5 ms·
Not necessarily a scam. In the prospectus filed with the SEC[1], Goldman disclosed that "...with regard to your notes, from time to time, we and/or our affilia
by cs702 14y ago
Not necessarily a scam.
In the prospectus filed with the SEC[1], Goldman disclosed that "...with regard to your notes, from time to time, we and/or our affiliates: (1) expect to acquire, or dispose of positions in listed or over-the-counter options, futures or other instruments linked to the index stock, (2) may take or dispose of positions in the securities of the index stock issuer itself, (3) may take or dispose of positions in listed or over-the-counter options or other instruments based on indices designed to track the performance of the New York Stock Exchange or other components of the U.S. equity market, and/or (4) may take short positions in the index stock or other securities of the kind described above — i.e., we and/or our affiliates may sell securities of the kind that we do not own or that we borrow for delivery to purchaser."
Let me paraphrase Warren Buffett: if you're playing poker with the big boys and you don't know who the patsy is, you're the patsy.[2]
--
[1] http://www.sec.gov/Archives/edgar/data/886982/000110465913003878/a13-1071_17424b2.htm http://www.sec.gov/Archives/edgar/data/886982/00011046591300...
[2] Buffett's original quote: http://www.goodreads.com/quotes/29147-if-you-ve-been-playing-poker-for-half-an-hour-and http://www.goodreads.com/quotes/29147-if-you-ve-been-playing...
- camus 14y agoas outragious as it sounds , banks can bet against their own clients , in fact , that's how they make most of their money, they have the duty to protect shareholders interests , and respect a few laws but that's it. If they do not guarantee any return on whatever investment they sell then they are under no obligation to look for their clients best interests. It happened during the subprime mortgage crisis where banks would sell derivatives to their clients and short the same clients because they knew the products were bad. And it is totally legal. So who is to blame ? the banks ? or the elected representatives that made these things legal ? in the end the people is , for electing people that serves bank interests.
- thingylab 14y agoThe only people I see "guaranteeing any return on whatever investment they sell" typically turn out to be ponzi schemes.
- fmstephe 14y agoI don't believe this is legal. Goldman was convicted and fined doing exactly what you describe. The investment banks are not allowed to intentionally deceive their customers. http://www.nytimes.com/2010/07/16/business/16goldman.html?_r=0 http://www.nytimes.com/2010/07/16/business/16goldman.html?_r... However, it is worth noting that after Goldman agreed to pay the fine their stock price rose. This indicates that the stock market believed they got off lightly, so while officially illegal it does appear to be a reasonable business model.
- chollida1 14y ago> banks can bet against their own clients This is indeed true. >in fact , that's how they make most of their money This however requires some proof. They do make money this way but to say that this is how banks make "most" of their money is way off by my understanding and I work in the industry.
- elemeno 14y agoLikewise, I'd not say that it's 'most' of their money, but pretty much every bank I know of will happily take the opposing position to their clients. In many cases though, this is just the bank providing the market to their clients, especially in the cases of less liquid products.
- twoodfin 14y agoClients can also bet against their banks. Everyone making million dollar trades is a grownup, and should know what they're betting on.
- elemeno 14y agoAnd plenty of those trades aren't designed to make money anyway, they're made to hedge other risks that clients have.
- jimbokun 14y agoMy only question is, Who is still stupid enough to be a Goldman client? What more can they do to demonstrate they are more than willing to screw over their clients in order to increase their profits.
- elemeno 14y agoThe devil you know and all that. Goldman might screw you, but you're still getting a good deal compared to the bank you don't have a long term relationship with. In many ways it's no so different with the managing agents my building co-op appoints. We know they're screwing us every year, but at least we know how they're doing it, while with a new agent we'd have no idea!