatively small number of subprime loans in Massachusetts. Since this is hardly variety, I have to ask, what other "crimes" are you referring to? Can you provide some of this extensive documentation? Because in all the time I've been following this crisis, I haven't seen anything else, and would love to learn more. Caveat--the documentation must be actual evidence of crime.

patrickgzill 16y ago
Concerning Abacus, GS paid $550 million in fines to the SEC, not a small sum. There is also the $650K fine and the $27 million fine impoosed by the British over the same issue: http://topnews360.tmcnet.com/topics/associated-press/articles/2010/11/12/116788-goldman-fined-650000-disclosure-lapse.htm http://topnews360.tmcnet.com/topics/associated-press/article... Perhaps I should ask you to comment on the HFT issue, which from some perspectives, appears to be front running of legitimate trades, and which GS is involved in? There is plenty more, just a few samples from e.g. http://en.wikipedia.org/wiki/Goldman_Sachs#Controversies http://en.wikipedia.org/wiki/Goldman_Sachs#Controversies include: 1. Insider trading resulting in 2 convictions 2. Helping Greece cover up (lie about) their true debt positions - since Greece is a country, rather than a human or corporation, criminal charges are a near-impossibility; Further, there are many bloggers who are examining pieces of GS behavior - you may or may not choose to believe them. Some of the ones that are critical include zerohedge.com and http://boombustblog.com/ http://boombustblog.com/ run by Reggie Middleton (part free, part subscription). A TV journalist named Max Keiser, rarely seen on American stations, is also critical; books such as "Chasing Goldman Sachs" also have their own take on GS.
- cynicalkane 16y ago
  The insider trading happened in 1986, and there's nothing about Greece in that Wikipedia link. I asked for actual evidence to back your assertion, and you linked a non-source and told me to read a blog. It seems like whenever finance is brought up, the standards for what constitutes information just die. All I need to see is, Goldman can be clearly shown to have done X, where X is either a) illegal or b) unethical according to some standard philosophy of finance[1]. If Goldman is so evil as people say then this shouldn't be hard. [1] For example, consider the repacking of low quality housing debt and selling collateralized debt based on it. The underlying assertion is that Goldman should have stopped selling them when many of the most sophisticated buyers didn't understand how dangerous they were--to say nothing of the salesmen.

tptacek 16y ago

Goldman was scummier than Lehman, how?