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Well, GS knowingly sold AIG junk CDOs days before the collapse, while shorting those same CDOs to make money on them. I'd call that fraud. I think they were fin

Well, GS knowingly sold AIG junk CDOs days before the collapse, while shorting those same CDOs to make money on them. I'd call that fraud. I think they were fined less than they made on the deal, and no-one was punished. Of course AIG deserves blame, but so do those who tricked them into buying junk. http://online.wsj.com/news/articles/SB10001424052748704201404574590453176996032 http://online.wsj.com/news/articles/SB1000142405274870420140...

arethuza 13y ago
In Liar's Poker Michael Lewis describes his time as a bond salesman for Salomon Brothers and the realization that everything he was selling was junk, after all, it the bonds that he was selling were a good investment why would Salomon Brothers be selling them? [Edit: He also describes the right of passage for new bond salesmen - when you bankrupt your first client....]
rayiner 13y ago
> Well, GS knowingly sold AIG junk CDOs days before the collapse, while shorting those same CDOs to make money on them. I'd call that fraud. That's not fraud. It's probably unethical, but businesses selling customers products they know are shit is more or less legal, or at most the subject of a civil action by the purchaser. I mean, look at the software industry. How many software companies sell products that are buggy crap, that they know are buggy crap? And when it comes to investments, that basic dynamic is at the heart of a lot of sales. If I think this investment is a great deal that's going to just go up and up, why would I sell it to you? I'm willing to entertain the idea that what GS did crossed the line in terms of the standard of ethics people expect of investment professionals, which maybe should be higher than for businesses generally. Maybe we should put such standards in place and make them enforceable,[1] but it wouldn't be fair to throw people in jail for what they did before those standards were in place. [1] For example, it would be punishable ethical breach for a lawyer to represent a client then take a financial position adverse to the client's interests.
- tptacek 13y ago
  It's dancing right on the line of fraud, isn't it? The elements of a fraud case are (paraphrasing model jury instructions) (a) a false statement, (b) intentionally made, of (c) a material fact that (d) someone reasonably relied on and (e) was injured (usually, financially) by. The only thing missing from a fraud case in the "selling shit products" story is "knowingly making false statements", right?
  - minimax 13y ago
    grey-area's summary of the WSJ article isn't accurate. GS knowingly sold AIG junk CDOs days before the collapse GS didn't sell CDOs to AIG. GS didn't actually sell anything to AIG. GS bought insurance (in the form of credit default swaps) on the CDOs from AIG and apparently sold at least some of those swaps on to other banks for a profit. If Goldman had done something to accelerate the deterioration of the value of the CDOs (something like insuring a house and then burning it down), then you could probably claim GS was in the wrong. AIG would have known it was insuring subprime mortgage CDOs. There also isn't anything in the article asserting that GS misrepresented the quality of the loans or anything like that. It's hard to get from that WSJ article to fraud.
    - grey-area 13y ago
      Thanks for the correction. My contention is that they knowingly screwed over their client by recommending one thing while they played the other side of the deal. They were fined for doing so, but it doesn't seem a very effective punishment to me. http://wheredoesallmymoneygo.com/goldman-sachs-fined-550-million-for-cdo-debacle/ http://wheredoesallmymoneygo.com/goldman-sachs-fined-550-mil... They're potentially using insider information on deals and risk in order to profit; I'm not sure they should even be allowed to bet against their clients, because it gives them all sorts of perverse incentives. But it's a complex area, and I'm no expert in it... I agree it would be hard for that to end in a fraud conviction, and as you say perhaps more regulation would be required for that to even be possible, but perhaps more regulation of this area is required.

arethuza 13y ago

In Liar's Poker Michael Lewis describes his time as a bond salesman for Salomon Brothers and the realization that everything he was selling was junk, after all, it the bonds that he was selling were a good investment why would Salomon Brothers be selling them? [Edit: He also describes the right of passage for new bond salesmen - when you bankrupt your first client....]

rayiner 13y ago

> Well, GS knowingly sold AIG junk CDOs days before the collapse, while shorting those same CDOs to make money on them. I'd call that fraud. That's not fraud. It's probably unethical, but businesses selling customers products they know are shit is more or less legal, or at most the subject of a civil action by the purchaser. I mean, look at the software industry. How many software companies sell products that are buggy crap, that they know are buggy crap? And when it comes to investments, that basic dynamic is at the heart of a lot of sales. If I think this investment is a great deal that's going to just go up and up, why would I sell it to you? I'm willing to entertain the idea that what GS did crossed the line in terms of the standard of ethics people expect of investment professionals, which maybe should be higher than for businesses generally. Maybe we should put such standards in place and make them enforceable,[1] but it wouldn't be fair to throw people in jail for what they did before those standards were in place. [1] For example, it would be punishable ethical breach for a lawyer to represent a client then take a financial position adverse to the client's interests.

tptacek 13y ago
It's dancing right on the line of fraud, isn't it? The elements of a fraud case are (paraphrasing model jury instructions) (a) a false statement, (b) intentionally made, of (c) a material fact that (d) someone reasonably relied on and (e) was injured (usually, financially) by. The only thing missing from a fraud case in the "selling shit products" story is "knowingly making false statements", right?
- minimax 13y ago
  grey-area's summary of the WSJ article isn't accurate. GS knowingly sold AIG junk CDOs days before the collapse GS didn't sell CDOs to AIG. GS didn't actually sell anything to AIG. GS bought insurance (in the form of credit default swaps) on the CDOs from AIG and apparently sold at least some of those swaps on to other banks for a profit. If Goldman had done something to accelerate the deterioration of the value of the CDOs (something like insuring a house and then burning it down), then you could probably claim GS was in the wrong. AIG would have known it was insuring subprime mortgage CDOs. There also isn't anything in the article asserting that GS misrepresented the quality of the loans or anything like that. It's hard to get from that WSJ article to fraud.
  - grey-area 13y ago
    Thanks for the correction. My contention is that they knowingly screwed over their client by recommending one thing while they played the other side of the deal. They were fined for doing so, but it doesn't seem a very effective punishment to me. http://wheredoesallmymoneygo.com/goldman-sachs-fined-550-million-for-cdo-debacle/ http://wheredoesallmymoneygo.com/goldman-sachs-fined-550-mil... They're potentially using insider information on deals and risk in order to profit; I'm not sure they should even be allowed to bet against their clients, because it gives them all sorts of perverse incentives. But it's a complex area, and I'm no expert in it... I agree it would be hard for that to end in a fraud conviction, and as you say perhaps more regulation would be required for that to even be possible, but perhaps more regulation of this area is required.